Q4 2019 Earnings Call

This time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session. There will need to press star one on your telephone. Please be advised to today's conference is being recorded if you acquire any further assistance. Please press star Zero I would now like they had the conference over.

Your speaker today, Bob got as President and Chief Operating Officer. Please go ahead.

[music]. Thank you Christina a good morning, and welcome to entitled fourth quarter, and your and 2019 conference call and webcast.

Our call today, Bob get Us President and COO and my Gray Chief Financial Officer will review and <unk> fourth quarter and year end 2019 highlights and financial results.

Followed by an operational update and outlook well then open the call for questions with the final ramp at the end.

Our discussion today may include forward looking statements based upon current expectations and involved and number of business risks and uncertainties.

The factors that could cause results to differ maturity materially include but are not limited to political economic and market conditions.

Crude oil and natural gas prices foreign currency fluctuations weather conditions, the company's defensive law suits, the ability of oil and gas now our oil and natural gas companies to pay accounts receivable balances and raise capital or other unforeseen conditions that could impact.

The use of services supplies by the company. Additionally, our discussion today may refer to non-GAAP measures such as adjusted EBITDA.

Please see our fourth quarter earnings release in SEDAR filings for more information on forward looking statements and the company to use of non-GAAP measures with that I'll pass it onto Bob.

Actually cool well, if there's ever a day for that a reference to forward looking statements that is that.

Well I'm not quite sure where to start this call today. Good morning, just does not seem to be appropriate.

Yes, krona virus on the government's pathetic responsible our cats was not enough. The Saudis response to the Russians walking away from the table just cranked up there again level wins.

Even higher.

Just now waiting for that seems to turn Rad.

Oh kidding aside it's unfortunate that the great work at the entire ends on tumor worldwide, having just completed our first year or the incredibly successful Trinidad integration or overshadowed by these monumental macro events today anyway, as we say, let's not let a crisis good waste.

To summarize the highlights for 29 team the team successfully integrated the largest acquisition enzymes history with the 1 billion Trinidad deal, we solidified and strengthened our capital structure with the issuance of 700 million U.S. the high yield bonds, we reduced debt by $135 million, we successfully recon try.

Right at about half of our fleet on forward long term contracts, we drove cost synergies with $50 million of annualize forward savings expected and on the technology front, we surpassed all of our edge implementation girls was 42 edge control installations now on our fleet worldwide.

And we did all this with a record safety or the safes and enzymes history, and with or hybrid rigs, we reduce carbon dioxide emissions by about 45000 tons annually.

So what would migrate for a deeper dive on the financials for the period well results for the fourth quarter 2019 were materially impacted by true that acquisition, notably through increased activity level due to the increase in rig fleet size and expanded customer base and additional exposure internationally and in key basins, the United States market when compared to the fourth quarter 2018.

Operating days were up in the fourth quarter of 2019 with the Canadian operations experiencing a 31% increase.

Noted states operation at 13% increase in international operations during a 10% decrease on an operating days compared to the fourth quarter 2018.

For the year ended December 31st 2019 operating days, rather than the Canadian operations experiencing a 49% increase United States operations, a 75% increase.

An international operations, showing a 12% decrease in operating days compared to the year ended December 30, Onest 2018.

Adjusted EBITDA for the fourth quarter, 2019 was 93.9 million, 15% higher than adjusted EBITDA up 81.7 million in the fourth quarter 2018.

Adjusted EBITDA for the year ended December 30, Onest 2019 was 406.8 million the 59% increase compared to adjusted EBITDA of 255.7 million generated in the year ended December 30, Onest 2018.

The 2019 increase in the adjusted EBITDA can be attributed primarily to the turned out acquisition as discussed before.

The company generated revenue of 375.8 million in the fourth quarter of 2019, 9% increase compared to revenue of 346.1 million generated in the fourth quarter of the prior year.

For the year ended December 30, Onest 2019, the company generated revenue of 1.6 billion, a 38% increase compared to revenue of 1.2 billion generated in the prior year.

Depreciation expense in the Airbus 363.1 million, 13% lower than 415 million from the prior year reason for the decline was due to the change in estimates on useful life that took place in the fourth quarter first quarter of 2019.

June expense in the fourth quarter of 2019 was 7% higher than in the fourth quarter of 2018.

<unk> expense for the year ended December 30, Onest 2019 was 23% higher than in the year ended December 30, Onest 2018.

The increase was due primarily to the turn that acquisition, however, synergies and cost savings realized following the acquisition of led to a decrease in DNA as a percentage of revenue. The company continues to focus on initiatives to manage costs and realize further synergies and cost savings.

Total company debt net of cash balances decreased by 44 million or 3% in the fourth quarter of 2019 for 1.6 billion at September Thirtyth 2019 to 1.55 billion at December 31st 2019, the company reduce its done by 135.4 million for the year through the purchase some cancellation of 58 million use the of senior notes.

And the repayment of the credit facilities.

No purchases of property and equipment for the fourth quarter 2019 totaled 17.3 million compared to net purchases of 16.9 million and the corresponding period of 2018.

That purchases of property equipment during the fiscal year ended 2019, total 96 million compared to not purchases of 73.3 million for the corresponding period of 2018. The company added one drilling rig to its international operations and one well servicing rigs in the United States. During 2019, the company decommissioned 18 drilling rigs and 12, well servicing rigs in Canada.

And 14 drilling rigs in the United States. During 2019 on that note I'll turn the call Dr. Bob.

Mike So let's start with the worldwide operations summary, today, we ever hundred 32, roughly half of our 273 high spec drilling rigs running worldwide with over 40 of them operating with her edge controls technology. We also have 40 of our 99, well servicing rigs running in North American today.

At about 30 directional drilling kits on the go today, and we have our ATM and fast performance management team on a PBC performance based contracts today double the amount of the prior year.

Let's look at each of our areas starting with the U.S., where we generate close two thirds of our EBITDA, our southern drilling division, which is primarily Permian focused we gained market share throughout 2019 with our Super spec fleet and we currently have about 48 rigs running today, California is running 13 drill rigs today in the Rockies eight our us well servicing play.

It continues to enjoy 50% activity utilization most are clients are hedged out a few quarters, but there's no doubt today's market response will affect everyone and international from 2020 looks to be a solid year for our international segment, which contributes approximately 20% of our EBITDA.

While the middle East was slow off the line in fourth quarter 19, we have hit the ground running in 2020 and only after the second while we have drilled the second fast as well in Kuwait grid start with a five year contract.

Those two Kuwait rigs.

Both rigs in Bahrain are operating at our just at the beginning of their three year contracts also our threeeighty ours are still drilling record wells in Oman and it appears there will be three contract for another two to three year period.

Our Australian business unit saw 2019, as a transition year, where certain rigs were upgraded by operators and put on to long term contracts currently running 10 over 18 rigs today in Australia and look to be Bang on with budget for 2020, most of our Australian rigs are long term contracts two three years in duration.

In Canada, we hit a peak of 55 rigs in the first quarter Hurricane business here. It is well ahead of budget today, we have 40 rigs running.

The short term effect, so they're all price crasher somewhat muted in Canada today, as we move into breakup with most of rigs falling off as planned because the breakup and won't come back one road bans fall come come off and we returned in the spring summer season, we do expect to have 10 to 12 rigs running steady over breakup on long term contracts and at the.

20 to 25 to operate over the summer well servicing rigs will stay steady with plus or minus 15 operating ahead in the K and business units.

Coming back to the bigger picture and relevant to the current oil price crash, we would suggest that our capex needs for 2020 will align with activity levels, we expect capex to probably fall closer to 75 million rather than 100 million. We continue to stay laser focused on or 100 million dollar debt reduction through 2020.

With that I'll turn it over back to the operator for today.

At this time I would like to remind everyone in order to ask a question. Please press star one on your telephone keypad.

Your first question comes from and Gillis from Stifel. Your line is open.

Good morning, guys.

Hey, and.

Acknowledging this is all pretty new to us, but can you talk a bit of both the appetite to keep the dividend in place and how quickly you can make a decision there or the board can make a decision.

Yes. The of course, it's a robust discussion at every board meeting every quarter.

So, we'll we'll see what happens.

We always make sure we do the right thing in the context of the market conditions at the time.

Okay.

It is coming under pressure.

With respect.

To the debt repayments made in the fourth quarter.

How does your view change on making those with the whatever capitals available given that the credit facilities maturity is obviously much sooner than the notes and.

That's primarily going to be viewed as a point of risk here moving forward.

Yes.

Lots of discussions about the management level on outflow I mean from day to day will look where the bonds are trading on what room liquidity on the facility is and make sure that we have.

We will facility.

Put it in kind of go from there.

He said it will change data from the day to day, depending on where the bonds are trading liquidity looks like on a go forward and how operations responds to the.

Dental downturn.

Okay and then.

You mentioned that you can flat you think you can flex capex down to 75 million.

Are there any or are there any other points within the system or within the company, where you think you can flex things lower or even a capex can even get a lower than 75.

Yes, I think I think Theres couple of.

You know points.

I mean, we operate one of the lowest fixed overhead costs.

And the business.

We've got.

Obviously, our Capex 100 million dollar was premised on running a certain number of rigs with this certain no news.

That will come off so it's just relative to that so I think we we're quite confident that we can skew that down to 75 that'd be appropriate.

The other thing is to keep in mind is we have about $50 million a redundant assets.

Around North America that we can that are on the market and can be disposed of through 2020.

We're not selling those at fire sale prices, but.

That's a relevant.

Relevant number that are too.

Okay.

I'll leave it there and I'll hop back in the queue. Thank you very much.

Thank you.

Again, if you would like to ask your question. Please press star one on your telephone keypad.

Next question comes from Keith Mckey from RBC. Your line is open.

Hi, Good morning, Thanks for taking my question just a couple of couple of them here and the U.S. just wondering what you're seeing and hearing on.

Re contracting rates, particularly in the Permian, we've heard things about.

10, Chile, Exxon and and company dropping rigs and that was even before.

Last couple of days news. So just some some commentary on that would be appreciated. Please.

Yeah I think.

With respect to that particular client.

We saw their their aspirations of adding rigs.

Trim back little bit.

As a operation seemed to be getting ahead of itself and they wanted to stay within an efficiency range I think that.

I mean, they did they did announce that are going to drop 20 rigs.

That would affect one or two of our rigs only they've been looking to try and pick up more of our rigs.

While they transition into a higher spec fleet and and being able to work out the data and the controls technology and what they are bigger platform, which has become a.

I have ever have not with with Exxon next deal.

So yeah, we haven't heard any news today obviously.

So what I can imagine there's much great news coming quarter. These days.

Yes.

24 hours, but a lot of our guys love our clients and U.S. hedge out.

But those hedges will be turning over if there's some.

Continuation of this.

Pricing platform.

Okay makes sense and just with respect to the impairment on the Mexico rigs is that to two rigs within the JV. So now it's down down a couple is that the is that how we should be thinking about it.

Yes, so those related to be in two rigs that are in Mexico within the joint venture. So those rigs were written down to a sort of a market value.

Okay.

And then just finally on the on the inside edge implementation. So.

Just running over for haven't deployed on over 42 rigs now just wondering what you're seeing on on on rates with.

That technology and uptick in our customers still paying the 90 K installation fee.

Yeah, I would say that that's come under pressure here lately also.

We're not.

Implementation.

As hard on new rigs, what we are doing is on the rigs that they are on we're pushing the implementation of the apps like the edge portal.

Like busy torque.

The enhance slapstick mitigation.

And we're in the process of beta testing our auto pilot.

It should be on the market here in six months, regardless of what the market conditions are.

That project is.

As a low cost.

Initiative to deploy and we've got a we've got a client that's working with us so that will continue.

We've always said Nevertheless crisis go to waste.

So it gives us an opportunity to to deploy that and get ready for commercialization in the fall.

Okay, great well that's it for me thanks very much.

Thank you.

There are no further questions at this time I turn the call back over to Bob Studies for closing remarks.

Thanks, Kristina a couple of things come to mind again don't let a crisis go to waste and don't throw the baby out with a bath water.

At enzyme unless one of the news fleets in the business the lowest overhead cost structure on the benefits of a large international presence, which are generally contracted out two to five years and science management has navigated through many storms in the past and we'll get through this one it's hunkered down once again. Thank you for joining us today in this Tamaulipas state look forward to updating you on our for.

First quarter results in three months time, thank you.

Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.

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