October 11, 2022, ST. PETERSBURG, FL – Water Tower Research (www.watertowerresearch.com) has published an Initiation of Coverage Report on Independence Contract Drilling, Inc. (NYSE: ICD) titled, “Super-Spec, Pad-Optimal Rig Demand Plays to ICD’s Fleet”. The report can be accessed here.

Independence Contract Drilling (ICD) owns a fleet of super-spec, pad-optimal drilling rigs capable of meeting the most challenging demands of its E&P customers. The company’s current target markets are the Permian Basin and the Haynesville Shale, two of the most economic basins in the US. Unconventional oil and natural gas plays have dominated the US oil and gas industry over the past two decades. E&P operators are increasingly shifting their development to large multi-well pads to improve their capital efficiency. Shifting development priorities is contributing to a tight drilling rig market for the types of super-spec, pad-optimal rigs ICD owns.

The company’s current marketed fleet is 26 rigs, consisting of 17 300-Series and nine 200-Series rigs. In August, ICD commenced a conversion program to upgrade 200-Series rigs to 300-Series capabilities. Management expects the higher dayrates earned by 300-Series rigs will pay out the conversion cost in less than one year. Management put its 18^th rig to work in August and has signed contracts to add two more in the fourth quarter of 2022. Negotiations are underway to add the 21^st operating rig in the first quarter of 2023. Current spot dayrates for the 300-Series rigs are exceeding $30,000 per day. ICD’s average rig revenue per operating day in the second quarter 2022 was $24,875. Putting incremental rigs to work in a rising dayrate market could drive EBITDA growth in the second half of 2022 and 2023.

ICD recapitalized its balance sheet through a $157.5 million placement of convertible PIK toggle notes issued in March 2022. Management has indicated its intention to PIK interest on the notes for two years. The PIK feature provides the flexibility to fund incremental rig reactivations to drive EBITDA growth, in what management believes, will be a strong market for ICD’s fleet of super-spec, pad-optimal rigs over the next several years. EBITDA growth could solidify the company’s financial position and potentially provide flexibility to refinance the notes before their March 2026 maturity.

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