Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Independence Contract Drilling Inc reported financial results for the first quarter that exceeded prior guidance, driven by better utilization and strong cost control.
- The company successfully completed an additional 200 to 300 series rig conversion, enhancing its fleet capabilities.
- Independence Contract Drilling Inc has maintained a strong presence and reputation in the Permian market, successfully adding rigs and increasing term contract exposure despite a declining overall rig count.
- The company's strategic relocations from the Haynesville to the Permian market have positioned it well for future growth, with expectations of increased activity from private E&P operators.
- Independence Contract Drilling Inc's focus on operational and HS&E performance has allowed it to win new customers and expand existing relationships, supporting its strategic initiatives to pay down debt and increase market exposure.
Negative Points
- The Haynesville market remains challenging, with expectations of no activity rebound until the second half of 2025, impacting the company's operations in that region.
- Day rate revenues and daily margins for super-spec rigs are lower than the previous year, reflecting a tougher pricing environment.
- The company reported an adjusted net loss of $7.2 million for the quarter, indicating financial strains despite operational successes.
- Independence Contract Drilling Inc faces elevated churn and rig movement within the Permian market, which could affect stability and predictability of operations.
- The company anticipates a need to manage overall liquidity and debt obligations carefully, with plans to continue payment-in-kind options for interest payments on convertible notes.
Q & A Highlights
Q: Can you discuss any stabilization in pricing for super-spec rigs and the factors influencing day rates?
A: (J. Anthony Gallegos - President, CEO, Director) Day rates have moved sideways as expected, particularly for high-end 300 series spec rigs. The decrease in average day rate revenues is mainly due to contract renewals at lower rates. The market churn, especially in the Permian, is impacting day rate revenues, although they remain healthy historically. The expectation is for day rates to continue this trend over the next few quarters.
Q: Is the reduction in SG&A costs sustainable, and how was it achieved?
A: (Philip Choyce - EVP & CFO) The reduction in SG&A was slightly elevated due to seasonal factors and one-time reorganization costs. Cash SG&A is expected to be around $15 million annually. The reduction in stock-based compensation was due to variable accounting related to stock price changes, which may not remain as low in the upcoming quarter.
Q: What are your expectations for the rig market in 2025?
A: (J. Anthony Gallegos - President, CEO, Director) The outlook for 2025 is cautiously optimistic, with oil prices currently high. However, customers are maintaining capital discipline, which aligns with their communicated priorities to investors. The market's direction will depend on several factors over the coming quarters.
Q: Can you elaborate on the cost control measures implemented in Q1 and expectations for Q2?
A: (J. Anthony Gallegos - President, CEO, Director) Cost control in Q1 included right-sizing the organization and optimizing field support costs. Some cost reductions are sustainable, but costs may increase in Q2 due to seasonal factors like higher temperatures affecting operations in West Texas.
Q: Could you provide more details on the decision to relocate rigs from Haynesville to Permian and the expected impact?
A: (J. Anthony Gallegos - President, CEO, Director) The decision was based on better opportunities in the Permian compared to the challenging market in Haynesville. One rig was moved and went straight to work, and another is expected to start in late Q2 or early Q3. This strategic move aims to optimize utilization and capitalize on better market conditions in the Permian.
Q: How does ICD compete for customer acquisition when replacing lower spec rigs?
A: (J. Anthony Gallegos - President, CEO, Director) ICD focuses on demonstrating operational efficiencies and reduced drilling times to potential customers. The quality of ICD's rigs and personnel helps convince customers of the value in switching to higher-spec rigs, despite the initial friction of changing contractors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
