Precision Drilling (PDS) Q3 2026 earnings review
Precision Drilling sales jump 15%, and US rig profits rebound
Precision Drilling, a North American and Middle Eastern land drilling contractor, grew revenue while startup costs on idle US rigs held back profit. Third-quarter sales rose 15% from a year ago as active rig counts climbed in both Canada and the United States. However, profit before interest, taxes and depreciation excluding one-offs increased 6%, because readying six US rigs for work and non-billable Middle East inspection days raised operating expenses.
| Revenue | $531.7M +15.0% from a year ago |
|---|---|
| US daily operating margin (excl. reactivations) | US$9,778 +6.3% from a year ago by our math (reported: US$7,653) |
| Q4 US daily operating margin outlook | US$9,500–10,500 middle of the range: +30.7% from Q3 |
| 2026 capital spending plan | Raised $15M to $275–285M on customer rig upgrades |
⚖️ Verdict: 🟢 Bullish
The story got better because the year-long cost drag from reactivating US rigs is ending and customer contract commitments are rising. Excluding startup expenses, US daily profit per rig already reached nearly US$9,800 by our math, backing up chief executive Carey Ford's plan for reported US margins to jump about 30% in the fourth quarter while a $31 million buyback closed the first-half repurchase gap. One caution: Middle East revenue per day dropped 14% on unbilled equipment inspections and conflict-related crew costs, while a $155 million Canadian tax dispute remains unresolved.
The question now is whether US daily rig margins can hold at or above US$10,000 in 2027 without another wave of reactivation spending. One side argues that higher customer day rates and a 46-rig North American contract book lock in the recovery; the other counters that US margins have rarely stayed above US$9,600 and spot drilling work can churn quickly. Fourth-quarter US daily operating margins and the 2027 contract table in February will decide it.
🐂 Bull Case
US Rig Reactivation Drag Is Ending
Precision Drilling rents land drilling rigs to oil and gas producers for a daily fee, and its US profit per day has lagged for a year because readying idle rigs for work is expensive. Chief executive Carey Ford said, "With the majority of our planned rig reactivations behind us, we expect U.S. operating margins to increase approximately 30% during the fourth quarter of 2026".
The drilling contractor reactivated six US rigs this quarter, lifting its active US fleet by 19% from a year ago to 43 rigs and beating the wider US industry's 10% gain. Putting those rigs back to work cost US$2,125 per operating day, up from US$502 a year earlier, which pushed total operating costs up 2.8 percentage points of company revenue.
- Reported US daily operating margin: US$7,653, down 12.0% from a year ago but up 23.2% from last quarter
- US daily operating margin excluding reactivation costs: US$9,778 by our math, up 6.3% from US$9,202 a year ago
- US revenue per day: US$33,270, up 7.2% from a year ago on higher day rates and software fees
- Fourth-quarter US daily margin outlook: US$9,500 to US$10,500, up 14.2% from a year ago at the middle of the range
This quarter's recovery and the fourth-quarter plan together ease our standing concern about US margin pressure. Because underlying daily profit excluding startup costs is already near US$9,800, the company does not need higher customer pricing to hit its fourth-quarter target once reactivation spending drops.
What to watch: fourth-quarter US reactivation costs per day when annual results arrive in February. A drop below US$500 per day would confirm that the US fleet has reached a steady profit run-rate.
Customer Demand Drives Another Upgrade Budget Raise
Energy producers are signing multi-year contracts to secure Precision Drilling's Super Series rigs, its modern automated land rigs, and paying for equipment upgrades through higher guaranteed day rates. The Calgary-based group raised its 2026 capital spending plan for a second time this year, adding $15 million at the middle of the range to reach $275 million to $285 million.
Management lifted the budget "to accommodate long-lead deliveries and a pending upgrade opportunity, which would have multiple rigs contracted through 2029 for a large Canadian producer". The driller plans to upgrade 25 rigs across North America this year and added four more fourth-quarter North American term contracts since July, taking the regional book to 46 rigs, up 21% from a year ago.
Because the firm only spends upgrade money when a customer signs a term contract, a higher capital budget signals locked-in future revenue rather than cost inflation. Those 46 contracted North American rigs give the business a higher minimum revenue floor heading into 2027.
What to watch: the 2027 term contract table in next quarter's release. Signing the pending Canadian deal would lift the 2027 contract book above this year's 48-rig average.
Canadian Activity Rises With Heavy Oil Demand
Precision Drilling generates nearly 60% of its revenue in Canada, where pipeline capacity and higher oil prices are encouraging oil companies to drill more wells. Ford said strong customer demand is "positioning us for one of our busiest winter drilling seasons in years", with the company's primary Canadian rigs expected to run at "near full utilization".
Active Canadian drilling rigs rose 16% from a year ago to an average of 73, while usage of Super Single rigs — smaller rigs built for heavy oil — climbed 18%. In Completion and Production Services, the segment that maintains drilled wells and rents surface equipment, revenue grew 8.3% to $80.8 million and segment profit before interest, taxes and depreciation rose 10.1% to $21.2 million.
What to watch: first-quarter Canadian active rig counts, when winter frozen-ground drilling peaks. Surpassing last winter's 79-rig average would show that heavy oil demand is still expanding.
Share Buybacks Accelerate Toward Full-Year Target
Precision Drilling pledged to return up to 50% of its free cash flow before debt repayments to shareholders via buybacks in 2026, after buying back only $16 million in the first half. In the third quarter, the oilfield services group spent $30.6 million to repurchase and cancel 269,331 common shares, nearly doubling its first-half total in a single period.
That brought nine-month share repurchases to $46.6 million and reduced diluted share count by 4.0% from a year ago. By our math, free cash flow (operating cash flow minus capital spending) is $55.7 million so far this year, meaning buybacks have used 84% of that cash and closed the first-half gap.
What to watch: fourth-quarter share repurchases alongside the remaining $25 million needed to hit the $100 million debt reduction goal. Hitting both targets will require fourth-quarter working capital cash releases.
🐻 Bear Case
Recertifications and Middle East Costs Cut International Revenue
Precision Drilling operates seven rigs in the Middle East — four in Kuwait and three in Saudi Arabia — and Ford described this division as "stable international operations" backed by five-year contracts. However, the third quarter numbers cut against that stability claim, as international revenue fell 12.6% in Canadian dollars to $41.7 million despite running the same 644 utilization days as a year ago.
International revenue per day dropped 14.0% from a year ago to US$46,304 because planned equipment recertifications created days where rigs were counted as active but could not bill customers. At the same time, the company reported "minor activity disruptions and incremental costs related to the Middle East tensions", and warned that crew expenses will stay elevated while regional conflicts continue.
Because the company is also preparing an eighth idle rig in Kuwait to start a five-year contract in mid-2027, recertification work and higher crew costs are squeezing profit from what used to be its highest-rate region. The release does not disclose daily operating costs for international rigs, hiding the exact margin drop.
What to watch: international revenue per utilization day in the fourth quarter. A rebound above US$50,000 per day would show that non-billable recertification days were temporary.
Heavy Oil Rig Mix Caps Canadian Daily Rates
While Canadian drilling volume grew 16% from a year ago, the company is earning less money per day on each active rig. Canadian revenue per utilization day slipped 1.6% from a year ago to $33,654, and daily operating margin fell 1.5% to $12,817, because growth came from smaller Super Single heavy-oil rigs that charge lower day rates than larger rigs.
Management expects fourth-quarter Canadian operating margins of $13,500 to $14,500 per day, which at the $14,000 middle of the range is down 0.9% from $14,132 a year ago by our math. As a result, Canadian profit growth is relying entirely on running more rigs rather than raising prices.
What to watch: first-quarter Canadian revenue per day after newly upgraded Super Triple rigs enter service. An increase from a year ago would show that upgrade pricing can offset the heavy-oil mix.
Risks this quarter didn't answer
Two standing balance-sheet and tax concerns saw no progress in the third quarter, leaving their cash impact for future periods.
- Canadian tax dispute: Precision Drilling will "vigorously contest" a July tax reassessment denying intercompany dividend deductions, which carries a $155 million maximum tax bill plus interest and requires a 50% upfront payment as new notices arrive over the next 24 months.
- Paused third-quarter debt reduction: net debt repayment stayed at $75 million for the year because the driller borrowed $123.1 million and repaid $123.2 million during the quarter, leaving $25 million of debt paydown for the fourth quarter.
- Undated leverage goal: management still targets a net debt to Adjusted EBITDA ratio below 1.0 times without giving a target date after missing its original end-2025 deadline.
👓 Other Themes
Higher Oil and Gas Prices Lift Customer Spending
Energy prices rose sharply in the third quarter, supporting customer drilling budgets in North America. Benchmark West Texas Intermediate oil averaged US$85.89 per barrel, up 32% from a year ago due to Middle East conflict, while Western Canadian Select heavy oil rose 35% to $100.92. Canadian AECO natural gas climbed 146% to $1.50 per million British thermal units as the LNG Canada export terminal ramped up, though US Henry Hub gas fell 6% to US$2.89.
💲 Other KPIs
Operating cash flow fell 6.7% from a year ago even though revenue grew 15.0%. A $37.2 million seasonal build in working capital — cash tied up in unpaid customer bills as autumn drilling ramped up — drove the drop, compared with a $20.7 million drain a year ago, lifting accounts receivable 15.8% to $422.7 million.
Long-term debt shrank 8.5% from $687.7 million a year ago and is down from $679.3 million at the end of 2025. While the driller repaid $75.1 million of debt on a net basis in the first half, a weaker Canadian dollar added $22.9 million to the translated value of its US-dollar bonds.
Non-cash equipment wear-and-tear charges rose 3.9% from a year ago and are up 8.8% over the first nine months to $249.6 million. In January, the company shortened its estimate of how long drill pipe lasts in complex wells, which added $8 million to third-quarter depreciation and $30 million year to date.
🔮 Guidance
Unchanged. Management replaced its earlier qualitative target with a formal range whose US$10,000 middle matches the prior mark. That middle point represents a 30.7% jump from the third quarter and a 14.2% gain from a year ago by our math, as US rig reactivation spending winds down.
New. The plan puts daily Canadian profit at $14,000 in the middle of the range, up 9.2% from the third quarter and within 1% of last year's $14,132. Precision Drilling has met or beaten its Canadian margin target in five straight guided quarters by an average of 3.7% over the last three; if the pattern holds, fourth-quarter margins would reach about $14,522 per day by our math.
Raised. The company lifted its annual capital budget by $15 million at the middle of the range to $280 million, up 6.3% from 2025, with $172 million for maintenance and $103 million to $113 million for upgrades. It is the second raise this year: +$20M in Q1, $0 in Q2, and +$15M in Q3. By our math, that leaves $56.2 million for the fourth quarter, down 31.0% from a year ago.
Unchanged. Management kept its full-year debt repayment goal at $100 million, which will bring cumulative debt reduction since 2022 to $635 million toward its $700 million goal by 2027. Because the company has repaid $75.1 million so far this year and zero net debt in the third quarter, the plan leaves about $25 million of debt repayments for the fourth quarter by our math.
Unchanged. The driller still plans to spend up to half of its annual free cash flow before debt paydowns on share buybacks, and promised to keep buying shares in the fourth quarter on top of the $46.6 million spent year to date.
❓ Key Questions
What are international daily operating costs during the recertifications?
Precision Drilling discloses daily operating costs for Canada and the US, but omits them for international rigs. With Middle East crew costs elevated and recertifications cutting revenue per day by 14%, investors cannot see how much profit the seven international rigs actually make.
When will the Canadian tax agency issue the 2019–2023 reassessments?
The company expects additional tax reassessment notices over the next 24 months, which would force it to pay up to $77.5 million (half of the $155 million maximum bill) upfront while contesting the claim. Timing determines whether those payments compete with 2027 share buybacks.
How many rigs and what capital cost sit in the 2029 Canadian deal?
Management raised 2026 capital spending by $15 million partly for a pending multi-rig upgrade contract through 2029 with a large Canadian producer. Disclosing the exact rig count and remaining 2027 upgrade bill would show the size of the revenue payback.
What is the target date for reaching net debt below 1.0x EBITDA?
Chief executive Carey Ford said the company's long-term leverage target of net debt below 1.0 times Adjusted EBITDA is within reach entering 2027, after missing the original end-2025 goal. Setting a firm date would clarify when buybacks can step up above 50% of free cash flow.