Q3 2020 Calfrac Well Services Ltd Earnings Call
Gentlemen, thank you for standing by.
Welcome to the stage count Frac wells surfaces limited third quarter 2020 earnings release call.
At this time all participants are in a listen only mode.
After the speakers.
Okay shouldn't there will be a question and answer session.
Question during this time simply.
Star and the number one on your telephone keypad.
If you require any further assistance please.
Betstars Sheryl I would now like to hand, the conference over to your Speaker today, Scott Treadwell, Vice President capital markets and strategy.
Please go ahead.
Thanks, Michelle good morning, everyone and welcome to our discussion of Caprock well services third quarter 2020 result.
Also on the call today are Lindsay Lake tell Fracs, President and Chief operating Officer, and Michael and Rick Our Chief Financial Officer.
This morning's conference call will be conducted as follows.
Lindsay will provide some introductory remarks, after which Mike will provide an overview of the financial performance of the company Lindsay will then close the presentation with an outlook for five Cal Fracs business.
After the presentation, we will open the call to questions.
In the news release issued earlier today can't Frac reported its third quarter 2020 results.
Please note that all financial figures are in Canadian dollars unless otherwise indicated.
Some of our comments today will refer to non I FRS financial measures such as adjusted EBITDA and operating income please.
Please see our news release for additional disclosure on these financial measures.
Our comments today will also include forward looking statements regarding.
Regarding Cal Fracs future results and prospects. We caution you that these forward looking statements are subject to a number of known and unknown risks and uncertainties that could cause our results to differ materially from our expectations. Please.
Please see our news release and other regulatory filings, including our 2019 annual report as well as items related to our announced Rick.
Metallization process for more information on forward looking statements and these risk factors finally.
Finally information on Cal Fracs current recapitalization process can be found on our Investor Relations Web page under recapitalization transaction information. Thanks Lindsay over to you. Thanks.
Thanks Scott.
Good morning.
Okay. Thank you everyone for joining our call today before my comments on financial matters I'd like to offer a few opening remarks.
As we've all seen the third quarter 2000, twentys growth the strength of our diversification and the quality of our team our Canadian and Russian operations performed very well largely due.
Two longstanding client relationships and excellent sales performance in the United States activity improve sequentially as we built back operating capacity at a measured pace.
Our North American operations delivered positive financial results, despite increased pricing having fallen.
Much as 20% over the last year.
In Argentina, the government mandated shutdown of operations was partially lifted as the quarter progressed an improvement continues.
We also achieved a number of milestones in pursuing our recapitalization, having secured the approval.
Some of the amended recapitalization transaction by our shareholders noteholders and the courts we.
We will keep you all informed as a matter of Deval I look forward to putting the past several months behind us and moving ahead to better days for calibre, our stakeholders and our industry.
Over the past.
Our employees vendors that clients have continued to demonstrate their support for calibre our clients in particular have repeatedly voiced their appreciation for the excellent service Cal Frac provides in the field and in the office to support the development plan.
I'd like to thank all of our people partners investors.
For their support over the last few months as we move through the recapitalization process.
While the worth of 2020 seems to be behind us and activity levels are improving across across much of our operation we will not be in a rush to add equipment or cost to our footprint.
We will continue.
New to advance a prudent and measured approach to capital allocation.
And operation expansion and improving markets globally with a focus on free cash flow and appropriate returns on capital to underpin Cal Frac long term success.
Now I will pass the call over to Mike who will present an overview.
Of our quarterly financial performance.
Thank you Lindsay and thank you everyone for joining us for today's call.
Our third quarter results improved significantly compared to the prior quarter and all divisions due to activity improvements and field productivity combined with cost savings throughout all areas.
Areas of our business.
Consolidated revenue in the third quarter decreased by 68% year over year to $127.8 million.
Largely due to material slowdown in the United States, Canada, and Argentina, along with a more modest reduction in Russia.
Adjusted EBITDA reported for the quarter was $8.5 million compared to $43 million a year ago.
Operating income was down 83% to $8 million from $47 million in 2019.
These weaker results were driven by lower activity and pricing in North America and Arjun.
Engine Tina.
As well as non cash charges of $2.8 million and point 4 million related to restructuring costs recorded during the quarter.
The net loss for the quarter was $50 million compared to a net loss of $29.4 million in the same period of 2019.
For the three months ended September Thirtyth 2020, depreciation expense decreased by $27 million to $31.7 million from $58.7 million in the corresponding quarter of 2019.
This decrease was driven primarily by a 227.2 million impairment the pp any.
It was recorded in the first half of 2020.
As well as lower levels of capital spending on capital items with shorter useful lives and corresponding higher depreciation rates.
In January of this year contracts board of directors approved the company's 2020 capital budget of $100 million.
This budget was subsequently reduced in March to $55 million due to the significant changes in industry activity that were experienced earlier in the year.
In November the board of Directors has further reduced the company's capital budget of $40 million.
And that will be adjusted further if necessary to respond to change.
Changes in market conditions and economics.
After a significant really release in the second quarter of 2020 working.
Working capital built during the third quarter by $26.2 million.
This build was the largest driver of 47.8 million reduction in cash on hand during the third quarter, which also.
Also included a $5 million decrease in borrowings under the company's revolving credit facility.
To summarize the balance sheet as at September Thirtyth, The company had working capital of $128 million, including $40.1 million in cash.
At September Thirtyth 2020, the company abused.
Point $9 million of its credit facilities for letters of credit.
And had $165 million of borrowings under its credit facilities, leaving.
Leaving $209.1 million in potential borrowing capacity at the end of the third quarter.
Subsequent to the end of the third quarter following quarter approval of the amended recapitalize.
Position transaction.
Contracts senior lending syndicate granted the company a waiver on its funded debt to EBITDA covenant.
This waiver as a precursor to further changes to the credit facilities that will become effective upon the closing of the recapitalization transaction.
I would now like to turn the call back to Lindsay to provide.
And our outlook.
Thanks, Mike I will now present, the outlook for Cal Fracs operations across our geographical footprint.
Despite a number of significant global events, including the ongoing impacts of go bid 19, OLT oil prices have remained relatively stable around 40.
$40 per barrel.
We continue to see a balance in the market as supply curtailments in OPEC and capital spending reductions globally have maintained pace with demand destruction, resulting from coal bed 19 related restrictions.
At some point a recovery in demand levels.
We will tighten the physical market for oil.
And we will likely require a material increase in activity in North America to maintain balance.
Natural gas fundamentals have continued to improve through 2020 with strip pricing at Henry hub now approaching 3 million us dollars per.
Liam be to use for 2021.
This improvement has been reflected partially in capital shifts on the part of our clients and we expect more focus on natural gas development in the years ahead in the year ahead in Canada, the United States, and Argentina, where incentives for development.
Designed to reduce energy imports and strengthened the domestic industry and the economy could improve activity levels in the Vaca Muerta shale play.
We continue to see a consistent focus on prudent capital allocation over production growth on the part of our client base and expect that strategy too.
To continue in 2021, it is worth noting that across the oilfield services space pricing is down materially from 2019, while field import performance has improved substantially.
Our customers are getting outstanding performance in the field for the lowest cost in years.
While this situation is the material tailwind for the operations of our climb it is not sustainable in the long term, especially as it pertains to pricing and returns on investment for oilfield services.
As always our focus at Cal Frac is to deliver on our brand promise to do a better.
To do it safely and to do it on time.
Even through 2020, we have been able to advance our performance against this standard.
Our fixed costs, which include district, and divisional costs as well as our reported SGN nay are expected to be down over $70 million in 2020.
Compared to 2019.
Some of these savings have come from compensation and headcount reductions, but a significant portion have been realized through due to ongoing process improvements and the implementation of our ERP system during 2020.
We will not cut corners, and making sure that we can operate safely reliably and efficiently in the field, but we will always look for ways to execute on our back office support and corporate functions as cost effectively as possible by.
By doing this we aim to maximize the dropdown of profits earned in the.
Promote to our bottom line.
In our US division the quarter showed steady improvement in activity, although some projects were delayed our frac calendar improved through the quarter and that trend has continued into Q4.
As budgets reset for 2021, we expect.
Modest incremental improvement in activity levels across most patients basins in the United States.
This may present opportunities to improve utilization further and potentially add more active crews to our us operation in the early part of 2021.
There as.
It's been no pricing improvement in the us market over the summer and outside of any import input cost inflation pricing improvement is not likely to occur in the near term should.
Good activity levels accelerate more rapidly than we anticipate pricing improvement will be a necessary part.
I've, a rapid return to higher activity levels.
In Canada, the third quarter was unfortunately volatile in terms of activity levels, while the July and September.
While July and September were strong months clients schedules and delays removed almost all the activity.
City from the August calendar. This impact is reflected in the financial results, resulting in approximately 500 basis points of margin erosion for the third quarter.
The third quarter ended with strong utilization for Cal Fracs Canadian Division.
That trend that appears set to continue.
New for much of the fourth quarter potentially driving modestly improved activity overall look.
Looking into 2021, our marketed equipment is essentially fully booked.
Through the first quarter of the year.
Our core customers are generally messaging increased activity in 2000.
21, compared to the second half of 2020.
Some shift towards Gassier resources than we have seen in the last number of years, we'll also take place.
I'll take a minute to now to cover Cal Fracs International operations in the third quarter contracts operations.
Patients in Russia exceeded our expectations for both revenue and profitability.
The improvements were due to our main customer completing a larger percentage of horizontal multistage conventional wells as well as the avoidance of the operational disruptions that have been a regular occurrence over the last number of years.
Our Russian management team has also has also optimize the business for current activity levels further improving margin performance.
While activity levels could remain elevated through the fourth quarter the onset of winter in Western Siberia is expected to impact our operational tempo.
At some point in the quarter.
As well the switch to higher costs winter diesel and the need to run engines at all times when equipment is outside will impact margins in the fourth quarter as is typical.
Forecasted work volumes for 2021 appeared to be similar to those experienced in two.
2020, and improved access to new operating field to eight new operating field should reduce the risk of analysis foreseen idle periods throughout the year.
Operations in Argentina were shut down in late March by government decree in response.
To cope with 19 and did not recommence until the middle of June the restart was a slow process and large scale fracturing operations in the new Ken region, who are among the last to start backup while results were materially better than the prior quarter, we were not able to.
To to deliver positive operating income in Argentina, due to the low levels of activity.
Looking ahead, we expect further significant improvement in our results in Argentina, and a return to positive operating income in the country in the fourth quarter as almost all operations will be back to pre.
Console bid levels.
Our outlook for 2021 appears robust today.
With development incentives rolled out by the federal government in Argentina expected to drive increased activity in unconventional resource drilling and completions.
Finally.
To touch on our recapitalization process, the statutory apparel process launched by Wilks brothers. After the ruling of the court of Greens bench approving Cal Fracs plan of arrangement on October Thirtyth is moving ahead.
The Alberta Court of appeal has agreed to hear the appeal on.
Expedited basis with the hearing scheduled for November 20 Fiveth.
Contract will vigorously oppose the appeal and is confident that the evidence before the court of appeals supports our position.
Contract, we will continue to up dates stakeholders with all significant development.
As the process continues and is continuing preparations to close the amended recapitalization transaction as quickly as practical following the upcoming appeal hearing.
One final note of thanks to our employees for all of their efforts day in and day out I'm proud of the work that they do.
Do.
And.
Excuse me.
And and I'd also like to thank everyone for joining us today and I will now turn the call back to the operator for questions.
Okay. Thank you.
Time to anybody would like to ask a question. Please press star one on your telephone Keith.
But again that would be strong blank on your telephone keypad. Your first question comes from way car Cheyenne from H. Keybanc capital markets. Your line is sales brain.
Thank you for taking my question.
First question, let's see what do you what would be the magnitude of.
Any legal.
The piece that can affect me.
Because of the recap and are there other issues.
Well, we're a car and part of our public disclosure, we don't get into just the legal fees, but we do talk about transaction fees in total and its around $19 million right now.
Our current forecast some of that has already been incurred as as we were going through the process and some of that will be on the close of the transaction here.
Hopefully in the late fourth quarter.
Now is that to capped at 19 or do you see that.
The process has taken longer than expected is it going to.
Please from here.
What car, it's Scott I don't think we'll give you any color there I mean to the extent. The process is extended are there is there is loose ends to tie up if there is material incremental costs, we'll we'll certainly.
To give some color around that but at this point, we won't give you any anything incremental.
There.
Okay, then just the.
Even if demand for equipment increases in the us and Canada, what will be the kind of reactivation costs for an additional crew in those markets.
So for the USA.
Yes.
Generally speaking of up fleets, especially with the first couple of lease will be less than a $1 million.
Peace.
We have equipment that is is basically ready to start off we don't have the people. There. So you have some sometime in.
In Canada as far as Canada goes.
We would be looking for more increased utilization rather than increase horsepower.
Being brought into the country.
Okay and then.
You have.
Have you now have five crews active into you.
U.S.
What basins are they kind of focused still on and going forward, what the focus is going to be.
In which patients.
I mean, we're we are.
RJ geographical footprint is in the northeast.
And that will continue to be a focus.
Boston, which is still a focus.
We're in Western Colorado.
And we have.
We have a west Texas in the coming out of our new Mexico base, we probably will have some work coming out of the out of our South Texas operation in San Antonio its Paul.
Possible. There is there is a fair amount of moving pieces right at the moment worker.
Potentially we could get.
A couple of fleets.
Additional fleets running in Q1.
Okay. So right now your market share in the U.S. looks to be around in a 3.8% or so.
Thank you.
Do you think you can maintain that market share of activity continues to increase it threw out till 2021.
Yeah, what car its Scott I think the short answer is yes, I think we're certainly position that if.
If frac activity was to go up by 50, 6100% given our geographic footprint.
Brand, we I think it absolutely maintain pace with that but I want to caveat that to say, we don't run our business based on market share and so if the activity is growing but the economic returns aren't there I don't think you'll see us.
Lose too much sleep over where our market share trends.
But by the same token.
The right customer and the right approach might see us outgrow some basins as well so I.
I think we're we're we'll be in the ballpark, but I wouldn't say, we'll slavishly stick to it.
No you some of your competitors both in the U.S. and kind of mentioned that there's increased customer demand for dual fuel.
Sleeves, and some of the companies some of your competitors are investing in dual fuel as well conversions and even tier four engines in on where do you stand with that and how is that gas fac physician, if if you're seeing those trends as well.
Oh sure can.
Thats a great question worker were.
Were we are continuing to add to our dual fuel fleet, both in Canada and in the us.
In Canada.
[music].
Probably with this latest the.
Increase in our dual fuel that we've just started.
Dawn will have them at.
At least the majority won't be a large majority, but a majority of our units will be dual fuel capable.
And then in the US we are continuing to add as as customer demand.
And make it economically feasible.
To to do so so we're on that trend, we're not on the trend of replacing.
The existing engines with tier four engine, that's a that's a larger.
Value that person would have put into a unit and and.
I think we would pursue dual fuel over over that for now.
Okay and just one.
Maybe two questions asked what portion of your fleet right now is dual fuel capable in Canada and the US and then how many fees do you have active in Argentina.
So absolutely.
Well when he said were once we're done this it will be a little over half in Canada. I think we're running we were a little over a third prior to this engagement.
In the us it would be less than that.
But again I think part of it goes back to footprint.
And I guess the in basin logistics capability.
So we don't want to get too far ahead of that I think what I could tell you is that we don't feel like it would be a stressed to any of our divisions to the AD dual fuel as customers demand it and as logistics infrastructure supports it.
And then in Argentina, right now, we're running running one large frac spread in new Ken and then probably three to four smaller spreads in the southern part of the country across a couple of districts.
And how does that number compared to the second quarter in Argentina.
Oh.
Significantly better we were running if you wanted to round it was probably close to zero for parts of the second quarter we.
We probably exited Q2 running too small fleets and no large fleets.
There's still a little bit of of excess capacity there for us, but we certainly have.
Potential.
You want to put most if not all of our frac equipment to work in Argentina, probably within the next three to six months. It would it's kind of going to depend on some some customer programs, but we see the demand there for sure that that utilization can continue to move higher.
So if I understand correctly in the third quarter, you only had two.
For smaller units working in now. The addition in the fourth quarter would be the one larger fleet then right essentially yep there'll be some pluses or minuses around that but the big step will be the large fleet in new Ken.
Great. Thank you very much.
Those are all my questions. Thanks Waqar.
Your next question.
Jim will come from Andrew Bradford from Raymond James Your line is open.
Good morning, guys.
Good morning, Andrew Good morning, Hey, Thank you.
Just so I understand maybe to finish off in that line of questioning is.
Our current budget.
Contemplate more.
More conversions.
The dual fuel.
Thats correct, yes in both the us and Canada Okay.
Okay. Thank.
Thank you for that.
Are we in in kind of environment in either speaking specifically to the two.
North American.
Please arena environment.
Garment where.
We're watching that demand is rising slowly but are are you at a point now where.
You know you contemplate may bidding into additional customers or there is some fluidity of the customer base between between providers.
Yeah, I think theres theres always a little bit of that.
I would say in Canada, we've seen maybe less fluidity theres always some changes.
But I think our certainly our core clients and the core clients of most of our peers.
Our relatively sticky.
Keith.
In the U.S., there's there's definitely clients that are sticky and that certainly in the Cal frac contacts maintained their relationship with us but.
But we have certainly seen the opportunity.
To bid on programs that you know I don't want to say, we wouldnt have bid on in the past because I think we're always.
Looking at opportunities but.
When the bid comes in.
You sort of think that the color might be that this is more of a box ticking exercise rather than an actual search for new providers, but there has been some some turnover, notably in the us that.
Always gives us gives you hope that there's there's opportunity there but.
I don't think it's mark the change for US I don't think were more aggressive.
Or more concerned about.
Any of that I'd say, it's we've observed it but I don't think we necessarily noted is.
Hugely material.
Sure do you think competition over new work.
Increases.
Turning to search right.
It's going to be interesting right because I think the way. This is going to play out as you've got underutilized equipment, which economics would tell you has little to no marginal cost and so absolutely you're going to see a rational pricing on the face of it to see that go to work and we absolutely see not.
Got both sides of the border, but I don't know that that's a very large piece of the fracturing market in either country and so I would suggest that with a quarter at kind of this activity level or maybe slightly higher there won't be much underutilized equipment and you'll have to reactivate.
Assets.
To get them to go to work now for US some of that will be relatively low cost stuff for the first few for others. It might be the same it might be more.
And so that should hopefully inform where pricing needs to go and hopefully gets rid of the irrational bidding now that being said I think we've all been proved wrong for him.
Of years about faith in the rationality of pricing in our market. So we're certainly not hanging our hat on that but.
Thats kind of informed why we've said, we don't think pricing moved significantly in the near term as we think there's still a little bit of underutilized capacity in North America.
So.
Suffice it to say then that you get it.
Proved economics simply through.
Improved utilization within your existing customer base that would give you enough operating leverage to get higher returns on the marginal.
On incremental crude.
Yes, it's not.
The plan is that mostly predicated on pricing increases.
No no I think.
But the other part of it is the work we've done on cost reductions.
Primarily at that at the district and divisional level, we're adding a fleet can be quite quite accretive to our margins I mean, it always is but I think it's even more powerful now you've seen the results in the North American businesses, particularly in Canada.
On a.
Significantly reduced revenue base and so we think that there can be a fair amount of pass through of cash from the field to the bottom line.
But as I said it.
Part of that equation. When you are looking at reactivation is where the market is and there is an outlay of capital even though it's only a million dollars it's still something.
That has to be accounted for and and that's going to be our decision making process.
I think.
Also Andrew.
We're always probably a quarter behind on the on the pricing so Q1.
I have no doubt will.
A number of fleets startup.
In our industry, but that pricing is basically being.
Secured by the by the customer.
Customers today, So I think what we had put forward that if we if it goes beyond what we expect then we will have to I think even as an interest.
But for sure on our company.
We would want to have an increase in pricing, but what were projecting here doesn't have a.
Increased.
Right.
But yet but.
Okay, so not to press the point too much here.
But.
You would be happy.
I assume you would also started accrue it not necessarily if you didnt get an increase in pricing, but if you had.
[music].
Certainty that night.
Contract might provide or certainty in terms of its utilization over X period of time that would be Super site and also we get.
Just.
One or two customers that that are planning to start up that whether they are very efficient they know how to do their work and we can.
Count on them to give us more than 20 days in a month, where we will end up with 30 days and larger pads and.
And such so we get both volume and efficiency all at the same time.
Thats, what I was driving thank you very much.
Okay.
Your next question will come from Ken.
You can see from independent credit your line is open.
Hi, Thanks for taking.
Thank you my questions.
Well go sort of continuing Uh huh anchors mine.
Obviously, you have been able to stick with the revenue per for executing job both in the U.S and Canada pretty well, which implies that you are being very disciplined in terms of.
Beating for.
We're not bidding for unprofitable contracts, but I assume because you just mentioned that their their.
Beat or is willing to accept lower pricing and it depends on their oh.
EBITDA for location of their fleets.
And are there considerations, but opex sort of considering.
What do you what do you think there is a.
Sort of bids coming for all four for the spot cut for spot contracts or for long term.
Contracts with managers.
I think it probably runs the entire gamut I mean to the extent that there is an underutilized.
Active fleet, you're probably not bidding that into a three year contract with a major because you might not have the capacity you'd be contemplating an incremental fleet.
But I think the thought processes you know unfortunately, the same our industry for a lot of years is focused on EBITDA and that comes from a time when fracturing.
During wasn't that capital intensive and so EBITDA is a very simple financial measure for people to understand.
Unfortunately.
It's not necessarily reflective of the health of the industry today, and so I know certainly account Frac. We focus on you know we'll call. It cash in jeans, you know what that operating income or EBITDA less.
Our opex.
That's what our divisions need to run their business too and Thats, how we hold them to account I don't know that that's necessarily the case across the industry.
And if it is the results would suggest some people may not fully understand that equation.
At this point, it's unclear whether.
I think you'll start seeing more activities from the spot market or from the contract markets in the first quarter.
And took the same question have you started talking about the first quarter.
Utilization with your clients or not yet.
No I think it will certainly in Canada.
I think we've got a decent amount of visibility on Q1 as Lindsey said the utilization on the three marketed fleets, we have looks quite high I think in the U.S. on the fleets we have worked.
Working today I think the again the line of sights pretty good Tailwinds. These point there is theres still some moving parts that could see some incremental.
Ill demand for fleets in the first quarter, but we're certainly not definitive on that yet.
But again it has to it all has to come together, the economics and the visibility on work.
And the partnership with the customer if that works if that all those boxes. Argotec then there's potential for more activity, but again, we're not we're not messaging that.
As a done deal today.
And the new balance that you guys will have is.
Is it kind of based on your perception of todays sort of market environment or improved market environment. I mean, the breakeven point is as of today or.
As a lawyer pursuit of.
As if it is how do you sort of how do you explain not explain how do you can you tell me a little bit about the rationale that you have to win win when you guys put together.
This new balance sheet, you can perspective.
And what's the cash flow breakeven point and how does it accordingly.
The number of fleets that you will be utilizing.
Well, Stan I won't go through chapter and verse on on sort of the rationale.
I'll point, you to have all of the official disclosure the public disclosure that we've got on that.
Suffice to say I think we said a number of times given what happened.
Your tied in the cobot pardon.
Part of the Q1 and the slowdown.
It became pretty obvious that we couldnt just wait for things to get better we had to take action on our balance sheet and we've done that.
In terms of the cash breakeven I think we've said a number of times that the interest reduction is just over $50 million.
Depending on your FX in Canadian dollars, we think Thats significant.
I think we have to also set a number of times that.
Capital allocation to debt reduction is still on the table I mean, the board approved a budget every year and improves the allocation of capital and at every year.
I'm pretty sure Mike will nod when I say, he's going to put his hand up that we should be reducing debt the operations guys or don't want to invest in the business.
And the people of the business and it will be about striking that right balance. So I think we've done good work, but I certainly wouldn't say the jobs done, but I Wouldnt point, you to any specific targets that were going to.
I said incrementally.
It's all about capital allocation in our business and we will try to do our best on that going forward.
All right. Good luck guys. Thank you. Thanks.
Thanks, Dan.
Okay, and if anybody else has a question. Please press star one on your telephone keypad.
I do have a question from John Gibson from BMO capital markets. Your line is open.
Good morning, guys.
Hey, Joe and John.
Can you just talk a little bit more specifically about your capex reduction for this year just what exactly is driving this decrease in.
If you could maybe provide some geographic details on.
Allocating a lower capital compared to your prior plan.
It really is coming from our maintenance capital for the most part we are our guys have done a phenomenal job.
And and I think getting better.
Life out of our.
We are out of our capital assets.
And and.
So probably the budget was set based upon a certain utilization level and historic numbers and and the they're coming in lower than expected.
That has taken place on.
Most all for a.
Geography, so they've all given up.
Capital.
To the same extent the if they if they need some some capital we have given that in some capital the dual fuel.
It's a good example of it its a.
And it's a reallocation number where maybe we didn't have it in the plan, but weve.
Been able to.
Two.
Utilize that and then especially happens in the in the second and third and now the projection of the on the fourth quarter. The first quarter was fairly.
Intense for capital spending.
On there John I.
I think Canada is probably the one that has been the most successful on reducing their capital need this year so far.
So it's fair to say that's more a function of.
I guess, increasing efficiencies as opposed to a soft.
Softer outlook for the remainder there.
Oh, yes I.
I think it's the.
The outlook for the year is actually for the rest of the year as is better than than what we've had in the in the prior part and that maybe not Q1, obviously, but but then in the other quarters. It is not a indicative.
A reduction in in workload in fact.
The North American side, we have the expectation of increased revenue so in both U S and Canada and Argentina for that matter.
Okay, Great I guess, then going forward into 2021 that you probably don't want to give guidance, but I'm just wondering if.
The same sort of rationale will apply in terms of just lower overall spending for next year, Despite maybe a slight uptick in activity.
Hey, John It's Mike Yeah, it's a bit early to be talking about a 2021 guidance on capital, but certainly we are incorporating the trends that were experiencing.
I think today and that will feed into the decisions on how we look at Capex next year.
Great that seems to be just just given the status of your recap our you handcuffs on what in terms of making capital allocation decisions or.
Has this not really impacted things so far.
[noise].
No I would say that the process is relatively unchanged the divisions have their their asks and they interface with the executive group here in Calgary to to come up with an answer and that's put in front of the board who makes a decision and I don't think Thats changed.
To Lindsay is point.
There were they.
There was capital allocated to dual fuel conversions that wasnt in the original plan. So it certainly speaks to us having capital flexibility at the at the highest level.
No I don't think.
In this market you would spend on an unrestricted basis to to try and get ahead of things you would spend prudently.
And I think Thats, what we are doing so no real change there mhm the backdrop of course, John as you can see you know, there's what $12 million to $14 million less capital than what we planned. So we haven't had lots of assets to do either.
Okay great.
Just last one for me just in terms.
Sales of your cost structure, just wondering how much.
Cost structure improvements how much incremental activity could your organization handle before it started to have to add back sort of significant fixed cost your business.
Hey, John its Mike on on that again as well.
No we really took a hard look at our cost structure in.
Obviously in Q2 with what was going on.
With the advent of the new ERP, that's allowed us I think to have a different platform.
As far as scaling up and scaling down administratively than what we've had in the past so thats going to be helpful. Going forward I mean really I think what we're looking here is that incrementally it's going to be mainly.
The field staff that gets added obviously, the you're going to have mechanics, and such that are going to get added up the equipment footprint increases significantly, but I think really large scale reductions and scalability I think we've done a good job organizationally of Rightsizing, and then I think being able to manage the peaks and.
Valleys, a little bit better than what we've done in the past.
And I think we're in all the markets that we want to be in at this time. So there is no you know it's not like a district reactivation that would drive that fixed cost up so.
Even even some of the district overhead like Mike's talking.
With the mechanics that that's directly related to the fleet to startup that we actually have so so I think we're in a in a pretty good.
Position I think we've we're we're quite happy with the way our.
Our operations and the some.
Support groups have.
Taken cost out and obviously, given especially where we are today, but we're not going to be too fast to add those back in and they know that as well so everyone is trying to be.
If there was a need we'll definitely look at it but.
It will get a.
Both scrutiny before it actually happens.
Okay, Great. That's all for me ill turn it back.
Thanks, John Thanks, John.
Okay, and if anybody would like to ask a question. Please press star one on your telephone keypad.
Okay.
At this time I have.
No further questions I turn the call back over to the presenters for closing remarks.
Thanks, Michelle Thanks, everybody for joining us today as we said, we'll keep the market updated with any developments from our recapitalization process and outside of that we look forward to talking to you in the new year with our fourth quarter results. Thanks very much.
Thank you everyone. This will conclude today's conference call you may now disconnect.
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