Precision Drilling (NYSE: PDS) reported Q3 EPS of ($0.10), $0.05 worse than the analyst estimate of ($0.05). Revenue for the quarter came in at $382 million versus the consensus estimate of $308.31 million.

Precision’s President and CEO Kevin Neveu stated: “During the third quarter Precision remained firmly on track to deliver on our three key priorities for 2018: enhancing financial performance through higher utilization and improved margins; generating free cash flow for reducing total debt levels; and commercializing advanced rig technologies. Although third quarter weather-related delays in Canada, rig reactivation costs associated with seven rigs in the U.S., and other one-time transaction costs negatively impacted period cashflows, our team’s persistent focus on cash management delivered an increased cash balance and increased total liquidity for the third consecutive quarter.”

“Our cash generating potential and liquidity position remain strong. We expect to achieve the upper range of our debt reduction target for 2018 and will continue our long-term debt reduction program, reducing total debt, including debt repayments earlier this year, by $300 million to $500 million before the end of 2021.”

“We stand behind our Board-supported agreement to combine with Trinidad and remain firm that our offer of 29.1 percent of Precision shares to the Trinidad shareholders is fair, offering far more value creation upside than other available options. We believe the combined company will create significant value for both Precision and Trinidad shareholders with immediate cost synergies and strong strategic fit. Additionally, the incremental free cash flow generating potential of this combination will support Precision’s ongoing long-term debt reduction targets with potential to accelerate our stated timeline. The combined platform, particularly the 61 Trinidad high specification AC rigs and enhanced U.S. and international exposure, improves our fixed cost leverage and market presence in those key markets. We are in the process of completing required regulatory filings and will provide updates as new information becomes available.”

“In the U.S., despite recent capital markets volatility, market indications for High Performance rig demand in 2019 are promising as development drilling in unconventional basins continues to shift to the most technically capable and operationally efficient rigs, benefiting Precision with our Super Series fleet. Current customer demand for Precision’s Super Triple rigs is hitting levels not experienced since 2014 and our leading-edge day rates are trending above US$25,000 per day with customers increasingly willing to sign longer term contracts. Precision signed 13 term contracts in the U.S. this quarter and five term contracts in October pointing to continued strong demand for our Super Triple rigs. All 18 of these term contracts were priced higher, with increases ranging from a few hundred dollars per day to more than $5,000 per day. Third quarter activity was slightly lower than expected averaging 76 rigs, but with recent rig activations we have 80 rigs running today, our highest activity level since 2014 and our strongest market share since we entered the U.S. a decade ago. During the quarter we incurred increased costs related to reactivation and restocking of rigs, totaling US$3 million to US$5 million that we do not expect to incur in the fourth quarter. Several of the rigs reactivated had not been active since 2015. These costs added to our daily operating costs and negatively impacted field margins.”

“Our Canadian business continues to generate strong free cash flow with a High Performance fleet and limited capital requirements and we expect to continue on this path into 2019. We currently have 58 active rigs with quarter-to-date activity largely tracking 2017 levels. While there are well-founded concerns regarding commodity price differentials in the WCSB, early indications from our customers suggest a winter drilling season in-line with last year and strong demand in Deep Basin liquids plays. The demand for our Super Triples is leading to longer term customer contract commitments, with five term contracts signed year-to-date including two during the quarter, compared to zero in all of 2017. We are encouraged with the positive final investment decision from LNG Canada and believe Precision is well-positioned to benefit from incremental high spec rig demand and generally improving natural gas fundamentals.”

“Internationally, we have eight rigs working under contract, five in Kuwait and three in Saudi Arabia. Two of the three Saudi Arabia rigs were recently contracted through the end of the year and negotiations are well underway for multi-year extension. Construction of our sixth Kuwait rig remains on time and on budget for mid-2019 deployment and we are realizing the scale benefits of a world-class drilling operation in country. We are actively tendering our four idle rigs in the Middle East region as we continue to seek increased scale in Saudi Arabia.”

“Our technology initiatives are progressing well toward our 2018 commercialization target. We now have 25 Process Automation Control (PAC) systems deployed in the field, demonstrating to our customers the system’s ability to deliver consistent and repeatable, high-quality wells while improving safety, performance and operational efficiency. PAC has been successfully utilized to automate drilling routines on approximately 290 wells this year and system utilization is increasing as we continue to “field harden” the technology. Precision, its partners, customers and several third parties have 15 drilling performance applications (Apps) under development with several Apps in field trials. Our progress and customer interest in Apps is well ahead of our initial expectations. Our optimization team is now fully equipped to run analytics on live streaming data giving drillers the required insights on 16 distinct activities to help optimize the drilling process in real-time. Our Directional Guidance System (DGS) technology is also making a difference having drilled over two and a half million feet to date on over 100 wells in 2018, all enabled by DGS software. Our customers are very encouraged with the results and prospects of each of these technologies and we expect increasing revenue and margin impact in 2019,” concluded Mr. Neveu.

For earnings history and earnings-related data on Precision Drilling (PDS) click here.