Q2 2020 Precision Drilling Corp Earnings Call

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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

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You for standing by and welcome to the precision drilling Corporation second quarter 2020, <unk> results conference call at this time, all participants' lines ARNA listen only mode.

After the speakers presentation, there will be a question and answer session.

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I'd now like to hand, the conference over to your speaker today.

Sure Dawson County manager of Investor relation the corporate development. Thank you. Please go ahead Sir.

Thank you Daniel and good afternoon, everyone welcome to precision drilling second quarter 2020 earnings conference call a webcast.

Participating today on the call with me are Kevin W. President and Chief Executive Officer, Carey Ford Senior Vice President and Chief Financial Officer.

Through our news release earlier today precision reported at second quarter 2020 results. Please note. These financial figures are in Canadian dollars unless otherwise indicated.

Some of our comments today, we'll refer to non IRS financial measures such as EBITDA and operating earnings. Please see our news release for additional disclosure on these financial measures.

Our comments today will include forward looking statements regarding precisions future results and prospects. We caution you that these forward looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations.

Please see our news release and other regulatory filings for more information on forward looking statements and these risk factors.

Gary will begin today's call by discussing our second quarter financial results. Kevin will then follow by providing an operational update and outlook with that I'll turn it over to you carry.

Thanks doesn't.

I'd first like to cover several of the cost saving and cash preservation steps taken by the company to confront the sharp decrease in activity experienced our sector.

In March we reduced staffing levels implemented salary reductions throughout the organization closed on profitable business lines.

This capex.

As our share repurchase program at essentially eliminated all discretionary spending.

We prepared for an unprecedented drop and activity levels that ultimately materialize during the second quarter.

We incurred an additional $6 million and severance and restructuring charges during the second quarter unexpected changes to generate an additional $14 million and savings annually from what we communicated in April.

Last quarter, we provided guidance of 30% reduction fixed cost comprised of overhead and gionee.

And we now expect a reduction to be 35%.

We expect cash savings for the year to now be up to $150 million compared to the previous guidance of over $100 million. Furthermore, we expect to exceed that $30 million reduction in annualized DNA target we provided in April.

Cost reduction and cash cash preservation, we will continue to be priorities throughout our organization.

Additionally, precision has been participating in the Canadian employment wage subsidy program, which we refer to as queues.

This Canadian government programs of course economic activity at all sectors of the economy.

And that's allowed us to retain a number of positions within our organization by offsetting wage expense was subsidies.

We expect to participate in this program at similar levels to the balance of the year.

I will now review some of the first quarter financial detail.

Sorry second quarter financial detail.

Our second quarter, adjusted EBITDA of $58 million decreased 28%.

Over the second quarter 2019.

The decrease in adjusted EBITDA, primarily results from a sharp decrease in drilling activity.

Also included in adjusted EBITDA during the quarter is $6 million of severance and restructuring cost $11 million an early termination revenue.

$3 million of which would have been occurred during the quarter and $9 million accuse payments.

Absent these items EBITDA would have been $47 million for the quarter.

In the U.S. drilling activity for precision average 30 rigs a decrease of 25 rigs from Q1 2020.

Daily operating margins in the quarter were 15198 US dollars an increase of 5850 for us dollars from Q1.

Q2 margins were positively impacted.

By early termination revenue and IVC revenue.

Turnkey margins and lower daily operating costs.

Absent impacts from RBC early termination and turnkey daily operating margins would've been approximately 9250 US dollars were approximately 1000 us dollars higher in Q1.

For Q3, we expect Dayrates and margins to be supported by contracted rigs and IVC revenue.

In Canada drilling activity for precision averaged nine rigs a decrease of 18 rigs from Q2 2019.

The operating margins in the quarter were $9042 an increase of $4844 from Q2 2019.

Margins for supported by a strict focus and operating costs and cues payments.

Absent the cues impact margins would have been $3869 approximately $100.

A day higher than Q2 last year.

For Q3, we expect margins to be supported by rig mix and strict cost control.

Internationally drilling activity for precision in the current quarter averaged eight rigs consistent with Q2 2020.

International average day rates were 54779 us dollars up approximately 500 us dollars from Q1 and over $3000 per day from the prior year benefiting from an active rig mix.

And our CMP segment adjusted EBITDA in the quarter was negative $1.2 million down $4 million.

Compared to the prior year quarter.

Adjusted EBITDA was negatively impacted.

$5.3 million restructuring charge.

And an 84% decline and well service activity.

Which was negatively impacted by wet weather.

And reduced customer budgets.

Capital expenditures for the quarter were $24 million, our 2020 capital plan remains at $48 million a decrease of approximately 50% from the beginning of the year guidance.

The 2020 capital plan is comprised of 34 million for sustaining and infrastructure and 14 million for upgrade and expansion.

As of July 22nd we had an average of 35 contracts in hand for the third quarter and an average at 41 contracts for the full year 2020.

Since the beginning of the year, we've converted almost $120 million in receivables to cash and have had essentially no collection issues with all contracts performing.

This in large part is due to the excellent performance of our credit and collections teams and the high quality of our customer base.

Moving to the balance sheet.

We continue to reduce both absolute net debt levels, primarily through free cash flow generation.

In the first half of the year, we've reduced our high yield no balances, but $45 million through redemptions and open market purchases.

As of June 32020, or long term debt position net of cash was 1.275 billion and our total liquidity position was 900 was approximately $900 million.

Our net debt to trailing 12 month EBITDA ratio is approximately 3.5 times and our average cost of debt to 6.7%.

For the remainder of this year, we expect to continue generating free cash flow through operations as well as benefit from additional working capital release.

Liquidity remains a top priority, but we look for opportunities to reduce leverage utilizing cash on hand, and we'll evaluate using a limited portion of our revolving credit facility for debt purchases to take advantage of low borrowing costs.

We expect to meet our debt reduction target range of 100 million $250 million in 2020 and remain on track to meet our longer term debt reduction goal of $700 million between 2018 in 2022.

We have reduced debt by over 400 million since the beginning.

2018.

We remain in compliance with all of our credit facility covenants.

And earlier in the second quarter reached an agreement with a secured lending syndicate to relax certain debt covenants in our revolving credit facility through Q1 2022, namely the EBITDA to interest Covenant, which is currently 2.5 times.

Although we are well clear this covenant today the extent the extent of the recent downturn is unknown and we went to ensure full access to all sorts of liquidity, including our revolver.

For 2020, we expect depreciation to be approximately 320 million. We now expect estimate to be under $60 million before share based compensation expense. This guidance compares to the 2020 guidance provided in February of $90 million and the guidance of $65 million to $70 million, we provided in April.

We expect cash interest interest expense to be approximately $800 million and we expect cash taxes to remain low with our effects that effective tax rate in the 20% to 25% ranch.

I'll now turn the call over to Kevin.

Thank you Jerry good afternoon.

Well the last few months have been deeply deeply challenging for the oil service sector for those companies with the human impact or the industry's large labor force has been profound but let me start there.

Let's turn we described with the deepest with the steep decline in customer demand and drilling activity.

Decision has aggressively cut costs regrettably the speeds on hundreds of long term hardworking loyal precision employees have experienced.

Salary reductions benefit reductions were group production work week productions.

Temporary layoffs that for some permanent layoffs.

In Canada, the emergency waste subsidy program has sold through some jobs.

But the outlook for many working this industry remains highly uncertain.

I want to make those employees dialogue with precision for their efforts in service to the company I.

I sure hope that the global economy recover suit.

As it was once again return to jobs in this industry.

I also think the employees still a precision many working remotely for their continued hard work with a strong operational and financial results are helping precision deliver for our stakeholders.

No as I said my opened this has been very challenging time.

For most of March April and May all of our customer discussions centered on terminating contracts idling rigs that works with our customers to find ways to minimize their spending.

The nowhere does happen faster than in Canada, which has already biased for spring break up for the spring breakup seasonal slowdown.

Industry activity level levels in Canada plunged below all time lows during the second quarter and so far the summer seasonal rebound has been muted with industry activity tracking almost 75% behind last year's levels.

Now the Montney and Duvernay plays remained a bright spot.

During the second quarter Precisions Super Triple rigs operating in those plays mid to high percentage of the entire industry is active fleet.

Our market share hitting a record peak by one point, we're close to 50%, albeit with a relatively small denominator.

We expect our strong market positioning to continue as those plays will remain busy for the second half of year.

Well, we do expect some day rate pressure it should be noted that the competition of the segments is narrow with a small competitive field the super Triple category.

Through the second quarter, we demonstrated excellent success with our Alpha technology suite on these rigs will have more on that later, but we expect of strong customer uptake on Elfa technologies will continue in Canada, who helped pull rig market share forward.

Outside the Montney and Duvernay, we expected the shallow basins will have light activity compared to last year and price competition will continue to be intense.

Scale matters, there with precision scale with the best ability to drive down our costs and sustained positive cash flow even is deeply depressed market.

Free cash flow will be our focus for the balance of the or in the billion shallow regions.

Currently we are running 13 rigs in Kansas and of another six rigs contracted to activate and coming days.

Well forward visibility remains will pig, we see rig activity moving towards the upper Twentys late in the third quarter and believe this will trend into the thirtys during the fourth quarter.

Turning to us.

Or service, our second quarter activity was a little lower than we expected. However, the difference was due to more rigs the anticipated shifting to idle, but contracted status with up to 11 rigs during the quarter.

Being IVC as we call it.

It seems those customers prefer to hold those rigs retained the option to reactivate those rigs.

Alternatively, they have the funded financial incentive for early termination lump sum payments should they choose.

In the U.S sales in Canada, we delivered very strong performance results with Elfa technologies, and we'll have more than that later, but I would say that we expect to continue to grow both our technology revenue and rig market share.

As industry looks to high grade ore Addback rigs.

Now as commodity prices recovered substantially from a negative oil prices quoted earlier this year.

As a percent of its also markedly improved our customer conversations have shifted away from laying down rigs contributed a comp terminated contracts to more normal conversations about safety deficiency operations and technology.

We have noticed a heightened interest in technology, both from a cost considering his perspective, but also for management perspective.

It seems that as our customers transition to using technology to work remotely their acceptance of digital technology as a drilling performance opportunity is normalizing.

Today, we have 23 rigs running up slightly from our low of 20 in Q2, we continued our visibility for a handful of potential activation opportunities.

But since the opportunity sets limited and we expect type competition will not provide much guidance on rates other than to say that opportunities are in both gas and oil players.

Now we believe that in the absence of industry rebound, we will gain market share interactive BRCA, we will move modestly upwards.

Trending towards 30 by the end of the year.

Potentially with six rigs remaining on IVC, earning obviously rates.

We have added one term contract during the second quarter for rig in the Haynesville.

We think this the positive indication.

Turning to our international business.

Despite the sharp decline in international drilling activity, we expect stable revenue at our Kuwait and Saudi Arabian business with six rigs operating under long term contracts.

Our biggest challenge is managing the international crews, we have worked those rigs with strict pandemic border controls iridium players.

In Kuwait than the Kingdom of Saudi Arabia, the National oil company offices remain closed early partially staffed so we expect no decisions to renew or contract additional rigs until the walk down ease as we currently have seven idle rigs in the region continue to believe that opportunities to activate some or all of those rigs will emerge.

Global economy recovers.

Now as I mentioned earlier.

We continue to have very good success with our Alpha technologies currently we have alpha automation running and earning revenue on half our active rigs and we expect us to trend upwards through the end of year.

We have also fully commercialized six alfalfa apps and have utilized elfa apps on over 100 wells this year.

We have more than a dozen other alpha apps under field trials and expect to commercialize most of those within the year.

Our progress with customer acceptance on Elfa automation, the Delta apps is excellent and as we mentioned our press release, we believe this digital drilling capability will drive the next technology transformation that our customers will demand to lower well construction costs.

But the real excitement for our technology group. This quarter has been with our Alpha analytics trials, we activated our alpha analytics team with two multi rig clients. The first denial see the Permian basin.

And also a private client in the Haynesville.

In both trials our teams analyzed both offset wells on our own drilling CPI is to uncover process and drilling operational recommendations for those customers.

The recommendations were implemented on a real time basis in repeatable and miserable manner on our Elfa automation platform.

The results of an excellent for the iOS see in the Permian on a 28 day well plan, we've reduced the drilling time to under 24 days, providing a 4.1 day average improvement per well.

In the Haynesville, we perform detailed analytics on a group of rigs operating during the first quarter to also uncover process improvement opportunities.

We apply those recommendations across the same group of rigs Fleetwide using our Elfa automation platform. During the second quarter. We averaged two we delivered an average 8% or 2.25 days per well savings.

These performance gains are repeatable and scalable as a process recommendations are locked in and executed repeatedly as planned on every rig with our of automation platform.

A key element of the analytics exercise is recommending the appropriate elfa apps to optimize the various sections of the drilling process in the implementing these accident apps in the drilling Poland.

With Alpha analytics, we save our customers time and money, we drive automation and up revenue and most importantly, we've demonstrated our ability to scale. This technology and the performance gains across all precision rigs for the same customers almost immediately.

Im confident this technology enablement and the revenue for Alpha services will grow but equally importantly, this will also drive market share revenue growth for Precisions Super Triple rigs fleet.

We'll continue to report on our progress throughout the year on the Alpha technology growth initiative.

Now turning to our completion and production service business.

Our Canadian will service group experienced a slowest activity level and record during the second quarter.

This was a function of our customers essentially curtailing, all discretionary spending and shutting in wells.

Most well service work is largely discretionary there was an operator is already shutting in production any wells needing service will be deferred.

As a third quarter unfolds, we're experiencing a muted seasonal rebound with precision service rig activity trending into the mid upper teens. This has been partially.

Due to weather delays, but also continued spending constraints by many of our customers.

The Canadian government announced a 1.7 billion dollar well recognition program and this was handed over to the province of Alberta, British Columbia and scheduling to administer.

All three provinces kicked off the application process during the second quarter with Alberta, the largest with $1 billion first wanted to gauge.

Precision is qualified and has been to bidding applications directly with our customers all three provinces, and we received approvals or indication of approvals and all three regions.

Unfortunately.

Programs have been slow to disperse funds and as of yet little of the subsidy program bundy's bid to our rigs or jobs where people.

Well this is frustrating for us and especially for our crews we have been a constant contact with the program managers is clear to us the province of Alberta is fully committed to disperse the full $1 billion as efficiently as possible as our British Columbia, Ansys gastro their respective allotments.

We know the first funding round, Alberta received over 35000 contractor applications.

I know the expected a strong uptick but it seems are quickly overwhelmed with the tens of thousands of applications.

All indications are that the funding will begin to flow in the coming weeks and they appear to be better prepared for the subsequent rounds, it's clear, they're working hard to get the money flowing to our rigs in our crews.

We still expect when our share of the work. We expect this will provide a strong tailwind for this business segment later this quarter and through 2022, when the programs expect to wrap up.

So to conclude my prepared comments, our focus will remain on leveraging all aspects of our business to generate free cash flow.

Maintaining adequate cash liquidity, while focusing on reducing our debt and we'll continue to grow our revenue in market share.

Leveraging our digital Elfa technologies.

So with that I'll turn the call over the operator for questions.

As a reminder to ask the question you will need a press star one on your telephone to withdraw your question press the pound key please standby, while we compile the key on a roster.

Our first question comes from Kurt Hallead with RBC. Your line is no.

Hey, good afternoon everybody.

Great.

Correct.

Paul as well.

On your front.

Hey, Kevin.

I see that when you're one of your primary use competitors is looking to sell its Canadian land drilling rigs.

Just wondering what you think the prospect of.

Those rigs being acquired.

Would be as we kind of move forward can there what do you think the value proposition is for those assets from an industry standpoint.

Kurt I think it's hard for to comment on another companies.

Process right now.

I would just say that.

Free free available capital in Canada for rig acquisitions is pretty tight right now but.

But I really don't comment on another processes running.

All right that's fair enough.

So on on on the precision drilling front, Kevin good see they continue to get traction with your with your Alpha apps.

I mean, a lot of discussion here over the last week or so from other oil service companies talking about an increase.

So remote.

Operations and.

Advances in technology seems to be coming a lot more like getting a lot more tracking here during the downturn that is on may have expected. So can you give us on some general sense as to argue pleased with kind of the tracking thats been happening and you have you seen MPS be more willing to kind of take on this technology through this downturn.

Kurt I think thats.

A good observation certainly all of our customers use are using a lot more technology themselves just to do their jobs are they were even just a few months ago and working remote mode. So I think they very quickly become comfortable with the notion of both remote operations and technology, enabling performance. So I think thats, helping us, but but was really helping is.

You know hard core results on the rig.

When we go and shoulder, we can drill a well 4.2 days faster and do that too and I also see that catches everybody's attention. So we've had a number meetings with.

With clients of legal rigs are kind of at a quiet period right now if not all of activity we've run.

I think four or five other customers through our demonstration facility in Houston demonstrated technology showing them. The case studies. So these are clients that don't have rigs running today, but expect to fire up rigs later this year or to next year. So there's no question that both for the customers. We have added perspective customers down the road I see Uh huh.

Hi degree of interest in digital technologies, all tied to drilling wells, a little more efficient, but but also repeatedly and post predictably and managing the cost exactly as expected.

Thats, great Thats, great color, maybe on on a follow up.

Basis, you talked about having some idle rigs in the us.

And are generating revenue what do you think of prospects of those rigs are.

Once or contract terminations going to kind of run through the process and you think you'd be able to kind of re sign those rigs with the existing customer base and you think be able to maintain pricing on those assets.

Well, Kurt I think you know kind of EBITDA on this business a longtime customers have a strong preference to keep the crew.

And the rig that they had the worked for them for a long time. So on those rigs are currently RBC I think part of the reason that customers didn't choose the early termination option, but kept the obviously how should we are complete control of the rig in the crew.

I wouldn't expect did renew the rig if they don't have a drilling budget, but if they if they come into 2021 of the drilling but given a partial budget I'm highly confident the what the same rig back so while it might have fallen off IVC maybe October November December.

Does that answer your question.

I'll keep it there and turn it over.

Thank you Kurt.

Thank you.

Our next question custom tailored nurture with Tudor Pickering Holt. Your line is now open.

Hey, Thanks, and good afternoon. My first question incurred kind of took part in it there, but it sounds like in the US you talked about potentially getting to somewhere close to 30 rigs by year end I think you said.

Up to 11, IVC rigs in Q2 and at year end you'd have close to six.

Two two part question.

Going from the low twentys today to 30.

I assume that's not just IVC rigs going back to work in state employees, it's probably kind of net net rig additions or rigs that are that aren't working today that are going back to work.

The back half and too and just curious if those are our operators.

And formerly had those rigs leads to operate as you're talking to for those rigs or others potentially new customers.

Taylor.

So my comment was printing towards 30.

Could have said trending towards 25.

23 rigs today, I think we have a pretty good try to punching cost 25, and moving towards 30 I don't know if we'll hit 30, that's a bit of a stretch just doing what we know both world This moment, but.

You know it only takes three or four rigs and.

And thats a across the US right now, it's a pretty small numbers, if we added three or four rigs between now and.

End of October I'd be pretty happy with that.

That gives us the high Twentys.

That could be.

It could be an epic, but by the way I think the rigs we have an IVC unless something changes with those clients. We're just keeping assuming there to stay IVC and that we'd be adding additional rigs beyond that so could be customers that use rigs in the past what are we activated rig thats off contract.

Or it could be a new opportunity creeping up and there's a.

A very limited number one or two or three of those opportunities but I.

I do think for the results, we're having with technology inefficiency right now.

We're going to stagger coupled with this.

Got it understood there and.

Follow up internationally.

Realized essentially all your rigs are on contract in long term contracts.

Just in the Middle East, though.

There seems to be growing talked at that activity.

Broadly in the middle East, but particularly in Saudi could could come down in the back half of the year and beyond and I'm. Just curious if that some you're seeing and for the customer you work with realizes as rigs on term contracts today, but.

Are you talking to those customers about any sort of pricing concessions today are done this contract seem pretty firm where they're not today.

So those are affirmed take or pay contracts.

You I'd be remiss, if I said that we did not have pricing pressure.

But I think we've dealt with that and don't have any adjustments to our guidance. So I think we've worked with customers kept them happy but keep things moving.

I comment that.

We've had two rigs in Kuwait that we've talked about renewals on.

And those rigs or idling now and.

We expected to have renewals by now, but with the shutdown in Kuwait.

Until those offices restocking to get their drilling funds back figured out again, an organized those renewals are delayed so I don't see any further changes in Kuwait turning to Saudi.

I think were stable and Saudi unless something changes dramatically.

I think the three rigs under contract will those contracts will continue for the year in Saudi.

But but I will tell you that.

The world of uncertainty right now so.

Things change quickly in surprised us sometimes.

Got it now squeeze one more in probably for carrying on the working capital inflows.

Speculate strong in Q2, I think you said in the prepared remarks that working capital should be a source of cash.

You need to be in source of cash in the back half of the year. So anyway to help us think about what magnitude of.

Cash inflows from working capital you might get in Q3 in Q4 this year.

Sure. So in April we gave guidance that we thought we would have $80 million to $100 million working cap on converting to cash.

By the end of this year I think we're probably pretty close to the high end of the range, so far and with what we captured in Q1 and in Q2, if we look at TEP now to the end of the year it might be another $10 million to $20 million. So I think we've gotten the bulk of it but I think will endeavor converting a.

A little bit more than what we guided.

Perfect well, thanks to the answer is I'll turn it back.

Thanks to our.

Thank you as a reminder, ladies and gentlemen that Star then one to ask a question.

Our next question comes from well car site with 80. These capital markets. Your line is now open.

Thanks for taking my question.

Kevin you mentioned in India.

Earnings release that.

As the outlook improves then you'll feedback buying bank debt, what do you need to see to do that you know you generated free cash flow in the quarter.

Cash balances of goods, so what do you need to see to be back in the market.

I think.

Well here, we're going to keep our.

Some of our strategy around how we manage our.

Repurchases.

To ourselves at this point I would tell you that.

You know sitting with.

North of $150 million of caution about 275 million of cash the balance sheet feels a lot better than.

$75 million of cash for the balance sheet, but.

I think managing our total liquidity managing our debt maturities and trying to capture some discover market are all things we think about everyday.

So the target that you have that 150 east that it I know you repeated that in the E. In the earnings release is that still if.

Target or that is flexibility around that based on the outlook.

So.

Raises a 100 150 million and I'd say that target so I'm going to change it's hard wired into our.

Incentive metrics.

And so we're not not likely to change targets that are tied to compensation.

Fair enough.

Now in the U.S. market.

As you add having conversations with customers and you indicated there was.

The de couple of rigs that good.

Back to what are those mostly related to private customers on those with public in fees.

That's that's a really good question, we've been working hard to try to figure out any.

Trends that might be emerging and what you're at this point there aren't.

We have a couple of private opportunity is a couple of going to immediate opportunities suggests some oil goes there's there's so little so theres really not a trend emerging yet, but we're watching closely to see if anything sort of pops up on that front.

Okay and.

You know what would we talked earlier I think we talk to you Bakken.

Back in June there was a little bit of a gassy sort of trend, but that's going to equalize both gas and oil.

And now and then you mentioned that there was a new term contract signing in the quarter.

When do you care to comment how the.

Needs kind of held up on that I think the contract losses.

We have received before.

You know.

Just because there's so few data points over marketplace I would say that that the rates in our contracts in line with prior guidance, we've given to run rates.

Okay.

I've heard I've heard of rates kind of all over the mouth, but our guidance for the past has been.

The upper teens to low twentys, depending on the spec of the rig and location and timing and size and nothing changed on that contract that's outside that guidance.

And now and you talked about this violent.

It feels that the rig that few to now is the smallest rig.

On the.

The utilization now to convert a super spec rigs into a smart rig.

What kind of investment has declined.

Carry a bunch of grabbed the investment piece and I'll talk about the trading.

Sure for for US what were what we're doing as are putting into a kit from third party, which enables our automation platform and we haven't given specific numbers that applicants hits well less than half a million dollars to put that kit onto our rig.

So curious thats essentially a server and the software that gets hardwired into the rig plugged into the rig.

And.

And then the probably the more meaningful component.

Is treating our our three drillers are for drillers, our rig manager and for that matter. The company man of the drilling engineer for the company.

On.

All the apps and utilization of the system and that usually takes the range of anywhere from kind of one or two wells maybe to as much as five or six wells, but could be a one month to three month process to get that.

The full training for the full value realized on a Rick.

Yes.

Car I'd also say that we've got 39 of our rigs in North America that already kitted out with automation.

And then.

So in a lead 19, if you look at the industry's super spec need maybe like numbers, maybe but it could be between exceeds 50 do 750.

And bulk up 80% of that is in the hands a five companies.

All of them have to varying degrees some component of that automation.

We can debate, which is better than not but some degree of everybody feels comfortable with innovative none of those 650 750 rigs could be converted into.

In Q.

These small can rigs with relatively light compared begin Donna type investment is the is that a fair observation.

I think it depends on the platform. So I think ours is relatively inexpensive because we're using.

Kind of standard.

Extended platform a standard operating system on all of our rigs that's the it'll be on fueling system and.

Right, we're buying a mass produced.

Server hardware package for also middleby for their employees for their.

Noble's control system, and then as we train our team and get the reconfigured it becomes self automation.

I don't think.

The other driller how's that plug and play capability that we have so I think thats sort of vendors we have.

Of course, all of our Super Triple rigs fleet have exactly the same version of MTO and so it's very simple.

Scalable opportunity for us so that we wrestle advantages there I.

I think philosophically you are right all risk can be converted but I think it's fluid varying degrees of.

Of capital and time across the fleet now what here we've been told by a couple of the Io season, we're working with that.

While all drillers are our dabbling in this area that we are delivering full full process automation control full app performance the returns and commercial rates put all of these rigs receiving commercial returns so.

Comforted that we're in a.

Meaningful first mover position on this.

And.

And I would tell you that the.

The time and trading in those Curie commented at 38 rigs and 38 crews and 115 drillers that are all trained on the system already we have scale that we can put into play immediately that we expect that to happen over the coming months.

Great and just one last question and R&D opportunities with.

For this trend in Saudi Kuwait as well.

The risk for sure.

Queasy rigs are all if you on rigs so it'd be very easy for us in Kuwait to upgrade those rigs we do know that.

Our customer there is very interested in technology, but.

I would tell you that any forward thinking right now until they get back to fully staffed offices is just on volte.

Yes.

Thank you Sir Thank you for you and says hey, thanks very much.

Thank you. Our next question comes from Ian Gillies with Stifel. Your line is now open.

Good afternoon, everyone.

Ian.

With respect to cues and and the remainder of the year I mean recovery still looks like it's going to be reasonably large and.

Maybe explain how you arrived late getting to what the anticipated recoveries are and maybe why even if the rig count goes up that recovery may not even bigger than what happened in Q2.

Sure and so obviously that that subsidy is.

Based on the number of employees we have.

Working for our company, while it is in place and and as you know the land drilling business employs a lot of people so and some some extended is dependent on activity as people on that if we have more people in the field it could be higher.

Where the comment we made in our press release that.

We expect to.

Receive kind of the same participation level in Q3 in Q4 as we did in Q2.

That is a function of both.

Our expected activity levels, and I think Kevin covered that in his opening comments and the way that that program changes throughout the back half of the year that the government has funded certain percentages and they ratchet down a little bit more in the in the fourth quarter.

Okay Thats helpful.

The other question I wanted to hit on lies with the specter of another federal election coming up in the last November Im just curious whether customers have begun asking about job dual fuel rigs or anything along those lines or whether you're looking at anything you'd maybe do around the carbon emissions side in the event that.

Policy, perhaps goes a bit more negative mid theres a change administration.

Great question.

And we have a surprising about a customer interest on both sides of the border right now on dual fuel engines.

And natural gas engines with customers working for currently the customers are looking kind of down the road I would say that.

I'll kind of market wide right now I've, probably never see the interest higher in dual fuel engines. In fact, we're involved in a.

At the project I know tourmaline, where we've developed a complete the portable.

Dual fuel.

Natural gas and electric storage.

Package, where we can move this full powerpack to any one of our super Triple rigs essentially plug it into and provide power. This is a project that terminaling applied for energy funding under the old pretty government incentive program, they're successful so its ourselves tourmaline and caterpillar partner together for this.

Our system, it's a hybrid power system using.

Batteries.

Dual fuel engines to a lower the carbon footprint and use hybrid technology.

Thanks, that's actually really helpful to know I'll turn the call back over.

Thanks.

Thank you. Our next question comes from Jeff federally with Peterson Co. Your line is now.

Good afternoon guys.

Jeff.

First question is rooms, the debt repayment, just trying to understand the evolution and you're thinking over the last few months circling back to the end of April you talked about carrying 80 to 100 million owners of cash and then repaying the notes on the 2021 notes by the end of the year.

Comment earlier in the call about now using a modest amount of the credit facility to repay notes and you're carrying.

Well above $100 million of cash how do you think about those variables and where do you think the cash balance goes to as the year progresses.

So I will go back to what Kevin said earlier about our specific tactics for research Devil, we'll keep ourselves, but I can answer some of your questions. I think we've given pretty quick items that the cash balance is expected to increase throughout the year. Both as we expect to generate positive operating cash flow and then get some benefit from.

Working capital release, and I would say that how are thinking has evolved as Kevin also touched on a little bit earlier we.

We had just under $100 million of cash at the end of last.

Q1, and we've been able to get basically 100% collection from all of our receivables and convert that to cash now we sit on the cash balance of 175 million, which gives us a little bit more flexibility with.

How which pieces of that we go after.

Because it's a bit more comfort comfort using our revolver, which has an all in borrowing rate for us of less than 3%.

That has them at the facility had maturity in at the end of 23, and so I think we'll we're looking at all of those and trying to figure out what.

What gives us the best return of potentially extends our maturity runway and.

Also provides us the most liquidity.

Is your intentions to retire the 2021 nodes will be by the end of this year.

There is a good chance we do that.

And is it reasonable to assume that the credit facility will be used that lease portion.

Really.

To to retire those notes.

I said in my opening comments that we are evaluating that option.

Okay.

Working capital side Kerry.

You are coming to be 10 to 20 million of incremental working capital in the second for the year.

Should we assume that the majority of that comes from your Dsos declining from the 92 studies you route into Q2.

So we expect to get a little bit from accounts receivable and a little bit from inventory.

And obviously, if theres a ramp up in activity in the back half of the year.

In Q4, we won't be able to recoup that.

But if the activity level is kind of how Kevin projected where it's a kind of a slow ramp we should be able to do that.

And just to confirm your comment earlier from a collection standpoint.

The small increase in Europe, so it's nothing to do with.

Any delays and payments is just a function of cowen nuance of timing.

Correct.

Okay.

Last question just from cost reductions.

150 million annualized reference.

The 30 plus million invest Uni.

How much of that would be reflected in your Q2 cost structure and do you expect that to be fully reflected in your Q3 cost structure.

I would say the majority of it is reflected in our Q2 cost structure with exception of the $6 million restructuring charge, we took in the quarter, which were changes we made at the ended the quarter. So we had mentioned that Theres may $14 million of additional savings that will be reflected in Q3 in Q4.

So.

When we talk about the $150 million cash savings, that's a combination of reducing capex by $40 million paying back the share buyback program.

Getting taxed deferrals other rent deferrals and then absolute.

Reductions to.

Question and field overhead so to a combination of a lot of different things.

A lot of those are captured in Q2, but we'll see even greater savings in Q3, and Q4 and I think the run rate gionee prior to share based comp and.

In Q3 in Q4 will be.

Well below $60 million.

Thanks, Tony.

Okay.

Thank you. Our next question comes from John Daniel Daniel Energy Partners. Your line is now open.

Hi, guys, thanks for putting him.

Kevin You mentioned the interest is really high on the dual fuel can you speak to what.

Pipe, a conversion or upgrade opportunities you'd expect the due over the next one or two years in our customers willing to share on the cost of your investment.

So during the second quarter of 2020 customers willing to share nothing.

That's tied to increased rates, but I do think going forward the fuel savings benefits.

Likely will help us drive economics that paper those upgrades.

Tom.

Particularly have a handful of idle rigs right now that have dual fuel. So we can activate rigs.

Into demand for for the time being it's probably more of a 2021.

Event for us, where we have to start investing in.

We are dual fuel systems probably.

Yeah.

And the cost of that as John I think it's I think I think that's a trend that's going to continue for a long time sure on them make sense and just to know now there's a cost benefit you don't what's interesting is.

What I find with on the entire CNG file on drilling everything we do on drilling that saves US money also almost all restasis energy and saves us emissions. So there is a really this is one business, where there's a very good alignment between.

Doing the right thing and actually making more money.

And as we.

For the develop our own TSG disclosure is really really clear on helping explain that to both our investors and our customers.

Okay.

Got it and then just one final one for me I should probably notice of adults I apologize, but can you walk us through that time and process to install the alpha apps that technology I don't really.

Time to train someone that up on it.

Yes, so the installation time is.

Less than a dozen hours, it's very simple physical.

Electrical hook up on the rig so installation time is irrelevant and happens during a rig move while they're ready for trucks, there's no no delay.

Well generally.

Do both cost from drilling trading rig trading and then on the job training for our people, but you can presume that a new drill there who is going from just strictly a super spec AC rig to be becoming a fully.

Call It alpha.

Expert there's about a three month cycle.

Right now today, we have 60 or probably about 30 rigs or not it's already booked 15 rigs of our crews that are.

We'll go back to works, we don't need to trade Buddy for the near term.

But if we activate 15 more rigs, we're going to be trading where people.

Okay, Thanks for putting him.

Yes. This is.

I just want to make sure that you got your question answered Kevin was describing the installation about automation you had asked about alpha apps.

Yeah.

That.

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Yes, the absence I was asked 1000 for intentionally.

The upside install in seconds and equity trading time has minutes.

Just making sure okay.

That's all had thanks guys. Thank you.

Thank you.

Our next question comes from Blake Johndroe with Wolfe Research. Your line is now.

Yes, Hey, thanks, guys. Good afternoon, just following on the Alpha top line of questioning here just wondering if clients customers or give you specific feedback on specific apps.

To give us a better understanding of what specifically what parts of the drilling process are maybe the most impactful from from an App perspective.

So short answer is yes, we're getting specific feedback and once we have.

Customers willing to pay for the up on a repeat of basis, that's really depart virtualization. So we've declared commercialization on six apps meeting their commercial earning and capable diverting commercial rates.

Most of what we're doing right now is tied to rid of penetration.

Specific energy at the bit kind of vibration in the drill strength.

Gotcha, and if we do see meant for each of these dynamics drilled during dynamics. There may end up being several different apps that the applied different biases to minimize optimize RFP or optimize vibration and.

Just like we have several different mapping apps for a telephones.

I'm quite certain wonderful several different types of apps to control different parts of that whole process.

And.

Thus refund or analytics team is quite good at is helping determine which apps work best for which geology and which customer working with.

Got it understood.

And then this lower.

Thats pricing environment or whatever the outlook is for the medium to longer term. If we don't see a concerted recovery here in the North American rig count would you consider licensing this technology in any form to maybe insulate yourself from some of the service delivery cyclicality and just take down the software portion of the value.

Ill.

Most of the ops.

We're actually notwithstanding ownership. These are owned by other parties. So far we have a few that we own but many are being owned by other parties. Nick installed they can sell those apps or license those apps to anybody that's running the novos automation platform.

But we still think the larger portion devalue isn't in the software, it's and having the cruise.

Able to operate and run the software having the company man up to speed up the software. So we think theres a lot of intellectual property and the trading and development of the rig teams.

Where are you probably didn't see a whole lot of crude differentiation. Obviously in the second quarter is things were just rolling off as quickly as possible see more tied to when contracts were actually up as opposed to recruit or re quality.

You think this could be a differentiator as even in a steadier recovery environment customers that have signaled to you that they would rather have the alpha capable crews and rigs back to work first.

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So it's still pretty early in this business trough period.

But that seems to be what we're hearing from customers.

But what we also know what we've seen with previous.

Installations, we talked about I think was in our Q4 conference call, we talked about operator up in the northeast in Marcellus. It had two rigs running alpha we brought a third region. There was a green rig with a green crew and by the second well there are drilling pacesetter wells using automation because they had the parameters for the other two rigs figured loaded.

So we think that as rigs get added back.

If a customer has to PD raised one at a third rig we can almost certainly guarantee.

Leaving us performance or the second well if there any also on the other two rigs in brigade Elfa in the third rig. So I do think there'll be a strong pull when rigs get added back, especially for customers going from two PD rigs to a therapeutic Rick.

For three to four or whatever that whatever that may be right right that makes sense and one more if I could squeeze it in here the 40 million capital spending program can you just help us calibrate relative to maintenance levels for the active rig count what kind of tailwinds are getting from equipment equipment harvesting if at all and then as we look out into 2021, it beyond everything about the sustain.

And ability to that in a flattish recount environment.

Anything we should be aware of you mentioned, the dual fuel upgrades, but anything like research or drill pipe.

More lumpy expenditures that we should be aware of across your fleet.

Yes, I think I think we're doing pretty good job keeping our most of our maintenance current.

Certainly we need a little less drill pipe today than we did we were running 80 rigs are the Pos and 80 rich in Canada, a year ago. So I think if we get back into a sharp ramp up there maybe some drill pipe needs popping up.

I don't think if anything that would.

Distort our long term maintenance spending profiles.

Got it thanks a lot.

Great. Thank you book.

Thank you im not showing any further questions at this time.

Now I'd like to turn the call back over to Duston honing for any closing remarks.

Thank you all for joining todays call and look forward to speaking with you. When we report third quarter results in October. Thank you.

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

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Ladies and gentlemen, thank you for standing by and welcome to the precision drilling Corporation second quarter 2020, <unk> results conference call. At this time, all participants' lines are to listen only mode.

After the speakers presentation, there will be a question and answer session.

To ask the question during the session you'll need to press star one on your telephone.

Please be advised to today's conference is being recorded.

If you require any further assistance please press star zero.

I'd now like to hand, the call rights over to your speaker today, Mr. Adelson, Tony manager of Investor Relations and corporate development. Thank you. Please go ahead Sir.

Thank you Daniel and good afternoon, everyone welcome to precision drilling second quarter 2020 earnings conference call and webcast.

Participating today on the call with me are Kevin W. President and Chief Executive Officer, Carey Ford Senior Vice President and Chief Financial Officer.

There are a news release earlier today precision reported second quarter 2020 results. Please note. These financial figures are in Canadian dollars unless otherwise indicated.

Some of our comments I will refer to non IRS financial measures, such as EBITDA and operating earnings.

See our news release for additional disclosure on these financial measures.

Our comments today will include forward looking statements regarding precisions future results and prospects.

We caution you that these forward looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations.

Please see our news release and other regulatory filings for more information on forward looking statements and these risk factors.

Jerry will begin today's call by discussing our second quarter financial results. Kevin will then follow by providing an operational update and outlook with that I'll turn it over to you carry.

Thanks, Jonathan.

First like to cover several of the cost saving and cash preservation steps taken by the company to confront the sharp decrease in activity experienced our sector.

In March we reduced staffing levels implemented salary reductions throughout the organization current on profitable business lines.

This capex.

Our fair share repurchase program at essentially eliminated all discretionary spending.

We prepared for an unprecedented drop and activity levels that ultimately materialize during the second quarter.

We incurred an additional $6 million and severance and restructuring charges during the second quarter and expect the changes to generate an additional $14 million on savings annually from what we communicate in April.

Last quarter, we provided guidance up 30% production fixed cost comprised of overhead and Jay.

We now expect the reduction to be 35%.

We expect cash savings for the year to now be up to $150 million compared to the previous guidance of over $100 million.

Furthermore, we expect to exceed the $30 million reduction in annualized DNA target we provided in April.

Cost reduction and cash cash preservation will continue to be priorities throughout our organization.

Additionally, precision has been participating in the Canadian employment wage subsidy program, which we refer to as choose.

This Kate and government programs of course economic activity at all sectors of the economy.

And that's allowed us to retain a number of positions within our organization by offsetting wage expense with subsidies.

We expect to participate in this program at similar levels to the balance of the year.

I will now review some of the first quarter financial detail.

Sorry second quarter financial detail.

Our second quarter, adjusted EBITDA of $58 million decreased 28%.

Over the second quarter 2019.

The decrease in adjusted EBITDA, primarily results from a sharp decrease in drilling activity.

Also included in adjusted EBITDA during the quarter is $6 million of severance and restructuring cost $11 million an early termination revenue.

$3 million, which would have been earned during the quarter and $9 million accused payments.

Absent these items EBITDA would have been $47 million for the quarter.

In the U.S. drilling activity for precision average 30 rigs a decrease of 25 rigs from Q1 2020.

Daily operating margins in the quarter were 15198 US dollars an increase of 5850 for us dollars from Q1.

Q2 margins were positively impacted.

By early termination revenue and IVC revenue.

Turkey margins and lower daily operating cost.

Absent impacts from RBC early termination and turnkey daily operating margins would've been approximately 9250 us dollars or approximately 1000 us dollars higher in Q1.

Our Q3, we expect Dayrates and margins to be supported by contracted rigs and I do see revenue.

In Canada drilling activity for precision averaged nine rigs.

A decrease in 18 rigs from Q2 2019.

Davy operating margins in a quarter, where $9042 an increase of $4844 from Q2 2019.

Yes were supported by a strict focus and operating cost in Q payments.

Asset the cues impact margins would have been $3869 approximately $100 a day higher than Q2 last year.

For Q3, we expect margins to be supported by rig mix and strict cost control.

Internationally drilling activity for precision in the current quarter averaged eight rigs consistent with Q2 2020.

International average day rates were 54779 us dollars up approximately 500 us dollars from Q1 and over $3000 per day from the prior year benefiting from an active rig mix.

And our CMP segment adjusted EBITDA in the quarter was negative $1.2 million down $4 million compared to the prior quarter.

Adjusted EBITDA was negatively impacted.

$5.3 million restructuring charge.

In an 84% decline and well service activity.

Which was negatively impacted by wet weather and reduce customer budgets.

Capital expenditures for the quarter were $24 million are 2020 capital plan remains at $48 million a decrease of approximately 50% from the beginning of year guidance.

2020 capital plan is comprised of 34 million for sustaining and infrastructure and 14 million for upgrade and expansion.

As of July 22nd.

At an average of 35 contracts in hand for the third quarter and an average of 41 contracts for the full year 2020.

Since the beginning of the year, we have converted almost $120 million in receivables to cash and have had essentially no collection issues with all contracts performance.

Yes in large part has due to the excellent performance of our credit and collections teams and the high quality of our customer base.

Moving to the balance sheet.

We continue to reduce both absolute net debt levels, primarily through free cash flow generation.

In the first half of the year, we've reduced our high yield debt balances, but $45 million through redemptions and open market purchases.

As of June 32020, or long term debt position net of cash was 1.275 billion and our total liquidity position was 900 was approximately $900 million.

Our net debt to trailing 12 month EBITDA ratio is approximately 3.5 times and our average cost of debt to 6.7%.

For the remainder of this year, we expect to continue generating free cash flow through operations as well as benefit from additional working capital release.

Liquidity remains a top priority, but we look for opportunities to reduce leverage utilizing cash on hand, and we'll evaluate using a limited portion of our revolving credit facility for debt purchases to take advantage of low borrowing costs.

We expect to meet our debt reduction target range of 100 million $250 million in 2020 and remain on track to meet our longer term debt reduction goal of $700 million between 2018 and 2022.

We have reduced debt by over 400 million since the beginning.

2018.

We remain in compliance with all of our credit facility covenants.

And earlier in the second quarter reached an agreement with a secured lending syndicate to relax certain debt covenants in our revolving credit facility through Q1 2022, namely the EBITDA to interest Covenant, which is currently 2.5 times.

Although we are well clear this covenant today the extension the extent of the recent downturn is unknown and we want to ensure full access to all sorts of liquidity, including our revolver.

For 2020, we expect depreciation to be approximately 320 million. We now expect estimate to be under $60 million before share based compensation expense. This guidance compares to the 2020 guidance provided in February of $90 million and the guidance of $65 million to $70 million, we provided in April.

We expect cash interest interest expense to be approximately $800 million and we expect cash taxes to remain low with our effects that effective tax rate in the 20% to 25% ranch.

I'll now turn the call over to Kevin.

Thank you Jerry good afternoon.

Well the last few months have been deeply deeply challenging for the oil service sector that its companies, but the human impact or the industry's large labor forces the profound and let me start there.

As Gary described with the deepest with the steep decline in customer demand and drilling activity.

Decision has aggressively cut costs regrettably. This means our hundreds of long term hardworking loyal precision employees have experienced.

Salary reductions benefit reductions were group production work week productions.

Temporary layoffs that for some permanent layoffs.

In Canada, the emergency waste subsidy program has shelter some jobs.

But the outlook for many work in this industry remains highly uncertain.

I want to Victoza employees dialogue with precision for their efforts in service to the company I.

I sure hope that the global economy recovers soon.

As it was once again return to jobs in this industry.

I also think the employees still a precision many working remotely for their continued hard work and the strong operational financial results are helping precision deliver for our stakeholders.

No as I said reopened this has been a very challenging time.

For most of March April and May all of our customer discussions centered on terminating contracts idling rigs and working with our customers to find ways to minimize their spending.

And nowhere does this happened faster than in Canada, which has already biased for spring break up for the spring breakup seasonal slowdown.

Industry activity level levels in Canada plunged below all time lows during the second quarter and so far the summer seasonal rebound as the new that with industry activity tracking almost 75% behind last year's levels.

Now the Montney and Duvernay plays remained a bright spot.

During the second quarter Precisions Super Triple rigs operating in those plays mid to high percentage of the entire industry is active fleet.

Our market share hitting a record peak at one point, we're close to 50%, albeit with a relatively small denominator.

We expect our strong market positioning to continue as those plays will remain busy for the second half of year.

Well, we do expect some day rate pressure that should be noted that the competition of the segment is narrow with a small competitive field the super Triple category.

During the second quarter, we demonstrated excellent success with our Alpha technology suite on these rigs will have more on that later, but we expect a strong customer uptake on Elfa technologies will continue in Canada that helpful rig market share forward.

Outside the Montney and Duvernay, we expect to the shallow basins will have light activity compared to last year price competition will continue to be intense.

Scale matters, there with precision scale with the best ability to drive down our costs and sustained positive cash flow even in a steeper depressed market.

Free cash flow will be our focus for the balance of the or in the billion shallow regions.

Currently we are running 13 rigs in Canada and of another six rigs contracted to activate and coming days.

While forward visibility remains a pig, we see rig activity moving towards the upper Twentys late in the third quarter and believe this will trend into the thirtys during the fourth quarter.

Turning to us.

Service, our second quarter activity was a little lower than we expected. However, the difference was due to more rigs and anticipated shifting to idle, but contracted status was up to 11 rigs during the quarter.

Being IVC as we call it.

The seems those customers prefer to hold those rigs retained the option to reactivate those rigs.

Alternatively, they have the funded financial incentive for early termination lump sum payments should they choose.

In the U.S and Canada, we delivered very strong performance results with Elfa technologies, and we'll have more in that later, but I would say that we expect to continue to grow both our technology revenue and rig market share.

As it relates to high grade ore at back rigs.

Now as commodity prices recovered substantially from a negative oil prices quoted earlier this year.

Customer sentiment is also markedly improved.

Our customer conversations have shifted away from laying down rigs attributed a comp terminated contracts to more normal conversations about safety efficiency operations and technology.

We have noticed a heightened interest in technology, both from a cost considering his perspective, but also for messmer perspective.

It seems does our customers transition to using technology to work remotely their acceptance of digital technology as a drilling performance opportunity is normalized.

Today, we have 23 rigs running up slightly from our loss of 20 and Q2, we continued our visibility for a handful of potential activation opportunities.

But since the opportunity sets limited and we expect type competition I will not provide much guidance on rates other than to say the opportunities are in both gas and oil players.

Now we believe that in the absence of industry rebound, we will gain market share and our active rig count will move obviously upwards.

Trending towards 30 by then of the year that potentially with six rigs remaining on IVC, earning obviously rates.

We have added one term contract during the second quarter for a rig in the Haynesville.

We think this is a positive indication.

Turning to our international business.

Despite the sharp decline in international drilling activity, we expect stable revenue at our Kuwait and Saudi Arabian business was six rigs operating under long term contracts.

Our biggest challenge is managing the international crews, we have 40 of those rigs with strict pandemic border controls iridium players.

In Kuwait than the Kingdom of Saudi Arabia, the National oil company offices remain closed orally, partially staffed so we expect no decisions to renew or contract additional rigs until the walk down ease as we currently have seven idle rigs in the region and continue to believe that opportunities to activate some or all of those rigs will emerge in the global economy.

Recovers.

Now as I mentioned earlier.

We continue to have very good success with our Alpha technologies currently we have alpha automation running and earning revenue on half our active rigs and we expect us to trend upwards through the end of year.

We have also fully commercialized six alfalfa apps and have utilized elfa apps over 100 wells this year.

We have more there doesn't other alpha apps under field trials and expect to commercialize most of those within the year.

Our progress with customer acceptance on Elfa automation that alpha apps is excellent and as we mentioned in our press release, we believe this digital drilling capability will drive the this technology transformation that our customers will demand to lower well construction costs.

But the real excitement for our technology group. This quarter has been with our Alpha analytics trials, we activated our alpha analytics team with two multi rig clients the first and Iaci the Permian basin.

And also a private clients in the Haynesville.

In both trials our teams have analyzed both offset wells at our own drilling capesize to uncover process and drilling operational recommendations for those customers.

The recommendations were implemented on a real time basis, and repeatable and measurable manner on our alpha automation platform.

The results of an excellent for the AOCI in the Permian on a 28 day well plan, we've reduced the drilling time to under 24 days, providing a 4.1 day average improvement per well.

In the Haynesville, we perform detail analytics on a group of rigs operating during the first quarter to also uncover process improvement opportunities.

We apply those recommendations across the same group of rigs Fleetwide using our alpha automation platform. During the second quarter. We averaged two we delivered an average 8% or 2.25 days per well savings.

These performance gains are repeatable and scalable as a process recommendations are locked in and executed repeatedly as planned on every red with our of automation platform.

A key element of the analytics exercise is recommending the appropriate alpha apps top optimize the various sections of the drilling process in the implementing these accident, perhaps in the drilling point.

With health analytics, we save our customers time and money, we drive automation in up revenue. The most importantly, we've demonstrated our ability to scale this technology and the performance gains across all precision rigs for the same customers almost immediately.

Im confident this technology enablement and the revenue for our Alpha services will grow but equally importantly, this will also drive market share and revenue growth for Precisions Super Triple rigs fleet.

We'll continue to report our progress throughout the year on the Alpha technology growth initiatives.

Now turning to our completion and production service business.

Our Canadian well service group experienced a slowest activity level and record during the second quarter.

This was a function of our customers essentially curtailing, all discretionary spending and shutting in wells.

Well service work is largely discretionary there was an operator is already shutting in production and the wells needing service will be deferred.

As a third quarter unfolds, we're experiencing a muted seasonal rebound with precision service rig activity trending into the mid upper teens. This has been partially.

Due to weather delays, but also continued spending constraints by many of our customers.

The Canadian government announced a 1.7 billion dollar well recognition program and this was handed over to the provinces of Alberta, British Columbia, and SUS gatchell to administer.

All three provinces kicked off the application process during the second quarter with Alberta, the largest with $1 billion first out of the gate.

Precision as qualified and has been submitting applications directly or with our customers all three provinces, and we received approvals or indication of approvals and all three regions.

Unfortunately.

Programs have been slow to disperse funds and as of yet little of the subsidy program funding has been a to our rigs or jobs, where our people.

While this is frustrating for us and especially for our crews we have been a constant contact with the program managers is clear to us the province of Alberta is fully committed to disperse the full $1 billion as efficiently as possible as our British Columbia scheduled their respective allotments.

We know the first funding round, Alberta received over 35000 contractor applications.

I know they expected strong uptick, but it seems there are quickly overwhelmed with the tens of thousands of applications.

All indications are that the funding will begin to flow in the coming weeks and they appear to be better prepared for the subsequent rounds, it's clear, they're working hard to get the money flowing to our rigs in our crews.

We still expect when our share of the work and expect this will provide a strong tail into this business segment of later this quarter and through 20 to 22, when the programs expect to wrap up.

So to conclude my prepared comments, our focus will remain on leveraging all aspects of our business to generate free cash flow.

Maintaining adequate cash liquidity, while focusing on reducing our debt and we'll continue to grow our revenue on market share.

Leveraging our digital Elfa technologies.

So with that I'll turn the call over the operator for questions.

As a reminder to ask the question you will need to press star one on your telephone.

To withdraw your question press the pound key please standby, while we compile the key on a roster.

Our first question custom Kurt Hallead with RBC. Your line is now.

Hey, good afternoon everybody.

Hi, Greg.

Correct.

Paul as well.

On your front.

Hey, Kevin.

I see that when you're one of your primary use competitors is looking to sell its Canadian land drilling rigs.

Just wondering what you think the prospect of.

Those rigs being acquired.

Would be as we kind of move forward can there what do you think the value proposition is for those assets from an industry standpoint.

Kurt I think it's hard for to comment on another companies.

Process right now.

I would just say that.

Free free available capital and Canada Brig acquisitions is pretty tight right now but.

But I really don't comment on another processes running.

All right that's fair enough.

So on on on the precision drilling front, Kevin it's good to see they continue to get traction with your with your Alpha apps.

In a lot of discussion here over the last week or so from other oil service companies talking about an increase.

So remote operations and.

Advances in technology seems to be coming a lot more by getting a lot more tracking year. During the downturn that is on may have expected. So can you give us some general sense as to argue pleased with has attraction thats been happening and you have you seen MPS.

More willing to kind of take on this technology during this downturn.

Kurt I think thats.

A good observation certainly all of our customers use are using a lot more technology themselves just to do their jobs and they were even just a few months ago and working remotely road. So I think they very quickly become comfortable with the notion of both remote operations and technology, enabling performance. So I think thats, helping us, but but was really helping is.

You know hard core results are the rig.

When we go on to show that we can drill about 4.2 days faster and do Thats. What I also see that catches everybody's attention. So we've had a number meetings with.

With clients are big on rigs are kind of at a quiet period right now its level of activity we Brian.

I think our four or five other customers through our demonstration facility in Houston demonstrated technology showing them. The case studies. So these are clients that don't have rigs running today, but expect to fire up rigs later this year or to next year. So there's no question that both for the customers we have.

Prospective customers down the road I see a high degree of interest in digital technologies, all tied to drilling wells, although more efficient, but but also repeatedly and press predictably and managing our cost exactly as expected.

That's great that's great color and maybe on on a follow up.

Basis, you talked about having some idle rigs and use that are generating revenue. What do you think the prospects of those rigs are what's our contract terminations.

And our run through the process and you think you'd be able to kind of re sign those rates with the existing customer base and you think be able to maintain pricing on those assets.

I think you know kind of EBITDA as a longtime customer has had a strong preference to keep the crew.

And the rigs that they have worked for them for a long time. So on those rigs are currently IVC I think part of the reason that customers didn't choose the early termination option. We kept the obviously also were complete control of the rig in the crew.

I wouldn't expected renew the rig if they don't have a drilling budget, but if they.

Come into 2021 of the drilling budget, a partial budget im highly confident that what the same rig back so while it might have fallen off IVC maybe October November December.

Come January I'm quite confident dosing customers one of the same rigs back if ever program starting in 2021 does that answer your question.

Yes. That's also good color, Kevin now I'll keep it there and turn it over.

Thank you Kurt.

Thank you Sir our next question custom tailor nurture with Tudor Pickering Holt. Your line is now open.

Hey, Thanks, and good afternoon. My first question incurred kind of in part of that they are but it sounds like in the US you talked about potentially getting to somewhere close to 30 rigs by year end I think in up to 11 IVC rigs in Q2 and at year end you'd have close to six.

So two part question.

Going from the low twentys today to 30.

Soon that's not as IVC.

Going back to work in standpoint, it's probably kind of net net rig additions or rigs that are that aren't working today that are going back to work in the back half and too Im just curious if those are our operators that formerly had those rigs least operators your talk into for those rigs or are those potentially new customers.

Taylor.

So my comment was trending towards 30.

Could have said trending towards 25.

23 rigs today as I think we have a pretty good try to punching cost 25 in moving towards 30, I don't know if we hit 30, that's a bit of a stretch just doing what we know about the world This moment, but.

It only takes three or four rigs and.

And Thats a cross the US right now, it's a pretty small numbers, if we added three or four rigs between now and.

End of October I'd be pretty happy with that.

That gives us the high Twentys.

That could be.

It could be an up above but by the way I think the rigs we haven't IVC unless something changes with those clients. We're just keeping assuming there to stay IVC and that we'd be adding additional rigs beyond that so it could be customers that use rigs in the past want to reactivated rig us off contract.

It could be into opportunity creeping up in those.

Very limited number one or two or three of those opportunities but I.

I do think with the results, we're having with technology efficiency right now.

We're going to stagger coupled with this.

Got it understood there and.

Follow up internationally.

Realized essentially all your rigs are on contract and long term contracts.

Just in the Middle East, though.

There seems to be growing talked at net activity.

Broadly in the middle East, but particularly in Saudi could could come down in the back half of the year and beyond and I'm. Just curious if thats something you're seeing and for the customers you work with unrealized as rigs on term contracts today, but.

Are you talking to those customers about any sort of pricing concessions today or do those contracts seem pretty firm, where they're not today.

So those are affirmed take or pay contracts.

I'd be remiss, if I said that we did not have pricing pressure.

But I think we've dealt with that and don't have any adjustments to our guidance. So I think we've worked with our customers kept them happy but keep things moving.

I comment that.

We've had two rigs in Kuwait that we've talked about renewals on.

And those rigs or idling now and.

We expected to have renewals by now, but with the shutdown and Kuwait.

Until those offices restock when they get their drilling funds back figured out again, an organized those renewals are delayed so I don't see any further changes in Kuwait turn into Saudi I.

I think were stable and Saudi unless something changes dramatically.

I think the three rigs revenue contract will those contracts will continue for the year in Saudi.

But but I will tell you that.

What a world of uncertainty right now so.

Thanks, James quickly and surprise us sometimes.

Got it now squeeze one more in probably for carrying on the working capital inflows.

Unexpectedly strong in Q2, I think you said in the prepared remarks that working capital should be a source of cash.

Continue to be in source of cash in the back half of the years Synovate Alpha think about what magnitude of.

Cash inflows from working capital you might get in Q3 in Q4 this year.

Sure. So in April we gave guidance that we thought we would have $80 million to $100 million of working capital converting to cash.

By the end of this year I think we're probably pretty close to the high end of the range so far.

What we captured in Q1 and in Q2, if we look at now to the end of the year it might be another $10 million to $20 million. So I think we've gotten the bulk of it but I think will endeavor converting a.

A little bit more than what we guided.

Perfect well, thanks for the answers I'll turn it back.

Okay.

Thanks to our.

Thank you as a reminder, ladies and gentlemen that Star then one tasks good question.

Our next question comes from require site with 80. These capital markets. Your line is now open.

Thanks for taking my question.

Kevin you mentioned in India.

Earnings release that.

As the outlook improves then you'll be back buying bank debt when do you need to see to do that you you generated free cash flow in the quarter.

Cash balances of goods, so what do you need to see to be back in the market.

I think.

Well here, we're going to keep our.

Instead of our strategy around how we manage our.

Debt repurchases.

To ourselves at this point I would tell you that.

You know sitting with.

North of $150 million Occassional bells dealer 75 million of cash balance sheet.

Feels a lot better than.

$75 million of cash on the balance sheet, but.

I think managing our toll of whether it be managing our debt maturities and trying to capture some discover market are all things we think about every day.

So the target that you have this 150 is that it I know you repeated that and then any any earnings Denise is that still left.

Target our this flexibility around that based on the outlook.

So.

The rate is 100 150 million and I'd say that target secular change, it's hard wired into our.

Incentive metrics.

And so we're not not likely to change targets that are tied to compensation.

And now.

Now in the us markets.

As you having conversations with customers and you indicated there was saying that the decoupling snakes that could go back to what are those mostly related to private customers on those with public in fees.

That's that's a really good question, we've been working hard to try to figure out any.

Trends that might be emerging than what you're at this point there aren't.

We have a couple of private opportunity is a couple of going to immediate opportunities some gas and oil.

Theres, there's so little that theres really not a trend emerging yet, but we're watching closely as if anything sort of pops up on that front.

Okay and.

You know what would we talked earlier I think we talk to you back in the back in June there was a little bit of a gassy sort of trend, but thats going to equalize both gas and oil.

And now.

And then you mentioned that there was a new term contract signing in the quarter.

When you can't comment how the end of eight scan depending up on that I think the contract losses.

We introduced as before.

You know.

Just because there's so few data points over marketplace I would say that that the rates not contracts were in line with prior guidance, we've given around rates.

Okay.

I've heard I've heard of rates kind of all of them up but our guidance in the past has been.

Upper teens to low twentys, depending on the spec of the rig and location and timing in size and nothing changed on that contract it's outside that guidance.

And now and you talked about this as wireless.

It feels that they continue to now is the smallest rig vis vis the on the.

The good that nation now to pin would a super spec rigs into a small Craig.

What kind of investment has acquired.

Carry a bunch of grabbed the investment piece and I'll talk about the training.

Sure for for US what we're doing as are put into that a kit from third party, which enables our automation platform and we haven't given specific numbers to navigate fits well less than half a million dollars too, but that kit onto our rig.

So carry thats essentially a server and the software that gets hardwired into the rig plugged into the Rick.

And.

And then the probably the more meaningful component.

It is treating our our three drillers are for drillers, our rig manager and for that matter. The company man of the drilling engineer for the company on.

All the apps and utilization of the system and that usually takes the range of anywhere from kind of water two wells maybe to as much as five or six wells what could be a one month to three month process to get that.

The full training and the full value realized on a Rick.

Yes.

I'd also say that we've got 39 of our rigs in North America that Arctic cat it out with automation.

And then.

In a lean Nathan if you look at the industry's super spec need maybe like numbers, maybe but it could be between next 650 do 750.

And bulk up at 80% of that is in the hands a five companies.

All of them have to varying degrees some component of that automation.

We can debate, which is better than not but some degree of that everybody feels comfortable with innovative none of those 650, 750 and mix could be converted into.

In Q.

These margin rigs mid and then secondly makeup a million Donna type investment is the is that a fair observation.

I think it depends on the platform. So I think ours is relatively inexpensive because we're using.

Kind of standard.

A standard platform a standard operating system on all of our rigs that's the.

Fueling system and.

There were buying a mass produced.

Server hardware package for also middleby for their employees for their.

No those control system, and then as we train our team and get the reconfigured it becomes self automation.

I don't think.

The other drill or has that plug and play capability that we have.

So I think thats an advantage we have.

Of course, all of our Super Triple rigs have exactly the same version of Npls. So it's very simple.

Scalable opportunity for us so that we've got some advantages there.

I think philosophically you are right all risks can be converted by I think it's fluid varying degrees of.

Of capital and time across the fleet now walk here, we've been told by a couple of the IR sees we're working with that.

While all drillers are our dabbling in this area that we are delivering full full process automation control full app performance and we're charging commercial rates on all of these rigs receiving commercial returns so.

I'm confident that we're at a.

Meaningful first mover position on this.

And.

And I would tell you that the.

The time and trading and does carry commented a 38 rigs and 38 crews and 115 drillers that are all trained on the system already we have scale that we can put into play.

Idea later, we expect that to happen over the coming months.

Great and just one last question.

Hey opportunities with.

For this trend in Saudi Kuwait as well.

The risk for sure our Kuwaiti rigs are all if you on rigs so it'd be very easy for us in Kuwait to upgrade those rigs we do know that.

Our customer there is very interested in technology, but.

I would tell you that steady forward thinking right now until they get back to fully staffed offices is just on hold.

And now.

Thank you Sir Thank you. Thank you ansys, thanks very much.

Thank you. Our next question comes from Ian Gillies with Stifel. Your line is now open.

Good afternoon, everyone.

[music].

With respect to accuse and and the remainder of the year I mean recovery still looks like it's going to be reasonably large.

Can you maybe explain how you arrived late getting to what the anticipated recoveries are and maybe why even in some rig count goes up that recovery may not need but bigger than what happened in Q2.

Sure and so I'd say that that subsidy is based on the number of employees we have.

Working for our company, while it is in place and and as you know the land drilling business employed a lot of people so and some some extended is dependent on activity as people on that if we have more people in the field it could be higher.

Where the comment we made in our press release that.

We expect to.

Receive kind of the San participation level in Q3 in Q4 as we did in Q2.

That is a function of both.

Our expected activity levels, and I think Kevin covered that in his opening comments and the way that that program changes throughout the back half of the year that the government has funded certain percentages and they ratchet down a little bit more in the in the fourth quarter.

Okay Thats helpful.

The other question I wanted to hit on was with the Specter of another federal election coming up for US in November I'm, just curious whether your customers have begun asking about John dual fuel rigs or anything along those lines or whether you're looking at anything you'd maybe do around the carbon emission side in the event that.

Policy, perhaps goes a bit more negative mid theres a change administration.

Great question.

And we have a surprising about a customer interest on both sides of the border right now on dual fuel engines.

And natural gas engines with customers working for currently customers are looking kind of down the road I would say that.

Kind of market wide right now I've, probably never see the interest higher in dual fuel engines. In fact, we're involved in a.

At a project right now tourmaline, where we've developed a complete the portable.

Dual fuel.

Natural gas and electric storage.

Package, where we can move this full powerpack to any one of our super Triple rigs as essentially plug it into and provide power. This is a project that turmoil in applied for energy funding under the dog for the government incentive program.

There are successful so its ourselves tourmaline and caterpillar partner together for this up our system, it's a hybrid power system using.

Batteries.

Dual fuel engines to lower the carbon footprint and use hybrid technology.

Thanks, Thats actually really helpful to now I'll turn the call back over.

Thanks Sam.

Thank you. Our next question comes from Jeff federally with Peters income your line is now up.

Afternoon, guys.

Jeff from first question is around the debt repayment, just trying to understand the evolution and youre thinking over the last few months circling back to the end of April you talked about carrying $80 million to $100 million of cash and then repaying. The notes on the 2021 notes by the end of the year.

The comment earlier in the call about now using a modest amount of the credit facility to repay notes and you're carrying.

Well above $100 million of cash how do you think.

About those variables and where do you think the cash balance goes to as the year progresses.

So I will go back to what Kevin said earlier about our specific tactics for restarted Devil, we'll keep ourselves, but I can answer some of your questions. I think we've given pretty clear guidance that the cash balance is expected to increase throughout the year. Both as we expect to generate positive operating cash flow and then get some benefit.

From working capital release, and I would say that how are thinking has evolved as Kevin also touched on a little bit earlier we.

We had just under $100 million a cash at they have less in Q1, and we've been able to get basically 100% collection from all of our receivables and compare that to cash now we said on the cash balance of under 75 million, which gives us a little bit more flexibility with.

How which pieces that we go after.

Gives us a bit more comfort cover using our revolver, which has an all in borrowing rate for us of less than 3%.

That has them at the facility has maturity in at the end of 23, and so I think we'll we're looking at all of those and trying to figure out what.

What gives us the best return potential extends our maturity runway and.

Also provides us the most liquidity.

Is your intentions to retire the 2021 nodes fully by the end of this year.

There's a chance we do that.

And is it reasonable to assume that the credit facility will be used at least.

Partially to to retire those notes.

Said in my opening comments that we are evaluating that option.

On the working capital side Kerry.

Your comment about $10 million to $20 million of incremental working capital in the second for the year.

Should we assume that the majority of that comes from your Dsos declining from the 90 plus days you were added in the Q2.

So we expect to get a little bit from accounts receivable and a little bit from inventory.

And obviously, if theres a ramp up an activity in the back half of the year.

In Q4, we won't be able to recoup that.

But the activity level is kind of how Kevin projective, where it's kind of a slow ramp we should be able to do that.

And just to confirm your comment earlier from a collection standpoint.

Small increase in your deal so nothing to do with.

Any delays and payments is just a function of cowen nuance of timing.

Correct.

Okay.

Last question does through cost reductions.

150 million annualize that you know reference.

The 30 plus million invest Uni.

How much of that would be reflected in your Q2 cost structure and do you expect that to be fully reflected in your Q3 cost structure.

I would tell the majority of it is reflected in our Q2 cost structure with exception of the $6 million restructuring charge, we took in the quarter, which were changes we made at the ended the quarter. So we had mentioned that there is $14 million of additional savings that will be reflected in Q3 in Q4.

So.

When you talk about the $150 million cash savings that's a combination of.

Reducing capex by $40 million paying back the share buyback program.

Getting taxed referrals other rent deferrals and then absolute.

Productions to.

Essien and field overhead.

So to combination of a lot of different things.

A lot of those are captured in Q2, but we'll see even greater savings in in Q3 in Q4, and I think the run rate GNS may prior to share based comp and.

In Q3 in Q4 will be.

Well below $60 million.

Thanks for the code.

Welcome.

Thank you. Our next question comes from John Daniel Daniel Energy Partners. Your line is now open.

Hi, guys, thanks for putting them.

Kevin You mentioned the interest is really high on the dual fuel can you speak to what.

Pipe a conversion or upgrade opportunities you'd expect that do over the next one or two years and our customers willing to share on the cost of your investment.

So during the second quarter of 2020 customers willing to share enough.

Yes tied to increased rates, but I do think going forward the fuel savings benefits.

Likely will help us drive economics of paper those upgrades.

[music].

Particularly have a handful of idle rigs right now they have dual fuel so we can activate rigs.

Into demand for for the time being is probably more of 2021.

Event for us, where we have to start investing in.

Or dual fuel systems, probably.

Yes.

And the cost of that as John I think it's I think I think that's a trend that's going to continue for a long time.

Sure on them make sense and just to know that there's a cost benefit you don't what's interesting is.

What I find with on the entire CNG file on drilling everything we do on drilling that saves US money also almost all restasis energy and saves us emissions. So there's a really this is one business where there is a very good alignment between.

During the right thing and actually making more money.

And as we.

For the develop our own TSG disclosures really really clear on helping explain that to both our investors in our customers.

Okay.

Got it and just one final one for me I should probably noticed by down so I apologize, but can you just walk us through that time and process to install the alpha apps that technology and our rig.

Time to train someone that up on it.

Yes, so the installation time is.

Less than a dozen hours, it's very simple physical.

And electrical hook up on the rig solar installation time is irrelevant and happens during a rig move while they're ready for trucks, there's no no delay.

Well generally.

Do both cost from training training rig trading and then on the job training for our people, but you can presume that a new drill there who is going from just strictly a super spec AC rig to be becoming a fully.

Ill call it alpha.

Expert there's about a three month cycle now right now today, we have 60 or probably about 30 rigs served sorry, but 15 rigs.

Our crews that are.

With respect to works, we don't need trade for the near term but.

But if we activate 15 more rigs, we're going to be trading where people.

Okay, thanks for putting into.

Yes. This is.

Just wanted to make sure that you got your question answered Kevin was describing the installation of Alf automation you had asked about alpha apps.

Yes.

Yes.

Yes, the absence I was asked 1000 front I'm sorry.

The upside install in seconds and typically trading titers minutes.

Just making sure okay.

That's all had thanks guys that take it.

Thank you.

Our next question comes from Blake Chandra with Wolfe Research. Your line is now.

Yes, Hey, thanks, guys. Good afternoon, just following on the Alpha top line of questioning here just wondering if clients customers or give you specific feedback on specific apps.

Maybe to give us a better understanding of what specifically what parts of the drilling process are maybe the most impactful from from an App perspective.

So short answer is yes, we're getting specific feedback and once we have.

Customers willing to pay for the up on a repeat of basis, we declared commercialization. So we've declared commercialization on six apps meeting, our commercial earning and capable of earning commercial rates.

Most of what we're doing right now is tied to render penetration.

Specific energy at the bit kind of vibration in the drill strength.

Gotcha, and if we do see meant for each of these dynamics drilled during dynamics. There may end up being several different apps that are the applied different biases to minimize optimize RFP or optimize vibration.

And.

Just like we have several different mapping apps for our telephones.

Quite certain wonderful several different types of apps to control different parts of the double process.

And.

Thus refund our analytics team is quite good at is helping determine which apps work best for which geology and which customer working with.

Got it understood.

And then this lower.

Thats pricing environment or whatever the outlook is for the medium to longer term. If we don't see a concerted recovery here in the North American rig count would you consider licensing this technology in any form to maybe insulate yourself from some of the service delivery cyclicality and just take down the software portion of the value.

Yup.

Most of the ops.

Ration opportunity ownership. These are owned by other parties. So far we have a few that we own but many are being owned by other parties. Nick installed they can sell those apps or license those apps to anybody that's running the novos automation platform.

But we still think the larger portion to value isn't in the software, it's and having the cruise.

Able to operate and run the software having the company man up to speed of the software. So we think theres.

A lot of intellectual property in the training and development of the rig teams.

We are you probably didn't see a whole lot of crude differentiation, obviously in the second quarter as things are just rolling off as quickly as possible see more tied to when contracts were actually up as opposed to recruit were Requalified do you think this could be a differentiator as even in a steadier recovery environment customers that have.

Signal to you that they would rather have the alpha capable crews and rigs back to work first.

[music].

So it's still pretty early in this business trough period.

But that seems to be what we're hearing from customers.

But what we also know what we've seen with previous.

Installations, we talked about I think was our Q4 conference call, we talked about operator up in the northeast in Marcellus. It had two rigs running alpha we brought a third regenerative as our green rig with a green crew and by the second well there are drilling pacesetter wells using alpha automation, because they had the parameters for the other two rigs figured loaded.

So we think that as rig schedule added back.

If a customer has to PD rigs one at a third rig we can almost certainly guarantee.

Leaving us performance on the second well if if there any also on the other two rigs and brigade alpha in the third rig. So I do think there'll be a strong pull when rigs get added back, especially for customers going from two PD rigs to a therapeutic Rick.

For three to four or whatever that whatever that may be right right that makes sense and one more if I could squeeze it in here the 40 million capital spending program can you just help us calibrate relative to maintenance levels for the active rig count what kind of tailwinds are getting from equipment equipment harvesting if at all and then as we look out into 2021 and beyond with.

Inability to that in a flattish recount environment.

Anything we should be aware of you mentioned the dual fuel upgrades, but anything like research, it's or drill pipe.

More lumpy expenditures that we should be aware of across your fleet.

Yes, I think I think we're doing pretty good job keeping our most of our maintenance current.

You know certainly we need a little estriol pipe today. There when did we are running 80 rigs are the Pos and 80 rigs in Canada year ago. So I think if we get back into a sharp ramp up there maybe some drill pipe needs popping up I.

I don't think if anything that would.

Distort our long term maintenance spending profiles.

Got it thanks a lot.

Great. Thank you book.

Thank you.

Im not showing any further questions at this time I would now like to turn the call back over to doesn't honing for any closing remarks.

Thank you all for joining today's call and look forward to speaking with you. When we report third quarter results in October. Thank you.

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