Mr. Kevin Neveu reports

PRECISION DRILLING ANNOUNCES 2023 THIRD QUARTER UNAUDITED FINANCIAL RESULTS

Precision Drilling Corp. has released strong 2023 third quarter financial results:

• Revenue increased to $447-million compared with $429-million in the third quarter of 2022 driven by higher drilling day rates, offset in part by lower drilling and service activity.
• Revenue per utilization day continues to be strong and grew 20 per cent in Canada to $32,224 and 26 per cent in the United States to $35,135 (U.S.) compared with the same quarter last year.
• Precision continued to scale its Alpha digital technologies and EverGreen suite of environmental solutions across its Super Triple rig fleet, increasing revenue from these offerings by 30 per cent year-over-year. Approximately 75 per cent of the Super Triple rig fleet is equipped with Alpha and at least one EverGreen product.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $115-million and included $31-million of share-based compensation as the company's share price increased 41 per cent during the quarter, bringing its year-to-date share-based compensation to $22-million. In the third quarter of 2022, adjusted EBITDA was $120-million and included a $6-million charge for share-based compensation.
• Net earnings were $20-million or $1.45 per share compared with $31-million or $2.26 per share in 2022. For the first nine months of the year, Precision has generated net earnings of $10.45 per share.
• During the quarter, the company generated cash from operations of $89-million and repurchased and cancelled $18-million (U.S.) of 2026 unsecured senior notes.
• As at Sept. 30, 2023, Precision has reduced total debt by $126-million since the beginning of the year and remains on track to meet its 2023 debt reduction target of $150-million.
• Precision ended the quarter with $49-million of cash and more than $600-million of available liquidity.
• In Canada, Precision averaged 57 active rigs in the third quarter, similar to its activity for the same quarter last year. Demand for the Super Triple and Super Single pad-capable fleets continues to exceed supply and the company expects these rigs to remain fully utilized well into 2024.
• In the U.S., Precision averaged 41 active rigs compared with 57 in the third quarter of 2022 due to lower industry activity year-over-year.
• Internationally, Precision activated its seventh rig in late September and expects to activate its eighth rig in the next few weeks. In 2024, the company expects to have eight rigs working under long-term contracts, increasing its international earnings approximately 50 per cent over 2023.
• Completion and production services generated revenue of $58-million and adjusted EBITDA of $14-million, largely consistent with the third quarter of 2022.
• Precision expects the acquisition of CWC Energy Service Corp. to be completed in the fourth quarter and provide accretive cash flow on a per-share basis in 2024.
• In response to increased customer-financed rig upgrades and to facilitate the strategic purchase of certain long-lead items, Precision has increased its 2023 capital spending budget from $195-million to $215-million.

Precision's president and chief executive officer, Kevin Neveu, stated:

"Precision's third quarter financial results and recent customer contracting demonstrate strong demand for our Super Series rigs, Alpha technologies and EverGreen products. The North American land drilling market has matured with participants demonstrating capital discipline and operators rewarding the highest-performance drilling contractors.

"Our Canadian business continues to showcase this trend. While Canada's industry activity during the third quarter was 6 per cent lower than the same period last year, utilization of Precision's Super Triple and Super Single rigs was up year-over-year, with 29 Super Triples and 32 Super Singles active during the quarter. Despite customer capital discipline and lower industry activity, customer demand for Super-Spec rigs has never been higher and we continue to strengthen our contract book. Since the end of the second quarter, we have added 13 term contracts with take-or-pay provisions for our Super Triples and customer-funded upgrades for our Super Singles. The outlook for Canada remains encouraging with 67 rigs active today, significant oil and natural gas pipeline takeaway capacity coming on-line in early 2024, and current customer conversations indicating incremental demand for Super Triple and Super Single drilling programs in 2024.

"In the U.S., our rig count was stable throughout the third quarter, and we currently have 44 rigs active. Customer interest in Alpha digital technologies and our EverGreen suite of environmental solutions remains strong, with virtually all our U.S. Super Triple rigs utilizing AlphaAutomation and 60 per cent generating incremental revenue from EverGreen products. With firm oil prices and a new budget cycle, we expect customer outlook to improve and drive more drilling activity later this year and into 2024.

"Internationally, we currently have seven rigs running and expect to activate our eighth rig within the next few weeks. With our additional rig activations this year, we expect our 2024 international earnings to increase by approximately 50 per cent over 2023, and should remain at this higher level for the next several years as our recent contract awards are under five-year terms.

"During the third quarter, our adjusted EBITDA was $115-million and excluding our share-based compensation of $31-million increased year-over-year. This increase was driven by our Canadian drilling operations where strong fundamentals continue to support improving returns. Net earnings were $20-million for the quarter and year to date we have delivered earnings of $10.45 on a per-share basis.

"Cash generated from operations during the third quarter was $89-million compared to $8-million last year, reflecting the efforts of our team to focus on cash generation. Year to date, we have reduced our total debt by $126-million and returned $13-million to shareholders through share repurchases and are well on track to achieve the targets we set at the beginning of the year. With strong demand for our Super Series rigs, we are increasing our 2023 capital budget by $20-million to support customer-funded rig upgrades and the purchase of certain long-lead items.

"In September, we announced the acquisition of CWC, which will position Precision as the premier well service provider in Canada and bolster our drilling operations in both the U.S. and Canada. We expect to realize $20-million in operational synergies and generate accretive cash flow on a per-share basis in 2024.

"I am proud of the discipline Precision continues to show throughout the organization despite short-term industry cyclicality. We remain focused on our strategic priorities, which include delivering operational excellence, maximizing free cash flow and improving our balance sheet. With a focused strategy and discipline, I am confident Precision will continue to deliver increased shareholder value," concluded Mr. Neveu.

Summary for the three months ended Sept. 30, 2023:

• Revenue of $447-million was 4 per cent higher than 2022 due to the further strengthening of drilling and service revenue rates, partially offset by lower activity. Drilling rig utilization days decreased 28 per cent and 3 per cent in the U.S. and Canada, respectively, while international activity remained consistent. Precision's service rig operating hours decreased 10 per cent as compared with 2022.
• Adjusted EBITDA was $115-million as compared with $120-million in 2022. Precision's lower 2023 adjusted EBITDA was primarily the result of increased share-based compensation charges and lower activity, partially offset by higher revenue rates. Share-based compensation was $31-million as compared with $6-million in 2022.
• Adjusted EBITDA as a percentage of revenue was 26 per cent as compared with 28 per cent in 2022.
• Precision's U.S. revenue per utilization day was $35,135 (U.S.) compared with $27,847 (U.S.) in 2022. The increase was primarily the result of higher fleet average day rates and higher idle but contracted rig revenue. The company recognized revenue from idle but contracted rigs of $6-million (U.S.) as compared with $1-million (U.S.) in 2022. Consistent with 2022, the company did not recognize revenue from turnkey projects during the quarter. Revenue per utilization day, excluding the impact of idle but contracted rigs, was $33,543 (U.S.), compared with $27,682 (U.S.) in 2022, an increase of $5,861 (U.S.) or 21 per cent. Revenue per utilization day, excluding idle but contracted rigs, decreased $1,014 (U.S.) from the second quarter of 2023.
• Precision's U.S. operating costs per utilization day increased to $21,655 (U.S.) compared with $18,220 (U.S.) in 2022. The increase was primarily due to higher rig operating costs, repairs and maintenance, and the impact of fixed costs being spread over fewer activity days. The company's higher rig operating costs in the current period pertained to field rate increases completed in the fourth quarter of 2022. U.S. operating costs per utilization day, excluding turnkey, were $21,623 (U.S.) compared with $18,236 (U.S.) in 2022. Sequentially, excluding the impact of turnkey activity, operating costs per utilization day increased $2,677 (U.S.). The increase was primarily due to higher repairs and maintenance and the impact of fixed costs being spread over fewer activity days.
• In Canada, revenue per utilization day was $32,224 compared with $26,927 in 2022. The increase was a result of higher average day rates and customer cost recoveries. Sequentially, revenue per utilization day decreased $1,311 due to lower customer cost recoveries.
• Precision's Canadian operating costs per utilization day increased to $18,311, compared with $16,893 in 2022, due to higher field wages, repairs and maintenance, and costs that were recovered from customers. Sequentially, the company's daily operating costs decreased $3,021 due to lower repairs and maintenance, customer cost recoveries, and operating overheads being spread over a higher activity base.
• Completion and production services revenue and adjusted EBITDA were $58-million and $14-million, respectively, compared with $57-million and $15-million in 2022.
• Precision realized $29-million (U.S.)of international contract drilling revenue compared with $28-million (U.S.) in 2022.
• General and administrative expenses were $44-million as compared with $25-million in 2022. The increase was primarily due to higher share-based compensation charges.
• Net finance charges were $20-million, a decrease of $3-million compared with 2022 and was the result of lower outstanding long-term debt.
• Cash provided by operations was $89-million compared with $8-million in 2022. Precision generated $92-million of funds provided by operations compared with $81-million in 2022. The company's increased day rates, revenue efficiency and operational leverage continued to drive higher cash generation in the current quarter.
• Capital expenditures were $52-million compared with $51-million in 2022. Capital spending by spend category included $13-million for expansion and upgrades and $39-million for the maintenance of existing assets, infrastructure and intangible assets.
• Precision repaid $26-million of debt, repurchasing and cancelling $18-million (U.S.) of 2026 unsecured senior notes, and ended the quarter with $49-million of cash and more than $600-million of available liquidity.

Summary for the nine months ended Sept. 30, 2023:

• Revenue for the first nine months of 2023 was $1,431-million, an increase of 29 per cent from 2022.
• Adjusted EBITDA was $460-million as compared with $221-million in 2022. Precision's higher adjusted EBITDA was attributable to increased revenue rates, higher Canadian drilling and service activity, and lower share-based compensation, partially offset by lower U.S. and international drilling activity.
• General and administrative costs were $83-million, a decrease of $19-million from 2022 primarily due to lower share-based compensation, partially offset by higher labour-related costs and the impact of the weakening Canadian dollar on Precision's translated U.S.-dollar-denominated costs.
• Net finance charges were $64-million, consistent with 2022, as the impact of Precision's lower debt balance was offset by higher variable debt interest rates and higher translated U.S.-dollar-denominated interest expense due to the weakening of the Canadian dollar.
• Cash provided by operations was $330-million as compared with $78-million in 2022. Funds provided by operations in 2023 were $388-million, an increase of $217-million from the comparative period.
• Capital expenditures were $148-million in 2023, an increase of $21-million from 2022. Capital spending by spend category included $39-million for expansion and upgrades and $108-million for the maintenance of existing assets, infrastructure and intangible assets.
• Year to date, Precision has reduced its total debt by $126-million through the full repayment of its senior credit facility and the repurchase and cancellation of $48-million (U.S.) of its 2026 unsecured senior notes. In addition, the company repurchased and cancelled 193,616 common shares for $13-million under its normal course issuer bid (NCIB).

Strategy

Precision's vision is to be globally recognized as the high-performance, high-value provider of land drilling services. It works toward this vision by defining and measuring its results against strategic priorities that it establishes at the beginning of every year.

Precision's 2023 strategic priorities and the progress made during the third quarter and year to date are as follows:

1. Deliver high-performance, high-value service through operational excellence:
   • Year to date, the company has increased its Canadian drilling rig utilization days and well servicing rig operating hours, maintaining its position as the leading provider of high-quality and reliable services in Canada;
   • Activated the company's seventh rig in the Middle East and expects to have an eighth rig working in the next few weeks. These eight rigs represent over $500-million (U.S.) in backlog revenue that stretches into 2028;
   • Announced the acquisition of CWC, expanding Precision's Canadian well servicing business and its drilling fleets in both the U.S. and Canada. The proposed transaction is expected to provide approximately $20-million in annual synergies and be accretive on a 2024 cash flow per-share basis;
   • Reinvested $148-million year to date into the company's equipment and infrastructure as it progresses toward its total expected 2023 investment of $215-million.
2. Maximize free cash flow by increasing adjusted EBITDA margins, revenue efficiency and growing revenue from Alpha technologies and EverGreen suite of environmental solutions:
   • Realized third quarter daily operating margins (revenue per utilization day less operating costs per utilization day) of $13,913 in Canada and $13,480 (U.S.) in the U.S., representing increases of 39 per cent and 40 per cent, respectively, compared with the third quarter of 2022;
   • Grew combined Alpha technologies and EverGreen suite of environmental solutions third quarter revenue by 30 per cent compared with the same quarter last year;
   • At Sept. 30, Precision had 74 of its AC Super Triple rigs equipped with Alpha technologies, representing a 19-per-cent increase over the third quarter of 2022;
   • Continued to scale the company's EverGreen suite of environmental solutions. Approximately 75 per cent of its Super Triple fleet is equipped with at least one EverGreen product, including 11 field deployed EverGreen battery energy storage systems (BESS).
3. Reduce debt by at least $150-million and allocate 10 per cent to 20 per cent of free cash flow before debt repayments for share repurchases. Long-term debt reduction target of $500-million between 2022 and 2025 and sustained net debt to adjusted EBITDA ratio of below one time by the end of 2025:
   • Generated significant third quarter cash from operations of $89-million which allowed Precision to repurchase and cancel $18-million (U.S.) of 2026 unsecured senior notes;
   • As of Sept. 30, 2023, the company has reduced debt by $126-million and remain committed to reducing debt by at least $150-million in 2023;
   • Precision has allocated $13-million of free cash flow to share repurchases for the first nine months of the year and in September it renewed its NCIB for an additional year as the company believes it continues to be another tool to enhance shareholder value;
   • Precision remains committed to its long-term debt reduction target and reaching a sustained net debt to adjusted EBITDA ratio of below one time by the end of 2025.

Outlook

Energy industry fundamentals continue to support drilling activity for oil and natural gas despite economic uncertainty and geopolitical instability. During the third quarter, persistent challenges and stresses from interest rate hikes and recessionary risks began to weaken, and commodity prices moved higher. While the recent conflict in the Middle East has had little direct impact on global oil and natural gas supply, an escalation of events and involvement from additional regional powers could disrupt supply in the world's top oil producing region.

Today, oil prices are supported by increasing global demand and limited supply growth as OPEC continues to honour its lower production quotas and producers remain committed to returning capital to shareholders versus increasing production. Natural gas has demonstrated short-term price weaknesses; however, this lower-carbon energy source is becoming increasingly favoured as countries around the world stress the importance of sustainability, decarbonization and energy security. With demand for liquefied natural gas (LNG) exports growing and the next wave of North American LNG projects expected to begin coming on-line in 2025 (including LNG Canada), Precision anticipates a sustained period of elevated natural gas drilling activity in both the U.S. and Canada.

In Canada, Precision's year-to-date drilling activity has surpassed 2022 levels and it expects high activity levels to continue into 2024, due to strong oil prices and increases in hydrocarbon export capacity. The Trans Mountain oil pipeline expansion and the Coastal GasLink pipeline are each expected to begin operations in the first quarter of 2024. Northwestern Alberta and northeastern British Columbia natural gas developments are prime beneficiaries of the LNG Canada project and the January, 2023, agreement between the government of British Columbia and the Blueberry River First Nation, which has facilitated a significant increase in drilling licence approvals and should lead to more drilling activity in the region. Large pad drilling programs are ideally suited for Precision's Super Triple rigs, resulting in strong customer interest for these rigs for the next several years. The company's Super Triple fleet is currently fully utilized and it expects customer demand to continue to exceed supply, driving higher day rates, daily operating margins and longer-term take-or-pay contracts. The company is currently upgrading one of its Canadian rigs and expects to add it to the Super Triple Canadian fleet in January, 2024, on a three-year term contract, bringing the fleet size to 30.

In the Canadian heavy oil market, Precision expects activity levels to remain strong as Canadian producers are benefiting from favourable oil pricing due to a weaker Canadian-dollar exchange rate and improving heavy oil differentials. Precision's Super Single rigs are well suited for long-term conventional heavy oil development in the oil sands and Clearwater formation. Precision expects its Super Single pad-capable rigs to be fully utilized well into 2024, driving higher day rates.

In the U.S., drilling activity had been increasing since mid-2020 but began to weaken in early 2023 due to lower natural gas prices and oil price volatility. As at Oct. 25, 2023, the Baker Hughes active U.S. land rig count declined 21 per cent from the start of the year. If oil prices remain stable and around today's level, the company expects demand to improve late in the fourth quarter and gain momentum in 2024 as customers embark on a new budget cycle and seek to maintain or possibly increase production levels and replenish inventories.

Precision's Alpha technologies and EverGreen suite of environmental solutions continue to gain momentum and have become key competitive differentiators for the company's rigs as these offerings deliver exceptional value to customers by reducing risks, well construction costs and carbon footprint. Precision currently has 11 EverGreen BESS deployed in the field and has commitments for two additional deployments by year-end. Precision's EverGreen BESS have proven to be an economically viable emissions reduction solution for its customers and the company anticipates continued demand for additional deployments in 2024.

Internationally, Precision currently has seven rigs working on term contracts, four in Kuwait and three in the Kingdom of Saudi Arabia, increasing to eight in the next few weeks. In 2024, its international earnings are expected to increase approximately 50 per cent over 2023 levels and provide stable and predictable cash flow that stretches into 2028. Precision continues to bid its remaining idle rigs within the region and remains optimistic about its ability to secure rig reactivations.

Precision is the leading provider of high-quality and reliable well services in Canada and the outlook for this business is positive. High customer demand for well maintenance and completion services is expected to add tightness to the availability of staffed service rigs, supporting healthy activity and pricing into the foreseeable future. In September, Precision announced the acquisition of CWC, which will allow it to enhance its Canadian well service offering with high-quality rigs in complementary geographic regions. The acquisition is expected to close in the fourth quarter of 2023 and provide accretive cash flow on a per-share basis in 2024.

Contracts

In Canada, term contracted rigs normally generate 250 utilization days per year because of the seasonal nature of well site access. Accordingly, Precision's anticipated Canadian rigs under term contract may fluctuate as customers complete their commitments earlier than projected. In most regions in the U.S. and internationally, term contracts normally generate 365 utilization days per year. Internationally, the company expects to have eight rigs operating under long-term contract by the end of 2023.

Drilling activity

According to industry sources, as at Oct. 25, 2023, the U.S. active land drilling rig count has decreased 21 per cent from the same point last year while the Canadian active land drilling rig count has decreased 6 per cent. To date in 2023, approximately 79 per cent of the U.S. industry's active rigs and 59 per cent of the Canadian industry's active rigs were drilling for oil targets, compared with 79 per cent for the U.S. and 63 per cent for Canada at the same time last year.

Capital spending and free cash flow allocation

Precision remains committed to disciplined cash flow management, capital spending and returning capital to shareholders. In response to increased customer contracted rig upgrades and to facilitate the strategic purchase of certain long-lead items, capital spending in 2023 is expected to increase by $20-million to $215-million. By spend category, the company expects to incur $155-million for sustaining, infrastructure and intangibles and $60-million for expansion and upgrades. It expects that the $215-million will be split as follows: $201-million in the contract drilling services segment, $11-million in the completion and production services segment, and $3-million in the corporate segment. As at Sept. 30, 2023, Precision had capital commitments of approximately $229-million with payments expected through 2026.

As at September 30, 2023, the majority of our share-based compensation plans were classified as cash-settled and will be impacted by changes in our share price. Although accounted for as cash-settled, Precision retains the ability to settle certain vested units in common shares at its discretion.

Normal course issuer bid

During the quarter, the Toronto Stock Exchange (TSX) approved the renewal of the company's normal course issuer bid. Pursuant to the NCIB, Precision is authorized to repurchase and cancel up to a maximum of 1,326,321 common shares. Purchases under the renewed NCIB may commence on Sept. 19, 2023, and will terminate no later than Sept. 18, 2024, or such earlier time as the company completes its maximum purchases pursuant to the NCIB or provis notice of termination.

Cathedral Energy Services Ltd.

During the third quarter of 2023, Precision exercised two million warrants for $1-million in exchange for two million common shares of Cathedral Energy Services. In addition, it divested 11 million common shares of Cathedral for net proceeds of $10-million.

2023 third quarter results conference call and webcast

Precision Drilling has scheduled a conference call and webcast to begin promptly at 12 p.m. MT (2 p.m. ET) on Thursday, Oct. 26, 2023.

To participate in the conference call please register on-line. Once registered, you will receive a dial-in number and a unique PIN, which will allow you to ask questions.

The call will also be webcast and can be accessed on-line. A replay of the webcast call will be available on Precision's website for 12 months.

About Precision Drilling Corp.

Precision is a leading provider of safe and environmentally responsible high-performance, high-value services to the energy industry, offering customers access to an extensive fleet of Super Series drilling rigs. Precision has commercialized an industry-leading digital technology portfolio known as Alpha that utilizes advanced automation software and analytics to generate efficient, predictable and repeatable results for energy customers. The company's drilling services are enhanced by its EverGreen suite of environmental solutions, which bolsters its commitment to reducing the environmental impact of its operations. Additionally, Precision offers well service rigs, camps and rental equipment, all backed by a comprehensive mix of technical support services and skilled, experienced personnel.

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