Stampede Drilling's Q1 2025: A Hidden Gem in Energy's Turbulent Seas

The energy sector’s cyclical volatility has left many investors sidelined, but Stampede Drilling Inc. (TSX:SDR) presents a compelling contrarian opportunity. While Q1 2025 results revealed near-term headwinds—15% lower revenue and a 71% net income decline—these figures mask a deeper story of strategic resilience. This article argues that Stampede’s prudent financial management, geopolitical tailwinds, and operational leverage position it to outperform as energy markets stabilize later this year.

The Near-Term Struggle: A Necessary Pruning

Stampede’s Q1 results were undeniably challenging. Revenue fell to CAD $23.4 million (down 15% YoY), and net income dropped to CAD $1.5 million (a 71% decline), with EBITDA contracting 33% to CAD $4.1 million. These figures stem from reduced operating days—a byproduct of seasonal slowdowns and broader energy sector softness.

However, the company’s response to these headwinds is what matters most.

• Operational discipline: Stampede maintained 14 of 17 marketed rigs operational, a 71% rig utilization rate that outpaces industry averages.
• Cost control: Despite the revenue drop, the company’s debt-to-EBITDA ratio remains a robust 1.09x, reflecting disciplined capital allocation.
• Asset optimization: A recent $5 million equipment sale underscores management’s focus on trimming non-core assets to free up liquidity.

Underlying Strengths: A Foundation for Recovery

Stampede’s financial fortitude is its most underappreciated asset.

1. Debt management: With CAD $116 million in total debt and a conservative leverage ratio, the company is positioned to weather volatility without dilution. ****
2. Share buybacks: Since 2023, Stampede has repurchased 15.9% of its outstanding shares, reducing dilution and boosting equity value.
3. Strategic focus: Management’s emphasis on high-margin, technically complex projects—like horizontal directional drilling for pipelines—aligns with long-term energy infrastructure needs.

Catalysts for Recovery: Geopolitics and Canadian Oilfield Growth

The real catalysts lie in the geopolitical and macroeconomic trends reshaping Canada’s energy sector.

1. Trans Mountain Expansion (TMX) & LNG Canada: Game-Changing Infrastructure

The TMX pipeline and LNG Canada projects—both nearing full operational capacity—****—are transforming Canada’s energy export landscape.

• TMX: By doubling crude oil export capacity to Asia, TMX has narrowed the WCS-WTI differential, stabilizing Canadian oil prices. Stampede’s role in TMX’s Phase 3 (mid-to-large bore horizontal drilling) ensures it benefits directly from this infrastructure boom.
• LNG Canada: The project’s ramp-up is boosting natural gas prices and creating demand for Stampede’s expertise in pipeline installation under sensitive environments (e.g., wetlands, roadways).

2. Modest Canadian Oilfield Growth

GLJ’s Q1 2025 report projects 10% growth in Western Canadian Sedimentary Basin (WCSB) rig activity this year, driven by these projects. Stampede’s operational efficiency (98% on-time progress rate in Q1) positions it to capture this upside as drilling activity accelerates.

3. Operational Leverage

With 14 rigs already active and a streamlined cost structure, Stampede’s EBITDA margins could expand sharply if rig utilization climbs to pre-2024 levels (historically 80-85%).

Valuation: A Stock Discounted for Temporary Slumps

At current prices (~CAD $4.50), Stampede trades at 5.3x trailing EBITDA, a significant discount to peers. This undervaluation reflects short-term demand slumps, not fundamentals.

• Deleveraging + buybacks = shareholder value: With CAD $20 million in undrawn credit and share repurchases continuing, Stampede is primed to compound value as markets recover.
• Long-term tailwinds: The energy transition will require billions in infrastructure spending—Stampede’s niche in complex drilling for LNG, pipelines, and unconventional plays is defensible.

Conclusion: A Buying Opportunity for 2025 and Beyond

Stampede Drilling is a paradox: a company with Q1 pain but 2025 potential. The geopolitical catalysts of TMX and LNG Canada, paired with its operational agility and financial prudence, suggest a turnaround is imminent. Investors who act now can capitalize on a stock poised to rebound as Canadian energy markets stabilize.

The verdict? Stampede is a buy at current levels. With a 15% revenue rebound likely by year-end and a shareholder-friendly balance sheet, this is a rare chance to invest in a well-positioned energy services leader at a discount.

Final Note: The geopolitical and macroeconomic trends outlined here are not speculative—they’re already in motion. Stampede Drilling’s Q1 struggles are a temporary hurdle on a path to long-term growth.