Precision Drilling revenue rises 11% but rig reactivation costs squeeze margins

Precision Drilling Corporation reported an 11% increase in second-quarter revenue as stronger heavy-oil activity in Canada and rising rig utilization in the United States more than offset weaker international performance. The Toronto Stock Exchange and New York Stock Exchange-listed energy-services company, which trades under $PD and $PDS, generated revenue of C$452.8 million, compared with C$406.6 million a year earlier. Adjusted EBITDA declined 10% to C$97.1 million, however, as the company spent more to reactivate United States rigs and absorbed lower margins and geopolitical costs across its Middle Eastern operations. Precision Drilling Corporation recorded a C$1.2 million net loss attributable to shareholders but generated C$145.6 million of operating cash flow, allowing it to reduce debt by C$50 million and repurchase C$12 million of shares. The results show that customer demand is improving across North America, but the financial value of that recovery will depend on whether higher utilization and day rates begin outpacing reactivation, labor and maintenance expenses during the second half.

Precision Drilling Corporation’s Canadian operations averaged 61 active drilling rigs, an increase of 22% from 50 a year earlier. Its United States business averaged 35 active rigs, up from 33, even though total United States land-drilling activity declined approximately 3%. The company said its active United States fleet had increased further to 43 rigs by the time it reported the results.

Completion and Production Services also benefited from stronger producer spending. Revenue increased 22% to C$65.6 million, while segment adjusted EBITDA rose 38% to C$13.6 million as Canadian well-servicing hours increased 25%.

How Precision Drilling gained rig activity while the wider United States market declined

Precision Drilling Corporation’s North American activity figures suggest the company is capturing market share rather than relying entirely on an industrywide drilling recovery. Canadian industry activity increased approximately 16% during the quarter, while Precision’s average active rig count increased 22%. In the United States, Precision’s active count increased 6% despite a decline in total industry activity.

The Canadian expansion was supported by heavy-oil and condensate producers using Precision’s Super Single and Super Triple rigs. Super Single utilization increased 31% from the prior-year quarter as producers responded to stronger economics and expanded access to oil markets.

Heavy-oil drilling can create significant demand for pad-capable rigs because producers often drill multiple wells from a single location. Efficient rig moves, automation and repeatable drilling performance can reduce the time and cost required to complete each well, strengthening the commercial value of higher-specification equipment.

Canadian revenue per utilization day declined to C$35,448 from C$37,725. The decrease was primarily caused by lower upfront capital payments and a larger contribution from Super Single rigs, which produce a different revenue and margin profile from the company’s larger Super Triple equipment.

Canadian operating margin per utilization day consequently declined to C$13,855 from C$15,306. The lower margin does not indicate weakening customer demand, but it shows that the type of rigs working and the structure of customer payments can influence profitability even when utilization rises sharply.

In the United States, revenue per utilization day increased to US$32,802 from US$31,113. Precision attributed the improvement to higher day rates on new contracts and increased revenue from its drilling-technology products.

The company has increased its exposure to oil-directed activity while maintaining positions in natural gas regions such as the Haynesville and Marcellus basins. This mix gives Precision several potential sources of demand, although natural gas producers and oil producers can adjust drilling budgets quickly when commodity prices change.

Precision expects its United States active rig count to remain in the low 40s during the third quarter, with some contract churn as equipment moves between customers. Management believes stronger contract coverage, pricing and technology adoption can support improving results through the end of 2026 and into 2027.

The gains are commercially encouraging because drilling contractors compete not only on equipment availability but also on operational consistency, safety, crew quality and the ability to shorten well-construction times. Precision’s market-share growth suggests customers see value in its fleet and technology, but stronger activity must now translate into better operating margins.

Why higher rig reactivation costs prevented revenue growth from lifting adjusted EBITDA

Precision Drilling Corporation’s adjusted EBITDA fell to C$97.1 million even though revenue increased by C$46.2 million. Contract Drilling Services adjusted EBITDA declined 15% to C$94.7 million, and the segment’s adjusted EBITDA margin fell to 24.3% from 31.4%.

United States rig reactivations were the largest near-term pressure. The company reactivated seven rigs during the quarter, compared with four a year earlier, as customer demand improved faster than expected. Reactivation expenses reached an average of US$2,387 per utilization day, compared with US$648 in the prior-year period.

These costs can include inspections, repairs, replacement equipment, workforce recruitment, transportation and other work needed to return an idle rig to commercial service. They reduce current earnings but may create future revenue if the reactivated equipment secures profitable contracts lasting long enough to recover the initial spending.

United States operating margin declined to US$6,212 per utilization day from US$9,026. Precision expects margins to remain between US$7,000 and US$8,000 during the third quarter as additional reactivation costs continue, before approaching US$10,000 during the fourth quarter.

That forecast makes the final quarter an important measure of management’s strategy. If active rigs remain employed and reactivation expenses decline, the United States business should convert more revenue into adjusted EBITDA. Continued contract churn or additional unexpected spending could delay the anticipated margin recovery.

International operations created another drag. Precision averaged seven active rigs, including three in Saudi Arabia and four in Kuwait, compared with two in Saudi Arabia and five in Kuwait a year earlier. The change in geographic and contract mix reduced international revenue per utilization day to US$50,524 from US$53,129.

The company also incurred additional crew and operating expenses associated with Middle East geopolitical disruption. International restructuring created a C$3 million charge as Precision adjusted its organization to reduce costs and improve execution in the countries where it operates.

The quarterly net loss was partly accounting-driven. Precision recorded an additional C$11 million of depreciation after revising the estimated useful life of drill pipe, reflecting the greater wear associated with increasingly complex drilling programs. The higher depreciation expense does not represent an equivalent quarterly cash payment, but it indicates that equipment is being consumed faster than previously estimated.

The distinction between current spending and depreciation is important. Reactivation expenses immediately affect operating margins and cash generation, while revised depreciation changes reported earnings and reflects the expected economic life of existing assets.

Precision’s second-quarter results therefore contain both temporary and structural pressures. Reactivation costs should decline after equipment returns to work, but higher maintenance intensity and shorter useful lives may remain part of the economics of drilling deeper and more complex wells.

How debt reduction and fleet investment are competing for Precision Drilling’s cash flow

Precision Drilling Corporation generated C$145.6 million of operating cash flow during the quarter, broadly consistent with the C$147.5 million generated a year earlier. The company used that liquidity to repay C$50 million of debt, repurchase 99,416 shares for C$12 million and invest C$76 million in capital expenditure.

First-half debt reduction reached C$75 million, while share repurchases totaled C$16 million. Precision continues to target at least C$100 million of debt reduction during 2026 and plans to allocate as much as 50% of free cash flow before debt repayments directly to shareholders.

Long-term debt declined to C$626.3 million at June 30 from C$679.3 million at the end of 2025. Cash stood at C$66.3 million, and the company reported more than C$500 million of available liquidity. Its long-term debt-to-debt-plus-equity ratio improved to 28% from 30%.

Precision has reduced debt by approximately C$610 million since the beginning of 2022 and is targeting a cumulative C$700 million reduction by the end of 2027. The progress has reduced financial risk and given the company greater flexibility to invest when customers request upgraded equipment.

Capital spending is rising alongside activity. Second-quarter expenditure increased from C$53 million to C$76 million, including C$46 million for maintenance and C$30 million for equipment upgrades. First-half spending reached C$141 million, and the company maintained its C$265 million full-year capital budget.

Approximately C$93 million of the annual plan is allocated to strategic upgrades in Canada and the United States. These investments are intended to improve rig performance, satisfy customer specifications and expand Precision’s ability to secure higher-value contracts.

The capital-allocation balance is becoming more demanding. Spending too little could leave Precision without enough upgraded rigs to meet customer demand, while spending too aggressively could weaken free cash flow if drilling activity reverses before the investment is recovered.

The company also disclosed a potentially significant tax contingency. The Canada Revenue Agency has reassessed Precision’s 2018 treatment of certain intercompany dividends and proposed similar adjustments covering later tax years. Precision disputes the agency’s position and has not recognized a liability because it and its advisers believe the original filings were appropriate.

If Precision ultimately loses the dispute, it estimates a maximum tax liability of approximately C$155 million before interest. The company may also be required to pay 50% of assessed tax and interest while formal objections or appeals remain unresolved.

The amount is manageable relative to current liquidity but material compared with the company’s annual debt-reduction target and quarterly operating cash flow. A required payment could temporarily reduce the cash available for buybacks, fleet upgrades or further deleveraging, even if Precision later succeeds and receives a refund.

Why Precision Drilling expects contracts and automation to support a stronger 2027

Precision Drilling Corporation has expanded its contract book as customers seek to secure high-performance rigs. Since the end of April, the average number of rigs under term contracts for 2026 increased by 33% in Canada and 45% in the United States.

The company had an average of 52 rigs under term contracts for the third quarter, including 27 in Canada, 18 in the United States and seven internationally. The contracted count is expected to average 49 rigs during the fourth quarter, before including additional agreements that may be signed.

Term contracts reduce revenue volatility by establishing minimum employment periods and pricing arrangements. They do not eliminate operating risk because customers may have contractual protections, drilling programs can change and margins remain sensitive to labor, maintenance and equipment-mobilization costs.

Internationally, Precision secured an additional five-year contract in Kuwait for an existing idle rig. Following recertification and upgrades, the equipment is expected to return to work by the middle of 2027, increasing the international active fleet from seven rigs to eight.

The contract demonstrates that Precision can still win long-duration Middle Eastern work despite current geopolitical and operating pressure. Long-term agreements can support attractive revenue visibility, but international margins will remain sensitive to local staffing, logistics and regional security conditions.

Technology is another part of the growth strategy. Precision’s Alpha digital platform uses automation, analytics and real-time optimization to improve drilling performance and reduce downtime. The company said higher technology contributions supported second-quarter revenue and stronger United States pricing.

Digital drilling tools can improve customer economics by increasing consistency and reducing the number of hours required to complete a well. They may also help Precision differentiate its rigs in a market where basic equipment can otherwise appear interchangeable.

The commercial benefit will depend on whether technology produces higher day rates, greater customer retention or additional service revenue. Investment in software and automation creates limited value if customers receive the operational benefit without paying enough to improve Precision’s margins.

Investors reacted cautiously to the results. $PDS shares fell approximately 6.5% to US$73.12 on July 29 after trading between US$71.94 and US$78.72. The market movement suggests the stronger revenue and rig activity were outweighed by concern over lower adjusted EBITDA, weak near-term United States margins or the disclosed tax contingency, although no single explanation for the decline can be confirmed.

Precision’s growth thesis remains credible because rig activity is increasing, contract coverage is improving and debt continues to decline. The company must now demonstrate that the cost of restarting equipment represents a temporary investment in future earnings rather than the beginning of a more expensive operating environment.

Key takeaways from Precision Drilling’s second-quarter 2026 performance

• Precision Drilling Corporation increased quarterly revenue by 11% to C$452.8 million as stronger Canadian and United States activity offset lower international results.
• Canadian drilling activity increased 22%, outperforming the industry’s 16% growth and showing that Precision gained activity share in heavy-oil and condensate markets.
• United States utilization increased despite a broader industry decline, and Precision’s active rig count had reached 43 by the time it reported the results.
• Adjusted EBITDA declined 10% to C$97.1 million because rig reactivation expenses and international operating pressure increased faster than revenue.
• United States reactivation costs averaged US$2,387 per utilization day after seven rigs were restarted, reducing operating margin to US$6,212 per day.
• Completion and Production Services revenue increased 22%, while adjusted EBITDA rose 38% as Canadian well-servicing hours climbed 25%.
• Precision generated C$145.6 million of operating cash flow, reduced debt by C$50 million and repurchased C$12 million of shares during the quarter.
• Long-term debt has declined by approximately C$610 million since the beginning of 2022, moving the company closer to its C$700 million reduction target.
• A Canada Revenue Agency dispute creates a potential maximum tax liability of approximately C$155 million before interest, although Precision is contesting the reassessment.
• The decline in $PDS shares indicates that investors want evidence that higher rig utilization will produce stronger margins after the current reactivation phase ends.