Precision Drilling Corporation Aktie

Hello, and welcome to the Annual Meeting of Shareholders of Precision Drilling Corporation. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant to Computershare and the corporation that you first obtained all required consent for the disclosure, recording, transfer and use of such personal information from all appropriate persons before your disclosure.

It is now my pleasure to turn today's meeting over to Steve Krablin, Chairman of the Board of Directors of Precision Drilling Corporation. Mr. Krablin, the floor is yours.

Thank you, and good morning. On behalf of myself and the Board, I welcome you to today's Annual Meeting of Shareholders. In the unlikely event of a technical disruption on my end, the meeting will continue with Mr. Carey Ford, our President and CEO and a Director as Chair. In addition to Carey, also attending today are the Chief Legal and Compliance Officer, Veronica Foley; Vice President of Investor Relations, Lavonne Zdunich; and our slate of nominated directors as named in our 2026 Management Information Circular.

Today's meeting is virtual and will provide shareholders the same opportunity to participate as an in-person meeting, including voting and submitting questions. After the formal business of today's meeting is concluded and the meeting is terminated, we will then have a Q&A session. You can submit questions at any time by clicking on the Q&A tab. If your question does not get answered during the meeting, we will respond by e-mail after the meeting.

With that, I officially call the meeting to order. I will act as Chairman of the meeting, and I appoint Veronica Foley to act as Secretary of the meeting. I also appoint Kyle Gould and Stephanie Tuss of Computershare to act as scrutineers of the meeting.

I have been advised that a quorum is present, and I declare that the meeting is regularly called and properly constituted for the transaction of business.

The business of the meeting is described in our Management Information Circular dated April 1, 2026, which accompanied the Notice of Meeting. I will take the Notice of Meeting as read. I have proof of filing and mailing of the notice of this meeting, instrument of proxy, financial statements, Management Information Circular and accompanying documents that were sent to the holders of the corporation's common shares. Only registered shareholders who held shares in their name as of March 25, 2026, the record date of this meeting, or their validly appointed proxy holders are entitled to vote at this meeting.

All items of business will be voted simultaneously. If you are a registered shareholder or proxy holder and have not already done so, you can vote now. Once discussion on all items of business have concluded, I will also provide additional time to enter your votes and then declare the voting closed on all resolutions. Once the poll is closed, the preliminary results will be announced. The final results of the meeting will be released today and available on our website.

I now declare the polls open on all resolutions.

The first item of business is the receipt of the audited consolidated financial statements of the corporation for the fiscal year ended December 31, 2025, and the reading of the auditor's report. As copies have been widely available and have been delivered to every shareholder who requested such, we can dispense with reading them and accept them as presented.

The next item of business is the appointment of auditors. As Chair, I propose the following: that PricewaterhouseCoopers LLP be appointed auditor of the corporation until the next Annual Meeting of Shareholders and that the directors be authorized to set PwC's fees.

Mr. Chairman, my name is Deepa Patel, and I so move.

Mr. Chairman, my name is [ Claire McNeill ], and I second the motion.

Thank you. The next item of business is the election of the nominated directors. As no other nominations were properly submitted in compliance with the corporation's bylaws, I declare the nominations closed. As Chair, I propose the following: that the 8 nominated directors as named in our 2026 Management Information Circular be elected as directors until the next Annual Meeting of the Shareholders of the corporation.

Mr. Chairman, my name is Deepa Patel, and I so move.

Mr. Chairman, my name is [ Claire McNeill ], and I second the motion.

Thank you. The next item of business is to consider an advisory resolution, commonly known as Say-on-Pay, regarding the corporation's approach to executive compensation. As Chair, I propose the following: that on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, the shareholders accept the approach to executive compensation disclosed in our 2026 Management Information Circular.

Mr. Chairman, my name is Deepa Patel, and I so move.

Mr. Chairman, my name is [ Claire McNeill ], and I second the motion.

Thank you. For those of you who have not voted on any of the items of business, please do so now as I will shortly close the polls. We will now pause for a moment to allow any final voting.

[Voting]

The polls are now closed. I have been advised by the scrutineers that all of the binding resolutions for consideration at today's meeting have carried by the requisite number of votes. As there is no additional business that may properly be brought before the meeting, I hereby declare this meeting concluded.

At this time, I'm pleased to introduce Carey Ford, President and Chief Executive Officer of Precision Drilling.

Thank you, and good morning. This year marks an important milestone for Precision Drilling. In 2026, we celebrated 75 years of delivering high-performance results for our customers and consistent returns for our shareholders. Precision's longevity and success are a direct result of the professionalism of our people, commitments to our customers and our ability to adapt to the ever-changing demands of the energy industry, an industry that is critical to nearly all aspects of modern life.

Today, Precision is the second most active land driller in North America, the largest well service provider in Canada and a high-performance land driller in the Middle East. We operate a global fleet of 184 Super Series drilling rigs supported by passionate, well-trained crews and our Alpha digital technology that deliver actionable insights to enhance operational efficiency and allow our customers to achieve industry-leading well performance.

Developed with our customers in mind and field tested over the past decade, our Alpha suite of digital technologies has become a defining competitive advantage for Precision, scaled across our Super Triple rigs and central to the way our crews deliver safer, more efficient and more consistent performance.

Our EverGreen environmental solutions help customers reduce diesel consumption and emissions, achieve cost and efficiency targets, and advance their environmental goals. Together, these technologies strengthen Super Series rig performance, create value for our customers and generate profits for our investors.

While our field performance delivers results for our customers, we are also proud of our reputation for capital stewardship and delivering for our investors. Over the past decade, we have achieved cumulative debt reduction and share repurchases of over $1.7 billion. This discipline has delivered not only a strong balance sheet, but also an organization hardwired to generate free cash flow that will support future shareholder returns.

For the remainder of 2026, our focus will continue to be on free cash flow, debt reduction and direct returns to our shareholders. We will also continue to drive revenue growth and deepen customer relationships through equipment upgrades, operational excellence and technological innovation. As we sit in early May, we are well on our way to accomplishing these objectives.

While geopolitical uncertainty remains part of the operating landscape, including regions such as the Middle East, our teams continue to demonstrate professionalism, resilience and an unwavering focus on safety and execution. All these qualities and focus areas will be critical for Precision to achieve its objectives for customers and shareholders in 2026 and beyond.

On behalf of our Board of Directors and our employees, thank you for your continued support and confidence. We are proud of Precision's 75-year legacy, and we are energized by the opportunity ahead to build on that foundation, strengthen our leadership position and deliver sustained long-term value for our shareholders in the years to come.

With that, I will now be happy to answer any questions that have been submitted by shareholders.

Thank you, Carey. My name is Veronica Foley, Precision Drilling's Chief Legal and Compliance Officer. No questions have been submitted by shareholders at this time. As such, I will now turn the meeting back over to our Chairman.

Ladies and gentlemen, on behalf of Precision Drilling, I would like to thank each of you for attending this virtual meeting. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Precision Drilling Corporation 2026 First Quarter Results Conference Call and Webcast. [Operator Instructions] Please be advised today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Lavonne Zdunich, Vice President, Investor Relations. Please go ahead.

Welcome, and thank you, everyone, for joining Precision Drilling's First Quarter Conference Call and Webcast. Today, I'm joined by Carey Ford, our President and CEO; and Dustin Honing, our CFO.

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, MD&A and financial statements, which are now available on SEDAR and EDGAR.

Before I pass the call over, I would like to highlight a couple of points from our news release. First, utilization improved meaningful in the quarter compared to Q1 of 2025. It increased 7% in Canada and 24% in the U.S., even as industry rig counts declined 7% in both markets. This performance underscores the value customers continue to see in our high-performance, high-value strategy.

Second, we delivered strong progress on our 2026 priorities, growing revenue year-over-year, generating $63 million in operating cash flow and returning capital to shareholders through debt reduction and share repurchases. In the first quarter, Precision had 123 rigs operating globally and remained the second most active driller in North America.

With that, I'll pass it over to Dustin.

Thank you, Lavonne, and good morning, good afternoon for those calling from different locations.

Before we cover our 2026 Q1 financial results and outlook, I'll briefly comment on our capital allocation strategy. As you're likely aware, Precision has a long-standing reputation for publishing clear and transparent strategic priorities, aligned with enhancing the competitive positioning of the business and driving enhanced shareholder returns.

Over the last decade, Precision's free cash flow generating abilities have allowed us to outpace expected timelines for delivering on major strategic initiatives, positioning the business with rapidly increasing financial flexibility. We remain committed to our shareholder return targets while responsibly investing back into the business with a returns-based mandate. These investments are paying dividends as we anticipate record Q2 activity levels in Canada and a notably strengthened utilization and customer mix in the U.S. evolving. Maximizing strong free cash flow remains central to our strategy.

Moving on to first quarter results. Despite our recurring and expected heavy Q1 working capital build, Precision generated $63 million of cash from operations. Capital expenditures were $65 million, comprised of $35 million for sustaining and infrastructure and $30 million for rig upgrades. These investments were made in step with our shareholder return commitments, reducing debt by $25 million and allocating $4 million towards share buybacks.

We recorded adjusted EBITDA of $124 million, which equates to $143 million before share-based compensation expense compared with prior year Q1 EBITDA of $137 million, $140 million before share-based compensation expense. Although operating results exceeded prior year, this was offset by a larger stock-based compensation accrual resulting from our share price appreciating 39% during the quarter. Net earnings were $18 million compared to $35 million in the first quarter of 2025.

In Canada, drilling activity averaged 79 active rigs, an increase of 5 rigs from Q1 2025. Our reported Q1 daily operating margins were $14,282 compared to $14,780 in the prior first quarter of 2025, falling within our prior guidance range. During the first quarter, Precision's operating margins were slightly impacted by rig mix with stronger demand requiring a higher proportion of Super Singles and Doubles working through the winter.

In the U.S., we averaged 37 active rigs, in line sequentially from Q4 and an increase of 7 rigs from prior year Q1. Our daily operating margins for the quarter were USD 9,291 compared to USD 8,754 sequentially from Q4, slightly exceeding our prior guidance range.

Internationally, Precision averaged 7 active rigs, down 8 rigs from prior year Q1. International day rates averaged USD 51,596, an increase of 4% from prior year, all due to rig move revenues. During the quarter, rig margins were unfavorably impacted by 1 Kuwait rig coming down, offset by 1 reactivated rig in Saudi Arabia. We incurred USD 2 million of onetime charges associated with this reactivation and in addition, recognized added logistics costs tied to the Middle East conflict.

In our C&P segment, adjusted EBITDA was $18 million, in line with prior year Q1. Increased well servicing demand in Canada more than offset the impacts of winding down our U.S. operations back in the second quarter of 2025.

Moving on to forward guidance. I will begin with our expectations for the second quarter of 2026. Starting in Canada, as I previously alluded to, our strong presence in Canada's unconventional natural gas and heavy oil markets is expected to generate record activity levels this quarter. Our ability to capitalize is largely due to growing demand, coupled with our prior year rig upgrades, expanding the pad drilling capabilities of our fleet and allowing these assets to work through the traditional seasonal constraints of spring breakup.

For the full quarter, we expect the average active rig counts to be approximately 60 rigs, a 20% increase from the 50 average rigs working in prior year Q2. We expect the end of the quarter to be at the mid-70s, up a similar percentage from prior year. As a result of more Super Singles working, our operating margins in Canada are expected to range between $12,000 and $13,000 per day, slightly lower than normalized prior year Q2, all due to rig mix.

Keep in mind that prior year quarter operating margins were materially impacted by onetime customer upfront payments for rig upgrades. Our expectation is that pricing levels will remain firm within our Super Single and Super Triple fleet.

In the U.S., we expect to sustain the momentum we built in the last year. Early in Q2, we experienced increased contract terms with multiple rigs falling idle between jobs. This will correct over the next month or so with our rig count increasing to 35 rigs by next week, exiting the quarter at our annual high within the high 30s. Beyond that level, we expect further Precision rig count increases related to higher oil prices in our upgrade program.

For the second quarter, we expect our operating margins to range between USD 7,500 and USD 8,500 a day due to increased reactivation costs tied to rig deployments through Q2 and into Q3. Given increased market demand for drilling rigs and Precision Super Triples, we are in the process of implementing price increases, which will flow to the back half of the year -- through the back half of the year '26.

Internationally, we expect to run 7 rigs. However, operating margins will be lower than prior year due to 1 higher margin Kuwait rig coming down in Q1, offset by recently reactivated lower margin rig in Saudi Arabia. For Q2, we expect to incur additional operating costs in response to ongoing tensions in the Middle East. Our C&P business continues to generate strong free cash flow, driven by our Well Servicing and Surface Rentals business lines. For Q2, we expect EBITDA to remain in line with prior year levels.

Moving on to forward guidance for the full year. We've increased our capital expenditures budget to $265 million, up from prior guidance of $245 million, which is now comprised of $168 million for sustaining and infrastructure and $97 million for upgrades. This increase includes 2 Canadian Super Triple rig upgrades underpinned by multiyear contract commitments plus various oil-weighted upgrade opportunities in both Canada and the U.S. Of note, we anticipate Q2 capital expenditures to be disproportionately high this quarter due to timing of bulk deliveries and scheduled maintenance capital projects, leveling out through the back half of the year.

Full year depreciation is expected to be $310 million and cash interest expense from debt is expected to be approximately $45 million. Our effective tax rate is expected to be approximately 25% to 30% with cash taxes remaining low in 2026. For 2026, we expect SG&A to stay flat at approximately $95 million before share-based compensation expense. As previously communicated, share-based compensation guidance for the full year would range between $25 million and $45 million, assuming a share price of $100 to $140 and a 1x multiplier.

Our long-term target to achieve a net debt to adjusted EBITDA of less than 1x remains firmly in place. In 2026, we were planning to reduce debt levels by at least $100 million while allocating up to 50% of free cash flow to share repurchases. Today, we have an average cost of debt of 6.6% and over $433 million in total liquidity.

With that, I'll pass it over to Carey.

Thank you, Dustin, and good morning and good afternoon, everyone. For my prepared remarks, I plan to cover 4 areas. First, an update on our Middle East operations; second, how we are growing revenue aligned with our first strategic priority; third, our North American market outlook; and fourth, a returns-focused mindset that is foundational to Precision Drilling.

For an update on our Middle East operations, I want to recognize Precision's leadership and crews for their performance over the past few months amid a dynamic regional environment and persistent uncertainty about where the conflict may lead next. In the face of these challenges, our team continues to focus on personnel safety and with all 7 rigs delivering excellent results for our customers. We are all extremely proud of this team.

Moving on to progress on our first strategic priority, growing revenue and deepening customer relationships. We are succeeding on several fronts, but I will focus on 3: field performance; our upgrade program; and international optionality. There are many ways we measure field performance. But in general, field performance is almost perfectly correlated with customer satisfaction, which is also almost perfectly correlated with the drilling contractors' ability to grow revenue.

Now forgive me, and as I will briefly get into the weeds talking about a key field performance metric, which is mechanical downtime. This is the percentage of time a rig is down in the field due to a mechanical issue when it should be making hole for a customer. In short, unplanned downtime is bad and customers don't like it. So we do everything we can to minimize it.

For Precision, in Q1, mechanical downtime in the U.S. was 0.59%; and in Canada, it was 0.48%. These figures are the best on record for Precision in each market, and we believe they are industry-leading. In Canada, they were achieved in the highest activity Q1 we have had in over a decade.

So why else is this metric important enough to highlight? The performance results from our business acting on real-time data flows from the rig, our scaled digital twin initiative, data-driven sourcing of supply chain components, rig crews and maintenance practicing supporting a data-driven approach, it is a true team effort with technology at the core. Furthermore, low downtime numbers are indicative of predictable, repeatable performance, which supports safe operations and faster drill times.

For those of you on the call who attended our Analyst and Investor Day in Houston 1 month ago, you saw firsthand how our digital platform is integrated and scaled into our operations and every operational support function, making these results possible and repeatable. Now there are multiple performance metrics demonstrating Precision's progress in the field and a number of customer records set in the quarter, but I will stop short of covering those in detail and state that our rigs and crews are performing exceptionally well. Our customer satisfaction is high, and we are growing revenue, but we still have more to do.

For upgrades, we continue to execute our plan and are even expanding our growth investment to include 2 contracted Canadian Super Triple rig upgrades for delivery later this year. In the first quarter, Precision delivered year-over-year growth in activity and revenue in a declining market and the success of our upgrade program is a key driver. As Dustin pointed out, we expect growth to continue into the second quarter with a record Q2 in Canada and the U.S. rig count exiting June at the year's highest level.

I'll remind the listeners that our upgrade program succeeds because of our vertical integration, the capital-light nature of many upgrades and our ability to source opportunities in the 2 most active regions in Canada and the 4 most active regions in the U.S., all improving our delivery and return on capital. More on return on capital in a moment.

I'd also like to cover international growth, where we, along with our partner, have actively engaged with all major Argentine operators and have outstanding bids on multiple rigs. We remain excited about the opportunity in Argentina for Precision and are pursuing those opportunities thoroughly.

In the Middle East, we have 2 idle rigs in Kuwait and if we have more clarity in the outlook for the region, we expect to secure a contract for one of the rigs within the next few months. I mentioned on the last conference call that we have deployed an Alpha automation system on 1 rig in Kuwait and are driving performance on that rig through our Alpha Remote Operations Center in Houston.

I'm pleased to report that the rig is now delivering significant reductions in drilling times for the customer, and we expect to broaden our technology footprint in the region over the course of the year, presenting another opportunity for performance differentiation and revenue growth.

Moving on to our North American outlook. While WTI prices have been over $80 for 2 months, our U.S. customers have not immediately reacted by adding rigs. In fact, the U.S. land rig count is down slightly year-to-date. This makes sense to us as our customers have approved budgets, capital commitments to investors, and they likely want to have some time to assess the staying power of the oil price run-up. In addition, there is a lag time between the time a customer contracts a rig and the time that rig goes to work.

Over the past few weeks, we have become increasingly confident of the U.S. market hitting an inflection point this summer with both private and public companies adding rigs and are confident of further rig adds for Precision in Q3 and Q4. We have been planning to increase activity in the U.S. since the beginning of the year and are ready to meet the upcoming demand.

In the Canadian market, we are seeing a more immediate impact of higher oil prices with increased demand for our Super Single rigs operating in heavy oil basins. We also expect our Super Triple fleet to return to near full utilization later this summer, supported by constructive liquids prices and recent market developments that support the FID of Canada LNG Phase 2. In both markets, the expected tightness of rig supply is pulling forward some rig contracting discussions by a quarter or 2 for both gas and oil customers.

In our C&P division, coming off a year of activity increases in Q1, we are seeing increased request for production work from private companies, while our larger customers are firming up plans that point to increased activity in the second half of the year. Following the market demand increase, we are expecting the market to tighten for both personnel and equipment in the second half of the year.

The final topic I want to cover is Precision's commitment to generating financial returns. Dustin covered this topic in his opening comments, and I would like to go a bit deeper. We've been talking about cash flow and return of capital for a decade. And over that time, we have demonstrated success and ingrained in our culture, the need to generate returns for our investors. Our leadership in sales, operations and operation support understands the focus and need to incorporate returns into all decisions.

Although we are talking more about growth and appear to be entering into a growth market, the focus on returns will not diminish. In fact, it will be central to prioritizing capital deployment and more importantly, critical to maintaining our established reputation with investors for acting as good stewards of their capital.

I would like to conclude by thanking the Precision crews, field leadership and all Precision employees for their commitment to safety, customer service and dedication to Precision.

With that, I will hand the call back to the operator for questions.

[Operator Instructions] Our first question comes from Tim Monachello with ATB Capital Markets.

First question, just on your expectations for I guess, U.S. pricing improvement. That's a pretty positive comment given that the pricing sort of stagnated over the last few years. How much do you expect pricing to move higher in the back half of the year? And with that, then maybe talk about where you expect margins to go in the U.S. in the back half from what they were in Q1?

Yes. So Tim, I understand your question and I understand why you're asking it. We typically give margin guidance 1 quarter forward. So I'll stop short of giving guidance for Q3 and Q4. We said in our comments that we are having pricing increase discussions with customers and that those will start to be reflected in the second half of the year. So it will have a meaningful impact on our day rates and margins in the second half of the year.

I would just say that the U.S. market, a misconception about the market is that there are a large number of rigs ready to go when customers want them. And I think if we see an increase in rig demand in maybe it's 30 or 40 or 50 rigs, there's a lot of rigs that are not ready to go back to work that will require capital and time to get the rigs back to work, including crewing up the rigs. So there's going to be more tightness in the market to stimulate day rate growth than I think the numbers would suggest.

I would also say that although we think that the pricing increases will be broad, we can't really quantify them yet because, as I mentioned, we've really just started here in the past few weeks implementing price increases.

Okay. Got it. And the rigs that, I guess, are churning or in between contracts right now, are those going on to new higher rate contracts?

Some of them are. I'd really like to -- we attempted to distinguish between our rig increases in the second quarter and our rig increases beyond the second quarter. Most of the rig increases in the second quarter are just replacing the churn. Most of them are actually in gas basins and aren't really reflective of a market change in demand. And where we see the demand increase from oil-based customers is really going to be in Q3 and Q4.

Now that has a follow-on effect in the gas basin customers recognizing that the market is going to be a bit tighter due to oil demand, which is pulling forward some of those rig add conversations in the gas basins.

That's helpful. Are you seeing any change in demand from gas basins as gas prices are pretty weak. And I would imagine there's going to be some incremental supply of associated gas coming out of oil basins. So is that market dynamic changing at all? Or is that still pretty strong for you?

I'll make a couple of comments there on the gas basin. I think that most of the customers now with the outlook for LNG growth and the outlook for gas-fired data center power demand, there's some fundamental drivers there that are impacting activity more than the spot price and the spot price is weaker than it has been. So I think that our customers are less reactive to the spot price than they would have been a couple of years ago.

I will say that we are adding rigs in both the Marcellus and the Haynesville and some of them are high grading where we're replacing incumbents for the customer. So it's a little bit tougher to draw a read on the broader market, but we do see our rig counts moving up in the next couple of months in the gas basin.

Got it. And for incremental rig adds that you might see through the back half of the year in '27, can you talk about, I guess, the availability of fleet -- of idle fleet that you have? And would those rigs need to be upgraded before they go to work? And I guess, what's the scope of that idle capacity?

Yes. I would say that in our -- I'll just say, in our capital plan, we have room to move up and reactivate 15 or so rigs that -- maybe a little bit more than that, where we don't have to increase our capital plan. And we are ready. We have long leads. We have been preparing for an activity increase, as I mentioned, since the beginning of the year, even when the market expectation was flat. So we'll be able to meet that demand.

We are staffing up. We are carrying some extra crews, and we'll be carrying some extra crews through the second quarter to make sure that we're able to meet the staffing demand. So I think for Precision, we're going to be good. I can't really comment on the rest of the industry, but I'll go back to what I said earlier that there's likely a lot more friction in the system than what the numbers may indicate.

Our next question comes from Derek Podhaizer with Piper Sandler.

I guess, sticking on the U.S. land theme, Carey, I'm just curious, just given your conversation with customers and obviously, a lot of moving pieces between the oil demand or expected oil demand, gas demand, which you've talked about, private versus public, rig count, like you said, we've been stuck in this 5 to 30 level for quite some time now. I guess what are your expectations when you think about going through second quarter into the second half of the year? Where the industry rig count could potentially go to, and maybe come at it from a private versus public and maybe a basin perspective as well?

Yes. So I think I'll -- in terms of the broad industry rig adds, we're about 7% or 8% of the U.S. market. So we've got a read on our activity increases, and it's a little bit harder to read the entire industry. I think there's enough people out there that are making bets on that. But a --an industry rig add increase of 40 or 50 rigs does not seem unreasonable to us. Where we see the increases from a basin perspective, minor increases on average in the Marcellus and the Haynesville, and we've got large market positions in both of that. So I think our read-through is probably pretty decent there.

Where we're having customers with -- customer conversations about rig adds in the second half of the year, it's the Permian and the Rockies. And that's basically where we have a lot of our idle capacity that's ready to go. So I think we'll be really well positioned to meet that demand. And in terms of privates versus publics, certainly, the privates got on the phone a little bit quicker, asking about rig availability, but we're starting to see more conversations or having more conversations with public companies about rig adds.

Got it. No, that's really helpful color. I guess on Canada, I'm just curious, maybe if you can help us with a bit more color as far as some of the mix shift that you're seeing between the Super Singles and the Super Triples. I'm just curious if this is a structural change. Just any more color on how you see this developing over time? Is this something secular? Just how should we think about the mix of the Singles versus the Triples and how to think about that as we move forward over the next 6 to 18 months or so?

Yes, sure. I'll start out and then ask Dustin to kind of fill in some of the numbers. But I would say the demand for our Super Triples, the 32 Super Triples we have in Canada remains strong. So we're seeing a -- we always see a little bit of spotty activity in Q2 during spring breakup. But for what we're seeing in the second half of the year, demand is not really changing for the Super Triples.

On the Super Singles, which are driving heavy oil activity, we're seeing increasing demand on that rig class based on our position in the marketplace. We are not seeing the Canadian rig count grow, but we are seeing our rig count grow, and we think that's the -- it kind of speaks to the performance differentiation and value proposition for our customers. And so that is -- that's the change that we've noticed, but I don't think it's a read-through for the rest of the industry.

Dustin, can you talk a little bit maybe about pricing dynamics for what we're seeing on both those rig classes in the Doubles.

Yes, for sure. And I would actually add on the heavy oil market, 1 benefit of our upgrade program is we've really been chewing through that seasonality constraint in Q2. A lot of the pad capable rigs, we have now 18 going on 19 pad capable Super Singles, which really adds additional capacity into our business model, just makes that rig class so much more attractive.

On the pricing front, I would say that pricing on our Super Singles and our Triples, it's very firm. We do see some competitive pressures out there, but we intend to sustain our position as a price leader in Canada, and it's really driven by our differentiation. I mean we've got a rig spec. It's our technology offering. And I would say on the people front, recruiting and retaining is a core competency and it really sets us apart. So we feel really good about capturing that value premium that we're delivering for our customers.

In the Doubles market, it's a little bit different. It's oversupplied, highly competitive. We do participate. It's not a core part of our business, but we are not immune to the pricing pressures there. And we do see a bit more pricing challenges in the Doubles market.

Yes. And just to wrap up that pricing conversation, we're -- as Dustin said, we expect to have 20% more rigs running in Q2 than we did last year. And all of those rigs are going to be Singles and Doubles. So they're going to be lower margin rigs than their Super Triples, which impacts the overall margin.

Our next question comes from Aaron MacNeil with TD Cowen.

By my math, you've deployed, call it, just over $160 million of upgrade capital over the last 2 years, maybe another $70 million or $80 million expected this year. I wanted to zero in on the U.S. market specifically and sort of understand how much capital and the number of rigs that you've upgraded in the U.S. market over the last couple of years? How many you expect to upgrade this year?

And then just give us a bit of an update on how you're thinking about returns on that capital, given that we just haven't really seen a durable improvement in margins and utilization has been a bit better, but we continue to see a lot of churn in the contract book.

Yes. I think, first of all, we had a 24% increase year-over-year in activity relative to market that went down 7% year-over-year. So I think top line on activity, that's definitely improved. We've had revenue growth year-over-year, so that's improved. We've addressed some reasons for margin guidance in Q2. We have -- we're expecting a pretty significant activity ramp, not just in the quarter, but preparing for Q3 and Q4. That's rig reactivations. As I mentioned, we're going to carry a few more crews to make sure that all of those start-ups that we have planned are executed very well. So I think -- I don't think it's fair to say that we're not seeing results from the upgrade program. We certainly are.

If you look at the top line revenue number, it is flat. We're kind of guiding flat on day rates. So day rates are firm. On the upgrade capital, we haven't split out the upgrades between Canada and the U.S. But I would say that in the U.S. market -- in the Canadian market, we're typically doing 2 types of upgrades. We're doing a pad conversion for a Super Single and then we're doing an upgrade on the Super Triple.

Pad conversions will typically be $3 million to $5 million in spend on the Super Triples. It could be anywhere from kind of $4 million to high-single digits on the upgrade depending on the term of the contract and the churn. When we're executing these upgrades, we are almost always getting full return of the capital spend within the term of the contract. So for the short -- small -- a lower dollar upgrade, we can get paid back in a shorter-term contract.

The U.S. market has been a spot market, and we've commented on this many times over the past couple of years. Most of the contracts are 6 months or pad to pad. Sometimes we're getting 1-year contract if we're spending more capital. But it does introduce some variability after the contract has been signed and the capital has been returned because of the nature of the short-term work, we do have some pockets like we're experiencing right now in April, where there's going to be a little bit of white space.

But I think for the full look back, I think we need to get to the end of the year on the capital spend with a lot of these rigs that are going to be delivered later in this year, and we fully expect to see revenue and EBITDA growth in our business year-over-year.

Got you. Okay. Fair enough. Maybe to build on one of Tim's many questions. Just given that the U.S. contract durations are shorter with most rolling off by the end of this year, in the context of your comments around pricing increases, do you think that will translate directly into margin? Or do you think, sort of, we'll continue to see this churn over the next couple of quarters that might offset some of those pricing gains in the near term?

We fully expect to see benefits from pricing increases, more activity covering overhead, and we expect to see a stronger contract book in the second half of the year. So I won't give guidance on margins for Q3 and Q4, but we think there's a lot of positive drivers for margin in the second half of the year.

The only thing that I would say that might offset that is if we get more activity on the CWC rigs that we purchased in the Powder River and if there's more activity in our 1,200 horsepower rigs, which have slightly lower margins than our 1,500 horsepower rigs. But I think the uplift on margins -- on the margins and contracts on the 1,500 class rigs are definitely going to be going up.

Our next question comes from Keith MacKey with RBC Capital Markets.

Just maybe starting out on the international side. Can you just give us a bit more color on the disruptions you faced in Q1 and the reactivation costs you faced in Q1, maybe quantify those as much as you can for Q1 as well as heading into Q2?

And then more broadly, Carey, how do you think about the international business now given everything that's happened over there, do you have -- do you place a higher risk premium on deploying assets there? And just how you think about that -- where that business fits within Precision over the longer term?

Yes. So all fair questions. I think Dustin highlighted -- I'll kind of go one by one there, if I can remember them. So on the rig reactivation cost, it was USD 2 million is what it cost us to reactivate the 1 rig in Saudi. It was higher than what we expected. The rig had been -- it was part of all of the rig suspensions in the Kingdom. And when we reactivated the rig, the requirements by the customer to get the rig up to spec were just much greater than what we thought and it was a higher cost plus mobilizing the crews back in the country, it was just more than we thought, but that was a onetime cost.

What we're seeing right now in terms of disruption, it's getting crews in and out of the country -- in and out of each country because of flight schedules and airport closures. And I'm sure you've read about plenty of the travel disruptions that this war has caused in the region. There's also some relatively minor, I would say, for us, it's relatively minor. I think some of our -- what is called broader oilfield service industry peers have reported lots of disruption related to supply chain in the region.

But for us, it's having to get parts from one part of the country that's far away where parts are -- or fuel from one part of the country that's far away from where we're drilling when we used to get it very close to where we're drilling. So there's some logistical challenges.

It's tough to quantify right now what that cost is going to be. I think it's going to be low-single digits impact on profitability on those disruptions. But it's a dynamic market. There's a lot of changes. So I'll stop short of giving you an exact number of what those disruptions might be.

And then in terms of longer term, we said we want to grow the business, but we're not going to grow it in spite of returns. We really want to get the good returns on our capital. Your question about a discount rate or the required returns given the perceived increased risk level, it's a question for the broader market. I don't know that I'm the best person, or if Precision is the best company to comment on that. But the environment has changed a bit, and there will be new variables in the models that come before deploying capital. And so we certainly think about that.

And for the business, it's not optimal size from a scale standpoint, but 7 rigs or 8 rigs, as I mentioned, we'd likely have sometime later this year or early next year. It's enough for us to generate meaningful EBITDA and meaningful cash flow. So although it's not optimal size, I think we've got some optionality on whether to grow the business or trying to do something else strategic with it.

Carey, I appreciate it. Maybe just quickly on the 2 upgrades in Canada. Can you just give us some more color on where those rigs are coming from, potentially when they expect to go to work and just the scope of the upgrade required and whether you think that there's significantly more of these upgrades that you could potentially do or likely do just given kind of where the Canadian market is, well some comments around that would be helpful.

Yes. So these rigs are going into multiyear contracts. The capital that we are spending on the rigs will be fully recouped within the term of the contract through either the day rate or an upfront payment from customers. So on the financial side, they're very attractive for us. I think for our customers, the performance of these rigs, we're really excited about. I think, we're creating a lot of value for our customers.

What we're doing is taking an ST-1200, we're increasing the capacity pretty much all over the rig from hook load capacity, right, fracking capacity, pumping capacity. And we're taking what we would call the rigs at -- from a spec standpoint that would be at the lowest end of our Super Triple 1200 class in Canada and upgrading them to where they would be at the leading edge of our fleet.

And so these are opportunistic for our customers, the core customers of ours, they're important customers in the region. And we think that these are specific for their drilling programs. But there may be more demand for these rigs, and we would happily meet that demand with these return metrics. But don't expect to have a 1-a-month type cadence. I think this is maybe a few-a-year over the next couple of years might be a good way to think about it.

Dustin, anything to add?

Yes. No, I would just say more broadly speaking, Keith, like we really like the fact that customers are showing a lot of enthusiasm around upfront payments to really take a little bit of the strain of the cash flow in the current year. These would include a portion of that.

From a return standpoint, we're very, very happy with it and the margin increases that we'll see. As Carey mentioned, they're incredibly strategic as far as the location and the core customers will deepen our relationship. And as it makes our operating capabilities better, I made that comment earlier in an earlier question about how we've been able to sustain our presence as a price leader in Canada and to further differentiate our offer will be a core way we sustain that going forward.

One other point I'd make, these upgrades would be delivered one in Q3 and one would be delivered later in the year in Q4. So for the financial pull-through, you would see portions of that in 2026.

Our next question comes from John Daniel with Daniel Energy Partners.

Carey, have you had any customers start asking you about 2027 yet?

Some of the rig contract discussions that we're having are 1 year or more. So they're going into 2027. But -- so I can't give you concrete examples, but it's possible.

No, okay, I just didn't know what they're telling in terms of potential needs next year versus where they are today. But I'm guessing the answer is no.

I don't know an answer. Like I said, these customer conversations have -- they really ramped up here in the last 2 or 3 weeks. And in the past couple of days, we may have had some conversations that I'm not aware of.

Fair enough. That's cool. Just so I get the numbers straight here. Your U.S. count, is it 35 today?

That will be 35 next week, 32 today.

35 next week. And where did you say you're going to exit the quarter, the expected number?

High-30s, 38 to 39 rigs.

38, 39.

And John, just to make sure you heard our comments, that's really just kind of the normal churn. That's not really commodity price.

Sure. No, that's right. Yes, yes. But I'm just -- I'm getting old, Carey. I'm trying to -- it's hard to follow the numbers. But you got 15 or so rigs that could come back to work, is it -- would it be unreasonable for someone to assume that you could be adding 3 to 4 rigs a quarter through the end of the year?

I think it's probably reasonable to assume that we're going to be adding more than that -- more per quarter. Yes, I mean, I think.

More per quarter. That's fine.

Our next question comes from John Gibson with BMO Capital Markets.

I just had one, you talked a lot about U.S. pricing. Wondering if you could talk about pricing in Canada. You kind of alluded to that the Doubles market is still oversupplied, but it seems like there's incremental demand. I'm just wondering, are we nearing an inflection for pricing on maybe some of the lower class rigs? Or is that a little ways out? And do you see that being possible based on the commodity price environment and demand from customers?

Yes. I would say, historically, we have seen in higher commodity price environment that all rig class pricing goes up. But I would say at the field level and the customer conversations, we are not seeing any indication that, that rig class is moving up in price today.

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

Thank you. As a reminder, our Q1 financial statements and MD&A are now available on our website. Thanks to our research analysts for their questions. Should other participants have a question, please reach out to either myself or Patrick Tang in the Investor Relations department.

Thank you very much, and have a good day.

Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Ladies and gentlemen, thank you for standing by, and welcome to Precision Drilling's Fourth Quarter and Year-End Conference Call. I will now pass the call over to Lavonne Zdunich, Vice President, Investor Relations. Please go ahead.

Good day, and thank you all for joining Precision Drilling's Fourth Quarter and Year-end Conference Call and Webcast. Today, I'm joined by Carey Ford, our President and CEO; and Dustin Honing, the CFO.

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 and EDGAR.

Before I pass the call over to Carey and Dustin, I would like to recap how we delivered on our 2025 strategic priorities. First, we enhanced our shareholder returns by reducing debt $101 million, ending the year with a net debt to adjusted EBITDA ratio of 1.2x. And we also repurchased $76 million of our shares, meeting the midpoint of our guidance of allocating between 35% and 45% of our free cash flow to share buybacks. During the year, we maximized our free cash flow by delivering resilient drilling margins in both Canada and the U.S., even though average industry activity declined.

And finally, we grew revenue organically by increasing our Canadian market share and increasing our U.S. rig utilization from a low of 27 in February to a high of 40 in the fall and exited the year with 38 active rigs. Today, Precision is the second most active driller in North America. With that, I will turn it over to Dustin Honing.

Great. Thank you, Lavonne. Good morning, good afternoon. Precision's 2025 financial results demonstrate our long-standing commitment towards delivering on our strategic priorities and further strengthening the competitive positioning of the business.

Last year, we continued to generate strong free cash flow, allowing Precision to meet our shareholder return commitments while significantly reinvesting into our rig assets and Alpha digital technologies. As we enter the final stages of our long-term deleveraging journey, the business is positioned with immense financial flexibility and a platform to maximize value for our shareholders.

Moving on to fourth quarter results. We recorded adjusted EBITDA of $126 million, which equates to $132 million before share-based compensation expense. This compares to prior year EBITDA of $121 million, $136 million before share-based compensation expense. During the quarter, we reported a net loss of $42 million, which includes a noncash charge of $67 million related to decommissioning of drilling rigs and another noncash charge of $17 million related to drill pipe. Without these onetime expenses, net income would have been positive $42 million compared to $15 million in the fourth quarter of 2024.

In Canada, drilling activity averaged 66 active rigs, an increase of one rig from Q4 '24. Our reported Q4 daily operating margins were $14,132 a day compared to $14,559 a day in the fourth quarter of '24, falling within our prior guidance range. During the fourth quarter, Precision incurred reactivation costs associated with the 2 Super Triples that were mobilized to Canada from the U.S. back in September. Both rigs began operations in Q4 and will be fully operational throughout 2026 and beyond, backed by long-term contracts.

In the U.S., we averaged 37 active rigs, a slight increase sequentially from Q3 and an increase of 3 rigs from prior year Q4. Our daily operating margins for the quarter were USD 8,754 compared to USD 8,700 per day sequentially in the third quarter, also falling within our prior guidance range. During 2025, despite declining industry activity levels, we increased our U.S. rig count throughout the year. This momentum is a result of leveraging our upgrades and digital offering to deliver strong field performance for our customers, coupled with our favorable positioning in U.S. natural gas markets.

Internationally, Precision averaged 7 active rigs, down from 8 rigs prior year Q4. International day rates averaged USD 53,505 a day, an increase of 8% from prior year Q4. This was due to prior year nonbillable days from rig recertifications. In our C&P segment, adjusted EBITDA was $17 million, which compares to $16 million for prior year Q4. Increased well servicing demand in Canada more than offset the impacts of winding down our U.S. operations back in the second quarter of 2025.

During the year, our strong presence in Canada's unconventional natural gas and heavy oil markets, combined with our unique natural gas exposure in the U.S. provided us the ability to capitalize on rig upgrade opportunities, underpinned by firm customer contract commitments.

For the full year 2025, capital expenditures were $263 million, comprised of $156 million for sustaining and infrastructure and $107 million for upgrades. These investments were made alongside our shareholder return commitments, reducing debt by $101 million, allocating $76 million towards share buybacks and increasing our year-end cash balance to $86 million, which is up $12 million from prior year.

Moving on to forward guidance, which I will begin with our expectations for the first quarter of 2026. In Canada, all of our 32 Super Triples and 47 Super Singles have been active in the winter drilling season. We also have several Tele Doubles operating, allowing us to reach a peak rig count of 87 rigs operating in Q1. For the full quarter, we expect average active rig counts to exceed the 74 average rigs from prior year Q1. Our operating margins in Canada are expected to range between $14,000 and $15,000 a day.

In the U.S., we've sustained the momentum we've built over the last 3 quarters. For Q1, we expect our average active rig count to be in line with the 37 active rigs from prior quarter with encouraging customer conversations for additional deployments. For the first quarter, we expect our operating margins to remain firm, ranging between USD 8,000 and USD 9,000 a day.

Internationally, we expect to run 7 rigs. However, operating margins will be lower than prior year due to one Kuwait rig coming down, offset by one reactivated rig in Saudi Arabia. In Q1, we expect to incur USD 2 million of onetime charges with this reactivation.

Our C&P business continues to generate strong free cash flow, driven by our Well Servicing and Surface Rental business lines. For Q1, we expect EBITDA to slightly exceed prior year levels.

Moving to forward guidance for the full year of 2026. Capital expenditures are budgeted to be $245 million, comprised of $182 million for sustaining and infrastructure and $63 million for upgrades. Note that our sustaining and infrastructure budget includes long lead components, a portion of which, which will be allocated to upgrade projects as they materialize, plus a bulk purchase for drill pipe, which will be utilized in late 2026 and into 2027.

Depreciation is expected to be $305 million and cash interest expense from debt is expected to be approximately $45 million. Our effective tax rate is expected to be approximately 25% to 30% with cash taxes remaining low in 2026. For 2026, we expect SG&A to stay flat at approximately $95 million before share-based compensation expense.

Share-based compensation guidance for the year is expected to range between $25 million and $45 million, assuming a share price range of $100 to $140. Please note that this is a preliminary estimate, and we will provide updated guidance on our Q1 call following the settlement of past grants and issuance of new grants later this quarter.

Our long-term target to achieve net debt to adjusted EBITDA of less than 1x remains firmly in place as is our plan to increase our free cash flow allocated directly to shareholders, up to 50%. We entered 2026 with a net debt-to-EBITDA ratio of 1.2x with an average cost of debt of 6.6%, and we have over $445 million in total liquidity.

With that, I'll pass it over to Carey.

Thank you, Dustin, and good morning and good afternoon. As Dustin and Lavonne mentioned, Precision Drilling had a successful 2025, reflecting industry trends with differentiated activity levels and financial outperformance in a flat to declining North American market. Certainly, there is plenty for the Precision team to be proud of about 2025.

As our recent performance has been well covered in previous disclosures and on this conference call, I would like to spend time talking about our 2026 priorities and why Precision Drilling is positioned for continued differentiated performance in the year ahead. Our 2026 priorities may sound familiar to listeners because they are consistent with those of prior years with a focus on generating free cash flow, delivering financial returns to our investors and providing high-performance services to our customers.

Financial discipline has been important for strengthening Precision's balance sheet, reducing share count and building trust with our investors through our decade-long track record of delivering on commitments. This part is ingrained into Precision's strategy and will continue this year.

Our first strategic priority is to drive revenue growth and deepen our customer relationships, and it is listed first because this focus area will be how Precision differentiates itself this year. Our platform provides multiple avenues to achieve this priority.

First, I'll discuss our options to grow revenue in the current market. Precision is uniquely positioned to capture demand across North America's diverse basins, each with distinct demand drivers and equipment requirements. What remains constant across every basin is the increasing complexity of well designs and our customers' relentless demand for footage per day performance.

Starting in Canada, our heavy oil regions require long horizontals and complex wellbore geometries, including wine rack, feather and fish bone designs. And we're meeting that demand with 17, soon to be 19, pad capable Super Singles. In the Montney, we continue to invest in the hardware and digital capabilities of our 32 Super Triple rigs to drive consistent industry-leading performance.

Turning to the U.S. In the Permian, we're executing extended reach U-turn wells in the Haynesville drilling deep high-pressure wells requiring a 1 million pound hook load and in the Marcellus, delivering smaller footprint rigs with extended reach horizontal drilling capabilities. The takeaway is clear, no matter the basin or the challenge, Precision has the fleet, the technology and the expertise to deliver well after well.

Second, I'll follow the discussion on revenue growth with the objective of deepening customer relationships through performance conversations and presenting new ways to create longer-term value. We do this through field service delivery and our standardized and fully scaled Alpha and Clarity digital platforms to optimize drilling planning and execution, provide real-time insights, enhance customer communication and implement performance improvement plans.

We also delivered upgraded rig solutions executed internally and delivered quickly to meet our customers' specific needs. Additionally, we have been introducing creative commercial arrangements to incorporate equipment upgrades, digital technology additions and performance contracts. Many of these initiatives are underway, and we plan for more in the future. Absolute market share gains are one positive outcome of our strategy. But perhaps more importantly, among Precision's 130 drilling rigs active globally, 25 customers are running multiple Precision rigs, and we want this number to grow.

My final point on our first strategic priority is that many of these revenue growth and customer relationship initiatives are capital-light, enabled by Precision's vertically integrated operations, cross-border capabilities and a consistent modular Super Series rig design, dynamics that allow for a faster, more economic upgrade plan.

We view our upgrade capabilities as a competitive advantage and expect contracted upgrades to continue in 2026 for customers across several North American regions. All 3 of our priorities in 2026 are important for the Precision team. with financial discipline and returns focus underpinning operational and growth decisions.

I would now like to make a few comments about Precision's core geographies, starting with Canada, where our Q1 peak activity of 87 rigs surpassed last year's peak by 4 rigs. The medium- to long-term outlook for the Canadian market is solid with supportive commodity prices, increased LNG and crude takeaway capacity and resilient demand for Super Series rigs. As a reminder, short-term activity throughout the year can be affected by weather and commodity price volatility.

The U.S. industry outlook for rig activity is generally flat, but we are finding pockets of opportunity for performance differentiation and expect to continue to capture modest growth in a flat market. Our customers are focused on executing the development plans in the most efficient way possible and are not reacting to weekly changes in oil and gas prices. The gas basins have been the main drivers of growth over the past year, but we are having several encouraging performance conversations with Permian customers as we look to expand our presence in that key oil region.

In the Middle East, our 7 active drilling rigs are delivering excellent results for our customers, and we are actively pursuing opportunities to reactivate idle rigs with financial returns driving all potential capital deployment decisions. Also, we are exploring options for more capital-efficient means to develop scale, including technology differentiation. To that point, we are installing our first Alpha system on an active Precision rig in the region.

And we are laying the foundation for longer-term capital-light international growth in the Western Hemisphere. During the fourth quarter, we entered an MOU with an established drilling contractor in Argentina, under which Precision has the option to provide idle Super Series rigs, digital technology and operational support, while our partner will operate the rig, and the customer will have a direct leasing arrangement with Precision. We are excited about the potential to expand our presence in a growing region, focusing on Precision's performance offering.

We are in the process of deploying our first Alpha automation system on one of our partners' drilling rigs in the country to demonstrate Alpha's performance advantages to potential customers. We currently have no near-term rig deployment plans, and we'll update the market as opportunities develop.

I'll wrap up the business discussion with an update on Precision's Completion and Production Services division, where we delivered a 6% increase in service hours in 2025. Rising operating costs in the division continued to be a concern, but the team has addressed these costs with operating efficiencies and focused execution. Precision Well Services remains the premier service provider in Western Canada with industry-leading crews and safety performance and has proven its ability to meet evolving customer needs, resulting in resilient customer relationships.

Once again, I would like to thank the Precision crews, field leadership and all Precision employees for their commitment to safety, customer service and dedication to Precision. With that, I will hand the call back to the operator for questions.

[Operator Instructions]

Our first question comes from Derek Podhaizer with Piper Sandler.

Maybe just starting off with Kuwait and the rig that was demobilized over there. I was hoping to get a little more color and context around what happened there. It's great that you're able to backfill as far as reactivating the Saudi rig. And then separately, you also talked about potential reactivations of idle rigs in the region. Can you maybe help refresh us on how many rigs you have idle there and would be candidates to return to work? And where could your active rig count, which is at 7 now go to? So just a little more color on Kuwait and then just potentially the upside to your 7 active rig count today?

Sure, Derek. So we have 6 rigs in the Kuwait market, 4 are active and are on long-term contracts for the next couple of years. We do have 2 idle rigs. One of them just finished its last 6-year contract. And we didn't demobilize it. We just racked it in-country, and we'll be looking for opportunities to deploy that in the region, either in Kuwait or another country. And there will be opportunities to tender that rig, we think, later this year. So we are looking to reactivate that rig.

We do have another idle rig in Kuwait that we're -- it's in the same situation. It's a modern rig. We deployed it in, I think, 2017, and we would expect to have opportunities to deploy that rig as well.

In Saudi Arabia, we have 2 active rigs. One of them just went back to work. It was a suspended rig that have been well publicized in the market. And that one just went back to work last week, and will be running on a multiple year contract. So we have 2 rigs there and then one rig idle in the region. So first priority for Precision is to reactivate idle rigs in the region, and we think that's a near term -- near- to medium-term opportunity. And I think more medium and long term, we'll be looking for new avenues for growth in the region.

Yes. And Derek, just to clarify, like the 2 will be up to 3 in Saudi after this reactivation is complete.

Right, right. Super helpful. Switching over to the U.S. Obviously, an encouraging guide as far as steady rig count with some potential for the upside. Could you maybe help us understand that potential upside comment that you guys made? Is this, again, more gas-associated rigs like in the Haynesville or Permian, you talked about getting in with maybe some of these performance-based contracts. Just maybe a little more help as far as what the upside there and also publics versus privates?

Yes. I think the answer is all of the above. We're having active rig addition conversations with customers in the Marcellus, in the Haynesville and the Permian. And I think that we're looking at modest growth opportunities, but all of the discussions are driven by performance and efficiency where we think we can outperform several of the rigs that are operating today. I probably should add, we are having conversations with customers in the Rockies as well.

Our next question comes from Keith MacKey with RBC Capital Markets.

Can we just maybe start on the U.S. margin guide for Q1, USD 8,000 to USD 9,000 per day, pretty consistent guide with what you did in Q4, although there was a significant amount of reactivation costs that came through in Q4. So can you just break down some of the pieces for us in terms of the Q1 guide and what we should be expecting for reactivation or changes in day rates or changes in your core OpEx?

Keith, it's Dustin here. I'll start. I'll let Carey jump in. But I would say it's kind of a mixed bag because we're seeing different pricing trends in each one of our operating segments in the Lower 48. We've seen some encouraging pricing play with a lot of the upgraders we've staged into the natural gas markets, that would be the Marcellus and Haynesville, a little bit more competitive in the oil-based markets. But we've been able to leverage our Alpha technologies as an a la carte charge to help support our margins. And then the benefit of fixed cost absorption certainly helps as we've been increasing our activity in the U.S. market.

So from what we see, it's very short-term visibility. Contracts are quite short term in nature in the U.S. market, a little bit longer in gas, but overall, shorter than Canada. But from what we see, we feel comfortable with that guidance range for -- to hold firm.

I don't have anything to add there, Dustin. It's a good answer.

Got it. Just anything on reactivation costs we should be expecting for Q1 in the U.S.?

I would expect to see a fairly similar trend, Keith. It's not perfectly linear, but this is just the reality of the constant churn that we see in the U.S. market. But we've been able to absorb those quite well. And I would say you probably want to expect something similar going forward.

Got it. Okay. And just turning to the MOU in Argentina. Just maybe give us a little bit more comments on that. How did this opportunity come about? And what ultimately do you hope to achieve from executing this MOU in terms of financial performance or further international expansion, et cetera?

Sure. So I would say that this was announced in the industry press in the fourth quarter. So it's been out there. I would say that we've looked at Argentina as a really interesting market from both the resource that's there and the growth opportunities. And we've been trying to figure out the way that we can get to the market, have a differentiated offering and reduce some of the challenges and risks associated with that market.

We understand that a lot of parts of the market are improving for the better for Western countries or North American countries to go into that region. But we still want to find a solution where we can offer performance and technology, but derisk some of the complexities of doing business in the market. So we think that this is a really good opportunity for us to explore, and that's all that we have right now is an MOU to go to the market in a way that we have an established partner. It's San Antonio Drilling. They have a long-standing relationship and very good customer relationships in the -- long-established reputation and very good customer relationships in the region. And we want to partner with them with our rig technology and digital technology to go and work.

And it's hard to say at this point how big of an opportunity this is going to be. But I'll stress that we don't have anything to announce right now. I think that the first rig deployment, if it moved at light speed would be late this year, maybe early next year. And I think we're probably talking about 1 to 3 rigs over the next couple of years. It's not going to be a fast-moving program for us.

Our next question comes from Aaron MacNeil with TD Securities.

Carey, you mentioned the strength of the longer-term Canadian outlook. And I'm sure you don't want to get into anything too specific on a customer-by-customer basis. But with their Q4 results, ARC recently removed Attachie Phase 2 from its 5-year plan and withdrew its broader Attachie guidance. So just curious to see if you've had -- if you've seen any direct impact of this yet, if you're expecting it in the future, how you're thinking about this in the context of overall basin demand for Super Triples or any other color that you could provide?

Yes. So I certainly won't speak to any particular customers' plans and Precision, I think we work for 8 of the top 10 most active customers in the Canadian market. So we do see quite a bit. You did hear my comments that we had 87 rigs running in the winter drilling season. We peaked in January at 87 rigs, which is up from last year. We've had all of our Super Triples and all of our Super Singles active during this winter drilling season. So certainly, we haven't seen any change in demand in the short term. We've been as active as we've ever been, at least in the last decade.

And then longer term, I think our point is that takeaway capacity for both oil and gas is strong. We also have deep resources -- deep inventory resources for almost all of our customer base. So I think despite an individual customer with a specific change in plans, we have not seen a broad change in demand from our customers.

Okay. Fair enough. And then maybe to build on Keith's question on the direct leasing opportunity in Argentina. What would a contract look like in terms of daily margin? Who is responsible for the mob and demob? Like how does that -- like all sort of the nuts and bolts of all of that work?

Yes. So I won't get into all the specific details. But yes, the mob and demob would be contemplated in the contract and an economic consideration will be given for that. But think about it as 2 revenue streams for Precision, one from our partner for what we provide on operational support and one from the customer on a direct leasing payment for the rig itself. And I think that's the crux of the contract and why the opportunity is attractive for us if we're able to secure a rig contract or 2 with a customer down there over the next few years.

Our next question comes from Tim Monachello with ATB Cormark Capital Markets.

It was good to see the capital allocation guidance pushing higher on the share repurchases. So I wanted to start there. You're getting to the tail end of your deleveraging target. And I'm curious what you think your allocations are going to look like once you hit that target?

I think we're stretching to give annual allocations for share repurchases. And we like the model. We get feedback from investors all the time that they like the way that we're allocating capital to both debt and equity, and we've been consistent that as we reduce our absolute debt levels, we will increase our direct allocations to shareholders. And that's a broad bucket. It could be share buybacks, it could be dividends at some point, but we'd like to continue that.

And based on the current market, based on where valuations have been, we're comfortable continuing that. Now a year from now, we might be in a different market. And so I can't really comment on what form that would take. And I think the key thing for investors to remember about Precision is we are generating significant cash flow in just about any market, and we will continue to use that cash flow to deliver returns for investors.

Okay. And then on the rig upgrade capital, $63 million earmarked for 2026, how much of that is a home currently? And can you speak to which markets you're seeing opportunities for rig upgrades? And I guess a follow-on to that would be, how do you think that will impact your contracted status, particularly in the U.S.?

Yes. So I'll comment about the capital plan. So remember, our capital plan is always activity driven, and that is definitely the case for maintenance, and it is the case for upgrades as well. Upgrades are demand driven. It's where we have customer request and customers willing to enter into contracts. I would say that only a portion of that has been fully committed, and I don't know if it's 15% or 20% or 30% has been fully committed. The rest is what we expect based on conversations with customers. So that could go up and down.

The other part of the capital plan that Dustin covered a bit in his opening comments is that the maintenance and infrastructure portion of our capital spend contains long lead items that may either be used in maintenance, may be pushed into 2027 or if we get upgrade contracts, you can think about the absolute total dollar amount of capital expenditures not necessarily going up, but the shift from maintenance to upgrade may change with more capital going to upgrades as we go throughout the year. So that's one comment. Did you have anything?

I would just add, Tim, if you're asking just regionally where we're seeing the upgrade opportunities? It's really a similar allocation that we commented in Q3. So in Canada, it's the deeper extended reach drilling programs in natural gas, specifically the Montney. And then we're seeing continued demand for pad Super Single upgrades with our heavy oil customers, significantly improving the agility of those rigs and converting those rigs from 250 days a year to an asset that might work 325 days. So we really like those upgrades.

In the U.S., continued momentum with upgrade opportunities in the Marcellus and Haynesville. And to Carey's comments earlier, we're seeing increased opportunities playing out in the Permian.

Okay. That's helpful. I guess in Q1, which is anticipated to be, I guess, the peak of the oil glut, and you guys are talking about sort of stable rig activity and opportunities in the Permian and gas basins in the U.S. Do you think that when you look through the back half of '26, you continue to think that the rig count in the U.S. is stable? Or do you think you're going to start to see that move higher?

Yes. I think when we comment about flat activity, it's kind of a combination of what we hear and what we read from the experts. And then in the shorter term, what we're hearing from customers. And I think our view from customers is shorter than back half of this year. I think it's -- we've got some customers that are looking a year or 2 out, but the broad market is still largely 6 months out.

Okay. And then last one for me. Just on the Argentina opportunity, would that be served with rigs in your fleet that would assume be upgraded from the U.S.? Or would that be -- assume it probably not a new build. Is that the right way to think of it?

No. And that's one of the reasons why it's attractive to us. It wouldn't be new builds. We still have some idle Super Triple rigs in the U.S. market. And some of them would have minor upgrades before they were deployed and some would require a bit more capital. But all of those capital investments and mobilization would be contemplated in the economics of any contract that we pursue.

Our next question comes from John Daniel with Daniel Energy Partners.

A quick question. You mentioned potentially modest growth expectation in the U.S. market and you cited 4 basins. I'm curious, is that growth -- is that Precision adding rigs that are being displaced -- you're displacing others? Or do you actually see your customers in those 4 basins looking to add incremental activity?

I would say at least half are displacements, and I'd probably add on more of those being displacements than customer rig adds.

Got it. And then as we continue to see more and more consolidation within your customer base, how is that influencing your appetite to potentially participate or prosecute more consolidation within your businesses?

Yes. I would say we've been pretty consistent. We don't look at any of the targets as strategic. So there's not one that we think we have to have to make Precision Drilling a better and more competitive company. There are some decent targets out there, and it's just a matter of whether it works on a strictly financial basis where we pay something below our multiple and get synergies and we can integrate well within our fleet. So possible, but not strategic priority #1.

Fair enough. And the final one is just housekeeping. How many -- in the budget for '26 -- if you said this, I apologize, I missed it, but how many rig upgrades does that contemplate?

I would say it's -- right now, I mean, it can move around a lot. It's -- think about it as a big bucket of capital and sometimes it might be a high-torque top drive on a rig and that's an upgrade and that's not a huge dollar amount or it might be creating a 2,000-horsepower Super Triple rig, which could be $6 million, $7 million, $8 million. So I would say, as we sit here today, think about it as 10 upgrades, plus or minus a few.

[Operator Instructions]

Our next question comes from Josef Schachter with SER.

Two questions. Going through the decommissioning of the drilling rigs and the $67 million charge, can you talk -- is there a certain class of rigs that you were -- and age of rigs that you decommissioned? And then in the balance sheet under assets held for sale, you don't even have anything there either for scrap value. Can you give me some background on all of that?

Yes. So we did a deep dive on really analyzing the forward trends in the industry and what's really evolved in these more complex drilling programs. It's really starting to surface and take hold, I'd say, over the last 1 or 2 years where rigs -- drilling programs are becoming more complex, higher strain on equipment. There's just a specific capacity that you need. So when we look deep into our fleet and scrutinize the capabilities, it just was clear that we had a few that were falling not competitive, and we had that review late in the year and booked the appropriate charge.

Yes, in terms of the assets held for sale, there's going to be 2 things that we do with those rigs. One will be strip the rigs with any parts that we might be able to use in our fleet. So there will be some of that. And the rest, we would scrap, but we wouldn't necessarily have a held-for-sale item on our financials because we don't have a time line on that.

Okay. Next one, going to the drill pipe, $17 million. What's going on in pricing? Because you mentioned you're going to be buying quite a bit in Q4. How big of a swing are you seeing in these numbers in terms of the timing of when it's appropriate and attractive for you to add more drill pipe?

Yes. I would say that when we pursue bulk drill pipe purchases, and we've done this throughout the history of our company, usually, there are times in the market where a supplier will have extra drill pipe. They'll need to have a home for production schedule, and we're able to capitalize with some liquidity and planning to where we can take advantage of a discount. And don't think about this as being a 40% or 50% discount. But on large dollar amounts, it can be meaningful, and it makes us act a little bit quicker than we would have otherwise.

And the $17 million happened for any specific reason?

Similar to our rigs, we made an adjustment on useful life for drill pipe and similar comment. As wells have become more complex, harder on equipment, we've noticed that our drill pipe life spans have been shortened up. And then we did have some that were disposed as well at a loss.

Yes. And I would just say that this is not a Precision dynamic. This is an industry dynamic in both the Canadian market and the U.S. market. Drill pipe is just wearing out a whole lot faster than it used to, and we need to adjust our accounting treatment to account for that.

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

Thank you, everyone, for joining today. If you have any further questions, you can call me or contact me through e-mail. Thank you.

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

Good day, and thank you for standing by. Welcome to the Precision Drilling Corporation 2025 Third Quarter Results Conference Call and Webcast. I would now like to hand the conference over to Lavonne Zdunich, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining Precision Drilling's Third Quarter Conference Call and Webcast. Earlier this month, we announced the retirement of Kevin Neveu and the appointment of Carey Ford to President and Chief Executive Officer; Gene Stahl to Chief Operating Officer; and Dustin Honing to Chief Financial Officer. Kevin retires after serving as President and CEO for one of the longest tenures of any oilfield service CEO. We would like to thank Kevin for his many contributions during his time with PD.

Before I pass the call over to Carey and Dustin today, I would like to recap some of our Q3 highlights. Precision Drilling activity outperformed industry and our U.S. drilling activity continues to grow. Our operating margins are resilient and within guidance. We increased our 2025 capital budget by $20 million to allow for 5 additional contracted rig upgrades as several of our Canadian and U.S. customers are taking a long-term view of demand for energy.

And finally, we are on track to meet our 2025 capital allocation plans, having already achieved our debt reduction target. Please note that some comments today will refer to non-IFRS -- 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 and EDGAR.

With that, I will turn it over to Dustin Honing, our new CFO.

Thank you, Lavonne, and good morning or good afternoon, depending on where you're calling today. Our Q3 results demonstrate Precision's commitment to delivering on our strategic priorities and positioning the business for long-term success. We recorded adjusted EBITDA of $118 million, which equates to $129 million before share-based compensation expense compared with prior year EBITDA of $142 million. .

In Canada, drilling activity averaged 63 active rigs, a decrease of 9 rigs from Q3 2024, resulting from customer projects being deferred to the upcoming winter season. Our reported Q3 daily operating margins were $13,007 a day compared to $12,877 a day in the third quarter of 2024, well within our prior guidance range.

In the U.S., we averaged 36 rigs, an increase of 3 rigs from the previous quarter, primarily due to Precision's strength in gas-weighted basins. In Q3, daily operating margins for the quarter were steady at USD 8,700 a day compared to USD 9,026 a day in the second quarter, also within our prior guidance range. With favorable positioning in the U.S. natural gas market, we continue to add to our U.S. rig count, which has increased from a low of 27 rigs in Q1 to a high of 40 rigs today, a reflection of strong field performance recognized by our customers and the efforts of our sales team. While contract churn continues to challenge activity levels, we are encouraged by the quantity and quality of conversations tied to future opportunities in all basins.

Internationally, Precision's drilling activity averaged 7 rigs, down from 8 rigs in prior year Q3. International day rates averaged USD 53,811 a day, an increase of 14% from prior year Q3 due to rigs recertification with nonbillable days recognized in 2024. In our C&P segment, adjusted EBITDA was $19.3 million, which compares to $19.7 million from prior year Q3. Our strong presence in Canada's heavy oil and unconventional natural gas markets combined with our favorable positioning in the U.S. has provided us the ability to capitalize on rig upgrade opportunities, underpinned by firm customer contract commitments.

During the quarter, we increased our planned 2025 capital expenditures from $240 million to $260 million, comprised of $151 million for sustaining and infrastructure and $109 million for upgrade and expansion. The plan is inclusive of 5 additional contract-backed upgrades added this quarter. Our added contracted backlog in the third quarter far exceeds the increase in our 2025 capital plan, ensuring strong financial returns as we strengthen both the marketability of our rig fleet and customer alignment in key regions.

Even with this increase in capital, we remain firmly committed to our strategic priorities. As of September 30, we've met our annual debt reduction target, reducing our debt by $101 million and are well on our way to allocating between 35% and 45% of our free cash flow to share buybacks. We have repurchased $54 million worth of shares during the first 9 months of the year.

Moving on to forward guidance. I will begin with our expectations for the fourth quarter. While our outlook for the remainder of the year remains positive, it will continue to be commodity price dependent. In Canada, we are expecting activity for this year's winter drilling season to meet or slightly exceed last year's winter activity. Q4 rig counts should be similar to Q4 2024, which averaged 65 rigs. Keep in mind, this includes the seasonal slowdown for Christmas holidays. Our operating margins in Canada are expected to range between $14,000 and $15,000 per day.

In the U.S., we expect to sustain the momentum we have experienced in the last 2 quarters with an average active rig count in Q4 within the upper 30s. For the fourth quarter, we expect our margins to remain stable, ranging between USD 8,000 and USD 9,000 per day.

Moving to guidance for the full year. We expect depreciation of approximately $300 million and cash interest expense of approximately $65 million remaining unchanged from prior guidance. Our effective tax rate will be approximately 45% to 50% due to increased deferred income tax expense related to the momentum of our U.S. operations. Cash taxes are expected to remain low in 2025. And looking to 2026, we expect to return to our traditional effective tax range within 25% to 30% with cash taxes, again, remaining low.

For 2025, we expect SG&A of approximately $90 million to $95 million before share-based compensation expense. We refined our share-based compensation guidance for the year and now expect to range in between $5 million and $30 million, assuming a share price of $60 to $100.

Our long-term target to achieve net debt to adjusted EBITDA of less than 1x remains firmly in place as does our plan to increase our free cash flow allocated directly to shareholders towards 50%. Our net debt to trailing 12-month EBITDA ratio is approximately 1.3x with an average cost of debt of 6.6%, and we have over $400 million in total liquidity today.

With that, I will pass it over to Carey.

Thank you, Dustin, and good morning and good afternoon. First, I would also like to acknowledge Kevin for his accomplishments and contributions to Precision over his 18 years as CEO. His commitment to high performance and ability to grow the business while navigating industry cycles have certainly left their mark on the company. We wish him well in retirement.

Precision is today the leading land driller in Canada, a leader in drilling technology, a high-performance driller in the Middle East, a leading driller in the U.S. and the largest and highest performing well service provider in Canada. The company has a multiyear track record of generating sizable cash flows and now has a strong balance sheet approaching 1x leverage. In short, Precision is well positioned for its next phase of growth.

Precision is undoubtedly one of the truly exceptional companies in the energy industry. What sets us apart is our culture, shared passion, commitment to supporting the field, enthusiasm for serving customers, and deep desire to be the best. Precision's culture, core values and people will continue to be the foundation for our success.

For our investors, the Precision team will remain excellent stewards of capital and we'll follow through with our commitments, which include our plans for long-term debt reduction and increasing direct returns to shareholders. We will continue to be agile and run lean and we'll be prepared for whatever challenges the commodity market has in store for us.

For our customers, we are committed to safety, consistency, reliability and technology that drives performance, reduces costs and delivers the highest quality wellbores. For our employees, Precision will continue to be a fantastic place to work, develop your career and call home. Case in point, Precision just completed a leadership transition in which the company filled 3 key positions, all with internal candidates, and our leadership team will not skip a beat. Gene, Shuja, Veronica, Tom, Darren and I have been working together on the leadership team for nearly a decade, and I look forward to the success this team will accomplish over the next stretch.

I'm pleased to welcome Dustin to the executive leadership team as he steps into the Chief Financial Officer role. Some on the call will remember Dustin when he oversaw our investor relations and corporate development efforts over the 2018 to 2020 period. And over the past 5 years, Dustin has been a key driver of our financial performance working hand in hand with the sales and operations teams in both our Contract Drilling and Completion and Production services segments. I'm excited about Dustin's performance-driven mindset and his future contributions to Precision in his new role.

I also want to extend my congratulations to Gene Stahl, on his new role as Chief Operating Officer. This is a well-deserved recognition of Gene's excellent leadership of Precision in the field with customers and within the industry. I'm truly honored to have the opportunity to lead such an outstanding team.

As we dive into Precision's third quarter performance, I want to make sure for the listener that I link together how our competitive strategy, execution and capital deployment not only support the financial results, which we published, but also position Precision Drilling for future success. Three pillars of our strategy that underpin our performance are leveraging our scale, utilizing technology to drive rig performance and customer focus. I'll start with leveraging our scale.

Precision is running 115 drilling rigs and 80 well service rigs today with rigs, support systems and over 5,000 employees serving customers across North America and the Middle East. Our scale enables us to seize opportunities and secure attractive returns for our investors. For instance, during the quarter, we mobilized 2 Super Triple rigs from the U.S. to Canada and perform major upgrades to prepare the rig for the winter drilling programs. One of the rigs is already drilling, and the second rig should leave our Nisku yard next week. These rig mobilizations were part of a larger multiyear customer contract where we repositioned and reactivated 5 rigs in total.

The creative contract structure, mobilization of assets and quality and speed of the upgrades could not have been possible without Precision's scale and vertically integrated support functions. We also demonstrated the benefits of scale and geographic positioning in the U.S. market where our strength in gas basins positioned us to capitalize on attractive contracted upgrade opportunities for long-reach drilling applications for customers. These rig upgrades added to our contract book, our customer list and rig capabilities.

During the quarter and because of recent rig upgrades and the quality of our crews, we drilled the longest well for a large customer in the Marcellus, and the second longest well for a large customer in the Haynesville, with both wells approaching 30,000 feet. We also set footage per day records for separate customers in both the Marcellus and Eagle Ford.

Higher activity and scale in the U.S. are supporting operating margins as well. Those of you who have listened to previous calls have heard me discuss the strategic rationale for committing to our geographic breadth, in the U.S. market, understanding that we experienced some margin pressure in the short term to cover higher fixed costs. In the past 2 quarters, we have capitalized on several opportunities across the U.S. and are minimizing the fixed cost burden as our rig count has moved from the high 20s earlier this year to 40 rigs active today. As we communicated in our guide for the fourth quarter, our margins are now stabilized.

My final point on leveraging our scale addresses the performance of our Completion and Production Services segment. The differentiated size and capabilities of our well service fleet, which we have scaled through consolidation over the past 3 years, combined with our Precision rental fleet, delivered a year-over-year revenue growth in a market that generally saw lower drilling and well service activity.

Second pillar I'll discuss is that technology continues to be a key driver of success, not only with our Alpha and EverGreen platforms, but also with real-time monitoring technology further supporting rig performance. We now have 90% of our active Super Triple rigs running Alpha technology and 93% of all active rigs with at least one EverGreen solution, reducing fuel consumption and emissions for our customers.

Our automated robotics rig working for a major in the Montney continues to deliver faster tripping and drilling times for our customer and interest in the robotics offering is broadening across our customer base. Our Clarity platform and Digital Twin initiatives delivered real-time monitoring of equipment and well performance, resulting in lower downtime, longer equipment lives, faster drilling speeds and more collaborative and enduring customer relationships. Technology applications are ubiquitous within Precision's operations and are clearly driving results for all our customers.

Finally, I cannot overstate how important customer focus is to our business. The success we have had with the upgrade program in 2025 is a direct result of our customer focus. We work hand-in-hand with our customers to deliver rig equipment and technology packages that we mutually agree will deliver the optimal results. This year, we expect to complete 27 major upgrades and these upgrades are backed by customer contracts or upfront payments.

Our strategic initiatives clearly supported our financial performance in the third quarter and will continue to drive results for Precision in the future. I'm personally excited about Precision's trajectory as we near the end of 2025 with our demonstrated ability to deliver on our shareholder capital return commitments while gaining market share, completing significant investments across our drilling fleet, building our contract book and sustaining strong field margin. The future for Precision Drilling is promising.

That concludes my prepared remarks, and I will now turn the call back to the operator.

[Operator Instructions]

Our first question comes from Derek Podhaizer with Piper Sandler.

Carey, congratulations to you. And Kevin, great to see you in the seat.

Thanks, Derek.

So just maybe a question around some of the comments you made for 2026, the limited visibility in the first part of the year. Obviously, you have some contract term, short-term duration contracts. When can we start seeing those extend a little bit here and get some term back into your contracts? I'm just thinking about the interplay of a lot of the customer-funded upgrades that you've talked about and how that can then lead into extending the terms as we move through 2026?

Yes. I think I was going to go around North America on customer contracts. We are seeing a bit more commitment to longer-term contracts in the Montney. I'd say that would be where our longest duration contracts are. We're seeing some longer-term contracts in heavy oil, but not quite to the degree that we're seeing in the Montney. In the U.S., we're certainly seeing longer-term contracts in the Marcellus. We have a couple of 2-year contracts that we've signed this year, lot of 1-year contracts and then some shorter-term contracts.

I think the contract duration is going to be the shortest in the oil basins as there's been a bit more volatility in that commodity. And in the Haynesville, we're seeing some short term and some slightly longer term, maybe 1 year to 18-month contracts.

And I'll just add, I think Dustin made a comment here about some of the conversations we're having with customers. We don't have -- I think we have one contract in our book that starts -- that we booked that starts in 2026, but we are having a number of constructive conversations with customers for both oil and gas targets in the U.S. for work starting in 2026. But it's kind of yet to be seen how long those contract commitments are going to be.

Okay. That's helpful color. And then just on the rig upgrades, obviously, you've done a lot here in 2025. I think the number is almost 30. We start thinking about 2026 and then as you start thinking about your budget around for CapEx and what that means for free cash flow, how much more rig upgrades do you expect to do? I guess what's the population that you have of your rigs going -- that are available to be upgraded. Just want to start contextually thinking about what rig upgrades can look like for next year, what it means for CapEx?

Yes. I think we -- I would just start with the capital commitments that we made to investors on debt paydown and share repurchases. We will start with commitments, maybe similar levels next year. Hopefully, we raise the commitment to deliver returns directly to shareholders. So we'll start with that. And then we'll have our regular maintenance, which has been trending kind of in the $150 million a year range at this activity level.

And then beyond that, frankly, I hope we have a lot of upgrades. This is an excellent opportunity to generate a significant financial return for our customers. It's certainly the highest return opportunity we have out of all of our options. We have an embedded advantage on completing the upgrades with a 40-acre tech center in Nisku and a 20-acre tech center in Houston that are fully staffed with experts on completing these upgrades. So we have a cost advantage.

And then also, it usually comes with -- or I would say almost always comes with a contract that locks in the return. So I hope we have more. I think as we continue to see longer reach horizontals in the U.S., that will drive demand from our customers for upgrades. We expect to see more pad configuration upgrades in the heavy oil in Canada. And I think it will be more -- it'll be much more than 0. I don't know if we'll hit the same level that we do this year, but I don't think that these upgrade requests are going to stop.

Our next question comes from Keith MacKey with RBC Capital Markets.

Certainly echo Derek's comments on congrats to you, Carey, Dustin and Gene. I think maybe, Carey, if we could just kind of start out with, and you did discuss it in your prepared remarks. But I'm not, at this point, expecting wholesale strategy change from Precision, but certainly some tweaks from how you might see the business to how Kevin might have seen it. Can you just talk about some of those factors and sort of how your priorities will stand going forward as you take on the CEO role?

Yes, sure. I think that's a fair question, Keith. And certainly early days, but I have been with the company for 15 years. I would say that the strategy that we've been working with over my tenure as CFO for the past 10 years. I was heavily involved in developing it, particularly around cost control, capital allocation, return to shareholders and kind of hand-in-hand on how we look at operating the business and dealing with customers.

Where I think the initial focus will be on supporting field operations, the best we can, and proving to our field that we're delivering the best support we can. And then also with customers doing, I would say, a more thorough job of proving to customers that we are delivering the best performance in the industry. And we've got lots of new tools to do that and a commitment by our sales and operations and technology teams to follow through on that. And beyond that, I would just say that there's a lot of things that are working for Precision right now.

So I'm not looking to change the things that are working. You look at kind of the laundry list that I closed my comments with about our contract book and market share and I think we had a revenue decline of 3% year-over-year this quarter, which I think you would be hard-pressed to find a service provider with a similar geographic footprint to us that had a similar resiliency in revenue. So there are a lot of things that are working. But I think there's a few areas where we can sharpen our focus.

Okay. I appreciate the comments. And just one on the margin per day guidance, specifically speaking to any mobilization or activation costs. It looks like in the U.S., you had about $502 a day of impact in Q3. Can you just talk about what that might look like in Canada and the U.S. for Q4, please?

So Keith, this is Dustin here. In Canada, we'll have a little bit tied to the rigs we've mobilized up, but I wouldn't view it as substantial as one of those rigs has already been delivered. And then when you look in the U.S., we've kind of seen a little bit of a constant run rate with some of the reactivation following the momentum of staging all of these incremental rigs from Q1 into Q3. So I think that's a reasonable run rate you can expect kind of with the contract term that we've been absorbing so far in the short term.

Our next question comes from Aaron MacNeil with TD Cowen.

Congrats to everyone. I would certainly echo that and looking forward to seeing where you guys take things. Maybe I'll build on Keith's question, Carey. I was just hoping you could comment on a few specific items like performance-based contracts, your comfort with the operating regions or business lines and your approach to M&A? And if those sort of factors differ from your predecessor?

Okay. So I would say with regards to M&A, no change. I mean I was involved in every kind of M&A discussion we've had probably over the last 15 years. And I think there's nothing strategic that we see on the M&A front. I think there's some transactions we could complete if the price was right, but there's not a transaction out there that we would view as strategic that we would need to pay up for. So no change on that.

I think the other thing I would say on M&A would be we're proving, and this year, in particular, that there are ways to grow our business organically without M&A. And we're doing that through high utilization of assets, improved pricing, rig upgrades, technology add-ons, EverGreen add-ons. And so I think there's a bit more runway on that growth avenue.

With regard to performance-based contracts, I think -- I might have a slightly different view on that, but it's not much different. I think there are good opportunities for performance-based contracts. The industry has certainly -- it's more prevalent in the industry than it would have been 2 or 3 years ago. And we're seeing more unique applications to insert performance clauses into our contracts in both the Canadian market and the U.S. market. And so we're not -- we're not opposed to them. We have several performance-based contracts, and they're working well on delivering financial returns as well as driving performance for our rigs.

So I think that -- I don't think you're going to see a step change in how we look at performance-based contracts, but I would be surprised if we didn't see more of them in the future.

Okay. And then just -- sorry, the last piece of the first question was just presumably you're comfortable with the operating regions and business lines you're currently in?

Correct. I think we're not looking to add any service lines onto our current business lines. And when we look at expanding internationally, we've said it before, and I agree with it today that the markets that we're in, Kuwait and Saudi Arabia are very good markets in the Middle East. It has been difficult to grow outside of those markets because the return profile of deploying new capital has been unattractive. And if we can make that change or find opportunities where that does change, we could grow in that region in the Middle East. And maybe there's another region or 2 that we grow in the future, but nothing to report or telegraph at this point.

Okay. And then for the follow-up, I'm sure you guys gave this a lot of thought before moving additional rigs to Canada. But how do you sort of wrap your head around the downside mitigation in terms of adding supply to the market that's generally been pretty good for the last couple of years. And you also mentioned a unique customer contract structure in the prepared remarks. Can you elaborate on what you mean by that?

Yes. I mean that -- this was a 5-rig contract for a major customer in Canada, where we moved 2 rigs from the U.S. market to Canada, but also we're able to get long-term contracts on 3 other rigs in the Canadian market. So we were able to look at the contract package and the capital committed for that contract package and the contract term and the return that the contract delivered for all those rigs. And together as a package, it was a very attractive opportunity for us, and we were uniquely positioned to be able to capture it. So I think it was just a unique situation that allowed us to move 2 rigs to the Canadian market.

Now your question about supplying more rigs to the market, and I just want to be clear on the comments that we delivered both in our press release and I believe Dustin delivered on his -- on his press release, we expect to be at 100% utilization on Super Triples this winter drilling season. So we are addressing higher demand for Precision Drilling Super Triples. And I don't know what that means for the rest of the market in triples in Canada. But certainly, for our rig class, we expect to be at 100% utilization.

Our next question comes from John Daniel with Daniel Energy Partners.

I guess, Carey, well, congrats -- everyone, congrats, by the way. This question is for Gene. I know it's too early to say how many rig upgrades you're going to do next year, but I'm curious if you could just speak to the demand for more upgrades next year?

John, thanks. So working closely with all of our customers here in the U.S. and trying to understand what they need for rig requirements, what their drilling programs look like and then we've got 3 classes of Super Triples. So our regular 1,500 -- our 1,500 EER and our ST-2000. And so depending on what their drilling program looks like, they've got a steady program, and we've got a rig that we can upgrade for them at a reasonable price, and we can come to contract terms, then we'll go ahead and see if we can move forward with the upgrade.

Okay. But when I look at the 5 rigs that you're doing for Canada, can you just speak to how that evolved the opportunity? How long were the discussions? And could you be surprised next year, all of a sudden that you're going to have 5 to 10 more upgrades. So just -- I'm just trying to get a feel for what the opportunity could be?

Yes. So it's a blend of heavy oil rigs and a blend of Triples. Obviously, Carey just spoke to the Triples viewpoint. And heavy oil with Super Single rigs, we have 48 of them. As the Clearwater starts to evolve and they expand their well design, they're looking for year-round operations. Typically, that can mean 100 more days of utilization for us as a drilling contractor. And so converting those single-mode rigs to pad rigs is something that's of interest to our customers and to ourselves and that's where the growth would come from.

Got it. Apologies for what's going to be a drilling 101 question here. But you did the 27 rig upgrades this year or you'll do them. Can you remind me what a potential rig upgrade cycle could be? When do you have to bring those 27 back in?

Oh, you mean the time it takes to complete an upgrade?

Yes, just -- yes, I'm sorry for such a basic question, but I'm slow today.

You know, it's a -- for what for what we're doing, some of the rig upgrades might be an in-basin upgrade where in a rig move, we're installing a new piece of equipment from [indiscernible]. A longer-term upgrade might be doing a pad configuration for Super Single and that would be 3 to 4 months. The rigs that we moved up, the Super Triples, those were probably 2- to 3-month upgrades to get those rigs ready. So we're not looking at any kind of 6 to 9-month upgrades. Most of them are going to be pretty quick, inside a week to 3 or 4 months.

And it speaks to our rig design and our capability to use our inventories and upgrade to our spec. So I think a differentiator for Precision, certainly.

Our next question comes from Tim Monachello with ATB Capital Markets.

Everybody, long-time listener and first-time caller in a while. Congrats, Carey, Dustin and Gene for much deserved promotions and Kevin for a great career. First question just around Canada. Interesting to see a couple of rigs being moved out of the U.S. into Canada Super Triple market. And with your comment that you're fully utilized for -- or expecting to be fully utilized for the winter drilling season, do you think there's more opportunity to move rigs out of the U.S. into Canada?

I think for this winter drilling season, no. And we don't currently have deep discussions with customers about moving more rigs. But over time, over the next couple of years, I mean, LNG Canada Phase 2, other LNG opportunities, there could be more demand for Super Triple rigs. And certainly, the rigs that we have in Canada are delivering good performance for our customers. So there may be opportunities in the future, but I would say it would be for next winter drilling season.

Okay. That makes sense. And then the U.S., obviously, the oil basins, the outlook is a little bit circumspective, I would think. In the gas basins, you've seen almost 20% rig activity growth in gas in the U.S. year-to-date. And you have a unique footprint in the gas basins with a pre fragmented customer base. So I expect you have a decent view from a lot of customers on what their expectations are going forward for activity. Could you talk a little bit about your expectations for U.S. gas drilling activity over the next, I don't know, 6 to 12 months?

Yes. I think we have a decent viewpoint on where activity might be going on gas. I think the Marcellus is, I would say, steady to low growth. There might be some -- what we've seen is there's been a bit of high-grading within the basin. So as we've added more rigs to the basin, there's been a few instances where a rig has gone down. So they haven't -- our additions there haven't necessarily resulted in basin growth.

In the Haynesville, I think most people look at the Haynesville as swing producer for LNG exports and natural gas production in general. So we could see higher activity in the Haynesville over the next year if gas prices are supportive. But I wouldn't say that we have a -- as we stated in our press release, we don't have much of a view on that demand beyond early 2026.

What's the motivating factor behind, I guess, higher activity levels this year considering gas prices have been fairly uneconomic in the U.S. Is it just LNG export and building supply? Is that what you're seeing?

Yes, I think there's -- I think most people are seeing a wave of demand on both natural gas-fired generation for data servers and electrification of the economy and then LNG exports. And so I think some customers are looking through any short-term volatility in gas prices and looking at the longer-term demand outlook.

Okay. That's helpful. And then could you just provide a quick overview of what the geographies, the 27 upgrades you're going to?

So it's really a mix, Tim. But think of it, we obviously commented on the 2 Montney rigs that we're going to bring up from the U.S. into Canada. Heavy oil is really a key area we've invested a lot. So this would be our Clearwater Basin and then more into the unconventional plays in SAGD. One comment on that, we've seen a lot of enthusiasm with our customers on these upgrades where we have recognized a lot of upfront payments throughout the year to help support these upgrades as well.

And then when you look down to the U.S., it's primarily weighted to the Haynesville and the Marcellus. But we have had some upgrade opportunities with high torque equipment in the Rockies and even in the Permian.

And I would just add to that, Tim, I believe we said this in the press release, but the vast majority of the upgrades are going to areas in North America where we expect to have year-over-year increases in activity. So it's a little bit out of stuff with kind of the broader market, but in the Haynesville, in the Marcellus heavy oil, and in the Montney, we expect that higher year-over-year activity, and that's what was driving these upgrades.

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

Thank you for taking the time to learn more about Precision Drilling today. And with that, we will sign off. Everyone, enjoy your day. Thank you.

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

Good day, and thank you for standing by. Welcome to the Precision Drilling Corporation 2025 Second Quarter Results Conference Call and Webcast.

I would now like to hand the conference over to Lavonne Zdunich, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Welcome, everyone, to Precision Drilling's Second Quarter Conference Call and Webcast. Today, I'm joined by Kevin Neveu, Precision's President and CEO; and Carey Ford, our CFO.

Yesterday, we reported our second quarter results. To begin our call today, Carey will review these results, and then Kevin will provide an operational update and outlook commentary. Once we 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+ 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, Carey.

Thank you, Lavonne. Precision's Q2 financial results exceeded our expectations for adjusted EBITDA, earnings and cash flow.

Adjusted EBITDA of $108 million was driven by strong drilling activity in Canada, improved activity in the U.S. 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 million and additional revenue of $7 million related to customer-funded upgrade projects in Canada. Without these items, adjusted EBITDA would have been $105 million.

Revenue was $407 million, a decrease of 5% from Q2 2024. Net earnings were $16 million or $1.21 per share, representing Precision's 12th consecutive quarter of positive earnings. Funds and cash provided by operations were $104 million and $147 million, respectively.

In the U.S., Precision's drilling activity averaged 33 rigs in Q2, an increase of 3 rigs from the previous quarter, with operating days increasing 13%. Daily operating margins in Q2, excluding the impacts of turnkey and IBC, were USD 9,026, an increase of USD 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 USD 8,000 and USD 9,000 per day. This includes anticipated rig activations in Q3.

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 onetime items. Our reported daily operating costs included costs associated with reactivating 4 rigs during the quarter, negatively impacting operating costs by $648 per day.

In Canada, Precision's drilling activity averaged 50 rigs, an increase of 1 rig from Q2 2024. Our daily operating margins in the quarter were $15,306, an increase of $883 from Q2 2024. Our Q2 margins included revenue associated with upfront customer payments for rig upgrades amounting to $1,440 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's drilling activity in the quarter averaged 7 rigs. International average day rates were USD 53,129, an increase of 4% from the prior year due to rig mix. In our C&P segment, adjusted EBITDA this quarter was $10 million, 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 million, including $27 million for upgrade and expansion and $26 million for maintenance and infrastructure. Our full year 2025 capital plan has been increased from $200 million to $240 million and is comprised of $150 million for sustaining and infrastructure and $86 million for upgrade and expansion.

Our original 2025 plan was $225 million and was subsequently reduced in April as a result of heightened market uncertainty around tariff discussions and potential deterioration of U.S. and Canada trade relations. 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 3 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 million and share repurchases of $14 million. As of June 30, our long-term debt position net of cash was approximately $644 million, and our total liquidity position was approximately $530 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 1.3x, and our average cost of debt is 6.9%.

Moving on to guidance for 2025. We expect strong free cash flow for the year, depreciation of approximately $300 million, cash interest expense of approximately $65 million. Cash taxes, we expect to remain low and our effective tax rate to be approximately 25% to 30%. We expect SG&A of approximately $95 million before share-based compensation expense. And we expect share-based compensation charges for the year to range between $15 million and $35 million 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 million, and we plan to allocate 35% to 45% of the free cash flow before debt principal payments to share repurchases. With $91 million of debt reduction and $45 million of share repurchases through June 30, we are well on our way to achieving another annual capital allocation goal. We are committed to reducing debt by $700 million between 2022 and 2027 and achieving a normalized leverage level below 1x. Since 2022, we have reduced debt by $525 million.

With that, I will turn the call over to Kevin.

Thank you, Carey, and good morning to those of us in Calgary, and good afternoon, if you're east of us.

As Carey mentioned, second quarter results were stronger than we anticipated with excellent free cash flow and better-than-expected margins. We 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 Single 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. 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 are operating 36 rigs in the United States, well up the normal of 27 rigs in late February. And I'll come back to our U.S. 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 million 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 million of upgrades, and we've identified an additional $15 million of further good upgrade investment opportunities. As Carey mentioned, we now plan to spend a total of $86 million of rig upgrades as part of our 2025 capital spending plans, and I'll provide more color on these investments later in my comments.

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 prefunding 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. 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 rig demand in this play.

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 at the end of the first quarter of next year as it has in the past several winters.

With LNG Canada Phase 1 operating and shipping cargoes, full operational ramp-up is expected over the next several months into early next year. When Phase 1 reaches rated capacity, we expect industry rig demand may increase by 5 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 U.S. Some of those customer conversations and negotiations are underway right now, and 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 start-up of the Trans Mountain expansion. During the second quarter, we reported the highest utilization of our Super Single rigs, higher 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 2 of these pad upgrades during the first quarter and will deliver a third, the 17th, later in the third quarter. 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 uncertainty surrounding oil, while our larger-scale, top half of our customer mix are actually running slightly more rigs compared to this time last year.

Now specifically, the 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 7 fewer rigs. As we've mentioned before, this rig class is oversupplied and highly price competitive with rates trending to cyclic lows.

Now before I leave Canada, I'll touch on our Well Service segment, where second quarter activity was down year-over-year, more in line with long-term seasonal breakup trends. I'll remind the listeners that most 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 their 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.

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 3 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. And I'll walk through these increases on a region-by-region basis.

So since February, we've added 2 rigs in the Haynesville. We've added 3 rigs in the Marcellus, and we have a fourth scheduled to start up shortly. We have 2 rigs in the Gulf Coast, all targeting gas. We've also added 4 rigs in the DJ and Rockies, where our ST-1200 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 2 fewer rigs in the Permian, consistent with broad industry trends.

Now I'll close my comments on Lower 48 by mentioning that contract churn with our oil-directed rigs, particularly in West Texas, will continue. And while customer interest in the Haynesville and Marcellus is encouraging, we have ongoing customer discussions for potential rig activations late this year and 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 Carey mentioned, we continue to operate 5 rigs in Kuwait and 2 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, 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 midyear update. So first, as Carey mentioned, we retired $91 million of debt, almost achieving our target of $100 million by only midyear. Also, Carey mentioned that we've returned capital to shareholders by repurchasing $45 million 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. Now we mentioned that we implemented the fixed cost and SG&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 cost impacts of the steel 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 and 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 in our 23 field support bases. I'm proud of their efforts and the results are clear in our financial performance in the first half of this year, and the momentum will continue through 2025.

Our third priority was to grow revenue in 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 remain 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. Our EverGreen solutions reduce diesel fuel consumption, reduced rig emissions and reduced 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 pay out 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-1500 rigs, including larger mud pumps, higher-torque top drives, racking and hoisting capacity increases, and these upgrades will impact approximately 12 rigs. 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 rig utilization. All of these initiatives are designed to provide and enhance our competitive advantage, provide revenue and earnings growth, improve revenue visibility while delivering returns well 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 Instructions] Our first question comes from Derek Podhaizer with Piper Sandler.

I guess maybe let's just start on the U.S. side. Obviously, some really nice growth that we're seeing in the 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?

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. They're 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.

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

That's also a big question. So I'll tell you, first of all, we've got some expectations I pressed on the sales team in the U.S. 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 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. 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 and the oil price dipping down to low $60s, well, then all bets are off. And I think churn will increase and be certainly more challenging for us. So if you do that math on that, hopefully, we'll look to find another 5 to 7 rigs in gas over the next several quarters.

Got it. No, that's helpful. I 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, pricing pressure. I guess taking a step back, what's the long-term thinking for this part of the market where your other 2 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 could do around with the double-rig segment.

Derek, so a couple of years ago, we acquired CWC, which actually increased our doubles fleet quite a bit. And 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 2, 3, maybe 4 drillers that run most of the triples in Canada. We've got good scale matching between the suppliers, us and the operators. On the singles side, I think there's 14 contractors that are in the tele-double business, maybe more. And that's just too fractured. So I do think that the singles or the tele-double space needs to consolidate in Canada. With the market share we have right now, we're likely not going to be that consolidator. 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 a better scale matching between services and operators.

Carey, do you have anything to add to that?

Yes, I actually don't. I think that characterizes it pretty well.

Our next question comes from Aaron MacNeil with TD Cowen.

Kevin, I'm hoping you can help me reconcile the prepared comments with the contract disclosures. So again, in Q1 disclosures, 38 average rigs under contract in 2025, now it's 39, so 1 incremental. On a Q4 basis, there's 3 additional rigs, 3 incremental and maybe some of the contracts don't take effect until 2026. So 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's sort of the contract durations that you're achieving with these upgrades? Or are some of these spec-in nature part of a larger market share capture strategy?

Aaron, this is Carey. 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, the 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 million. So there are some that we expect to sign that don't show up in the contract book yet.

The second point is most of these contract upgrades are going to be kind of in the $1 million to $5 million range per rig. So a lot of these upgrades that we're doing don't require a 2-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 6 months to 1 year. For the larger dollar amounts, we do need 1- to 2-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. So you actually wouldn't see the contract increase because the contract term is not changing. The day rate is just increasing to give us a return.

And then the final comment I'd make is, what we disclosed this quarter is we had $7 million of revenue for 2 -- there's actually 2 different customers paying us upfront for rigs that we are upgrading. And there is no contract associated with that, and that's why we ask 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 3-year contract or a 4-year contract and it shows up in the contract book. We're very happy with the returns we're getting. 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.

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?

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.

[Operator Instructions] Our next question comes from Keith MacKey with RBC Capital Markets.

Just a quick clarification on the $40 million 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 22 rigs that we'll also see? Or is the $40 million it as far as upgrading these rigs?

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 at 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. 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 million spend largely being directed at rigs that will be delivered this year.

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

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 midyear debt reduction target now. So as 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 repayment at that time?

So Keith, we haven't given much guidance beyond getting to our total debt reduction plan of $600 million by the end of next year, which we will...

$700 million.

$700 million by the end of next year, which we will achieve...

2027.

'27, thank you. Thanks, Carey, for clarifying me.

Big numbers we're dealing with here.

Yes. But what I would tell you is that, 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 2-year payback on a $3 million or $4 million upgrade or a less than 1-year payback on a $1 million 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. So we've got 3 priorities that are all important, and we're not going to sacrifice debt repayment or either shareholder share buybacks or capital or vice versa.

Yes. I think that's exactly right. And we've got $175 million remaining on our long-term debt reduction plan with 2.5 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.

Our next question comes from Waqar Syed with ATB Capital Markets.

First of all, congrats on an excellent quarter. In terms of the upgrades that you're doing on the rigs in the U.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 upgrades, these will be kind of unique-type rigs in every basin?

Waqar, 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 draw works 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. So larger mud pumps is more horsepower; larger draw works, more hoisting capacity; larger, heavier mass would be more rocking capacity, more casing capacity. It's all 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. Now 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.

Sure. And then in terms of the type of wells that these rigs would be drilling, is that like these 4-mile laterals or horseshoe-type wells? Or what is it that clients hope to achieve with these rigs?

So we are drilling 4-mile laterals right now. We're drilling some horseshoe-bend 4-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 going to be drilling 4-mile laterals, the drilling team wants that ability down the road. So I think these are being designed to drill Haynesville or Marcellus and do the longest 3 horizontal wells that'll likely be economic for the near future.

Our next question comes from John Daniel with Daniel Energy Partners.

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

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. So higher day rates and maybe a little shorter term. But I'll tell you the terms we're looking at are in the 1- to 2-year range.

Okay. Fair enough. And then last one for me. Your 2 U.S. Well Service 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.

On the well service side, no. Interestingly, we talked about EverGreen upgrades. So we've had more interest in high-line powered drilling rigs that will be electric as most electric rigs are, but high-line powered. 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 newbuild service rig in Canada, newbuild new technology service rig, is still probably several years out.

Our next question comes from John Gibson with BMO Capital Markets.

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.

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 a really strong presence, which would be the Haynesville, Marcellus, Montney and Canadian heavy oil. That's where the bulk of the upgrades are going.

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

Large high single digits.

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

Well, that 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. And with that, I will sign off. Thanks for joining.

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