Q3 2020 CES Energy Solutions Corp Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the CES Energy Solutions Corp, third quarter 2020, <unk> earnings conference call as the.
A reminder, all participants are in listen only mode on the conference is being recorded.
After the presentation, there will be an opportunity to ask the question.
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I would now like to turn the conference over to Tony Oh, you've seen on the CFO. Please go ahead.
Thank you operator, good morning, everyone and thank you for attending today's call I'd like to note that the in her commentary today, there will be forward looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized on our third quarter ambient.
The press release dated November 12, 2020, and in our annual information form dated March 12, 2020. In addition, certain financial measures. The we will refer to today are not recognized on your current generally accepted accounting policies and for a description of the definition of these TCR.
Third quarter and DNA.
This time I'd like to turn the call over to Tom Simons, our president and CEO.
Hi, good morning, and thank you Tony.
On today's call will provide an operations on financial review of the Q3.
We will also provide an.
Update to the listeners on our current activity levels, our cash position and our share buyback process.
Well, we celebrated the news of the possible Colvin vaccine on Monday like all listeners, we will remain cautious and vigilant running the business until planes and office buildings are full of gain we believe energy demand will be muted the.
This cautious and prudent approach allowed us to achieve what we think are extraordinary results in a horrible end market conditions for energy services companies Inc.
In Q3, we achieved adjusted EBITDA of $18 million.
We built the cash position of almost $30 million.
The purchased and canceled 2.6 million shares which is about 1% of our outstanding share count we.
We did that while upstream activity once more than 70% from Q1.
And the pricing was discounted production.
Production treating volumes remain partially shut in and pricing was also discounted.
I want to acknowledge that it's been hard on our employees, it's been hard on our shareholders and hard on our suppliers we.
We do remain confident the doing the right things at the right times will benefit all stakeholders over the full of us of time.
At this point of the call traditionally long term followers of the company would expect a very granular operations and technical update for me.
I want to explain why in choosing the deviate from sharing exciting problem solving breakthroughs with customers across North America.
I won't share what we've done with supply chain to remain profitable when industry volumes and pricing of collapsed.
Here's the reason.
We have some terrible competitors I can't or won't explain their business practices I can only explain our own.
So part of our very deliberate strategy is to select competitors self destruct.
And for that reason, we will not be segmenting production versus upstream results.
Nor will we segment the contributions are niche businesses of make the headline EBITDA margins.
The stem works H.D.D. trench less sale of Cowen cluttered and buyer battle.
We're not helping our competitors figure out.
What makes our results better than theirs.
We do realize the than the analysts are very concerned.
The customer consolidation implies lower oil field service margins across North America.
We like our chances to remain.
Cash flow generating company because of our unique business model and company the person.
With that meet caveat I'll get to the meat of the quarter and current activity I'm going to begin with Canada.
In Q3 Canadian drilling fluids averaged 18 jobs through the quarter we.
We had 12 running in July.
18 in August.
24 in September and I'm really proud to say the today, we've got 38.
Pure Kim is there a Canadian production treating business also led by Ken the same gentleman that I started the company west of the runs Canadian drilling fluids, we saw steady improvement through Q3.
As the Alberta government and the curtailment I think subsequent to the quarter, we were seeing or volumes continue to go up and we've also seen a result of certain customers expanding their winter upstream programs. So that's a positive for the business across the board in Canada.
I'll move on to the U.S.
He asked her U.S. drilling fluid business average 41.6 jobs in the U.S. through Q3.
Three quarters of those were in the Permian and today about three quarters of our drilling fluid the activity remains in the Permian.
In July we had 38 jobs running in the U.S.
In August 42.
In September of 45.
And today I'm proud to say we of 54.
I'll note that our throughput capacity for the Permian is over 140 jobs, that's because of Capex. We spent one or two years ago, We got two monster mud plants with the rail siding there so.
So as operators.
See better oil pricing in the future because of the declines natural gases become valuable the gain is drilling goes up in the Permian in the future post Cove. It we become the number one drilling fluid provider in that market. Then we will have the ability to do more work.
Jay Kevin catalyst, our production treating business and the U.S., we've seen about 90% of production in the Permian restored we.
We've seen the less restored in the Rockies and a little better than the Rockies in Oklahoma, but not fully restored.
I will note the pricing across the spectrum for the company remains discounted.
We've had some come back that's been pegged the W. T I, but certainly nothing like what it was pretty cold but.
I'll note that as the Permian consolidates overtime.
We are now the number one drilling fluid provider in that market.
On the chance to be there just a couple of weeks ago myself.
Burn and his team of now opened the World Class lab.
That the Disney brothers built on budget on time.
We bought that business four years ago. It was seven acres in size today, it's over 30 acres.
The basin rebuilds production, we're poised to grow with it.
With that I'm going to turn on the call over the Tony for a financial update.
Thank you Tom.
Our third quarter results continued to demonstrate the company's financial resiliency in the balance sheet strength during challenging industry conditions as Tom alluded to despite generally depressed industry activity levels, you were able to continue to strengthen our balance sheet through working capital harvest and generate positive funds from operations.
Driven by improving the EBITDAC levels, we entered the downturn from the position of financial strength and proactively implemented measures during Q2 to provide additional protection and the ultimately support growth as industry conditions stabilize and gradually improve on.
Third quarter benefited fully from those cash preservation and cost reduction measures and as a result, our overall liquidity position and balance sheet strength to continue to improve as we once again displayed our defensible business model.
And our counter cyclical balance sheet, the low points in the cycle.
Yes exited the quarter with the net cash balance of $29 million.
Compared to 93 million dollar drop at the end of Q1 as the downturn began the strong cash position was driven by free cash flow generation through working capital harvest continued inventory management and cost containment measures. We ended Q3 with $292 million in total debt.
Out of cash comprised primarily of $289 million of the company's senior notes, which don't mature until October 21st 2024.
This represents a $135 million reduction from the 427 million at March 31st Twentytwenty.
Our focus on the company wide working capital optimization, and 2019 and into 2020 positioned the company extremely well to maximize working capital cash and cash flows through the second and third quarters as activity levels declined.
During the quarter CES realize the further reduction in working capital, which fell from $417 million at the end of Q1, two 301 million at the end of Q2, and then down to 267 million to close the Ted corridor, but the.
Presenting on total reduction or cash regardless of the $150 million.
[music].
We would also like to note that we experienced a similar working capital of harvest. During the 2015 16 downturn when we harvested the $153 million and came out of the downturn with an undrawn facility net cash position and ample liquidity to support improving activity levels.
And market share growth, we expect to be in a similar position coming out of this downturn and believes that our Q3 balance sheet demonstrates that capability.
[noise] true the pandemic, we've benefited greatly from the high quality of our customers and diligent internal credit monitoring processes.
As a result, we have managed to maintain a strong collection record and minimized the.
Accounts receivable losses, according $3.1 million income.
The credit loss provisions to date in 2020, representing less than 0.5 per cent of revenue. During the nine months ended September Thirtyth 2020, we continue to remain very diligent and focused on strongly our collections minimal bad debt expense and inventory management.
Subsequent to September Thirtyth industry activity continued to improve marginally from trough levels seen earlier in the year in both the production chemical and drilling fluids end markets acquiring the company to make modest investments in working capital, while still retaining a net cash balance of approximately 23 million day.
Sellers at this time.
And an undrawn fully accessible senior credit facility.
During the quarter CES generated revenue of $166 million compared to 159 million in Q2 and down from 350 sort of 315 million in the third quarter of 2019.
Revenue generated in the U.S. was $114 million, representing 68% of total revenue for it.
For the company, while Canadian revenue was $52 million in the quarter. Both of these revenue results represent the decrease over prior year comparative periods, which was driven by reduced activity levels of across all business lines as of the low commodity price environment resulted in temporary produce.
Action shut ins deferred completions and significant declines of drilling activity throughout North America on a year over year basis.
As Tom mentioned, notably the U.S. drilling fluids market share increased to 17% a record for the company and up from 13% in Q3, 2019, and the previous record of 15% and 20 in Q1 Twentytwenty.
She has achieved adjusted EBITDAC of $18.2 million in Q3 compared to 8.2 million in Q2.
The 2.2 million in Q3 2019.
We did in these results for the quarter is a $5.6 million Bennett.
The benefits recognized by CES from the federal government's Canada emergency wage subsidy program, which has been instrumental in allowing CES to mitigate sort of their Canadian personnel reductions during the downturn.
[noise] adjusted EBITDAC as a percentage of revenue in the quarter was 11% and represents a significant improvement were 5.1 per cent recorded in Q2 2020.
As the company recognized a full quarter of cost rationalization efforts and benefited from the reversal of certain production shut ins and built the U S and Canada in.
In May we announced that in light of deteriorating industry conditions, we are eliminating all non essential capex spend and reduced the projected 2020 spend by 40%.
From $50 million, the $30 million in the third quarter Capex spend was 3.1 million, bringing the year to date total to $20.6 million and we are well on track to end the year significantly below the $30 million estimate our balance sheet continues to benefit from prudent structuring.
The maturity schedules of our credit facility and senior notes.
As mentioned total debt at the end of Q3 2020 was primarily comprised of $280 million of outstanding principal on our six in the treats coupon senior notes, which do not mature until October 2024.
The September Thirtyth, we had a net cash balance of $29.4 million and an undrawn fully accessible senior facility, which notably has a maximum draw of approximately $237 million cash equivalent providing us the significant ample availability and.
In summary, we feel very comfortable with our strong financial position liquidity and conservative maturity schedule. We continue to monitor our capital allocation options in the context of market conditions outlook and the levels of our surplus free cash flow generation the.
Q2, 2020, we made it difficult yet calculated decision to suspend our dividend. This decision will consist of approximately $16 million in cash on an annualized basis.
Given the heightened uncertainty at the time, we also temporarily suspended activity under the NC IB program in the second quarter of 2020, after using $4.8 million to repurchase 2.3 million shares in Q1 day.
During Q3, the company Opportunistically repurchased 2.6 million shares at an average price of 90 cents per share of total amount of 2.4 million and repurchased 1.0 million of our senior notes at 93.75.
Subsequent to Q3, we also repurchased 2.1 million shares at an average price of 0.73.
Per share.
We continue to pursue share buybacks and bond repurchases in the context of our assessment of market conditions market prices and certainty around our surplus free cash flow levels, we remain responsibly cautious on our outlook for 2020 and beyond in the swap price environment. However, we came into this downturn.
Position of strength with an excellent first quarter and strong balance sheet and with a proven counter cyclical leverage model in the second and third part of <unk>.
Our goal through the school get 19, driven downturn continues to be the safety of our employees the preservation of our strong balance sheet and optimization of our industry, leading operations and critical employee base to weather, the downturn and maximize our potential for when conditions improve.
At this time, operator, I'd like to open up the call to line to potential questions from the audience.
[noise] certainly we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will share a tolling acknowledging the <unk> request. If you are using the speakerphone. Please pick up your handset before pressing and the key.
Given the prior question. Please press Star then two.
The paused for a moment of callers join the queue.
<unk>.
The first question comes from Keith Markey with RBC. Please go ahead.
Hi, good morning, Thanks for taking my questions. The first one just on Capex and what do you what do you kind of trajectory your maintenance capital to be currently and how should we be thinking about capex per trade 21 in general.
So generally always on we've had the position that maintenance capex tended to be 20 of the $30 million that we were estimating for spend in the air.
Given that the activity levels and the head count has can have the both come down some of that Capex is commensurate with head count and that includes vehicles and as a result that 20 million of of maintenance Capex that we're expecting to spend in the year will likely be a bit lower and the.
Mid to high teens.
And so on the 2020 basis, well, you'll see where we'll end up as I mentioned will be below that the 30 million likely below 25, and maintenance capex could be in the mid to high teens as a portion of that to be honest, Keith it's really difficult for us to project at this time I'm estimated capex for next year.
Yeah.
But we.
We would have started with the same estimate that we gave this year and GAAP and given that we're at the current activity levels and current head count we would expect that maintenance capex in 2021 to be 20 million or below.
Got it okay. Thanks for that site.
Last question.
When the when the shutdown the sort of started up one of the thoughts was that the vertical wells that required the expense of treater trucks would be the ones. The shot in the not come back and therefore lower your overall capital intensity has that played out or or of use sort of changed your view based on.
On what you've seen in the market as things attack.
Some of that still in progress Keith.
The Permian the big Treater truck market.
The <unk> market is mostly come back on.
The.
The Rockies and Oklahoma or the market, where there's still stuff shut in.
The some of the old vertical stuff has stayed shot in and so there is a little less treat or truck intensity.
Got it okay. That's it for me thanks, very much for the color.
Thanks Keith.
The next question comes from the Aaron Macneil, The TD Securities. Please go ahead.
Hey, <unk>.
Hi, My question, where perhaps the strongest quarter since that first day back.
But the letters of it.
The there [laughter].
[laughter] debt.
Like the cost of variable.
Right.
I got the right.
[noise] operating.
The leverage.
Okay got tired of it.
[laughter] production out of it.
<unk>.
[laughter] out of this quarter the [noise].
[noise] operating the air and we've got a glitchy connection there we understood it.
And that's a great question, so you'll probably hear this from big the chemical companies, maybe other companies the moves things on the water some of the shipping companies the sort of turning the screw on.
On probably more than just North America. They are actually tightening supply of ships. So they can get the freight rate Sop, which is interrupting supply chain the little bit. So we've had to go into North America by some of our feedstock ore ordinarily you would come from the water.
So we've worn customers that there may be some real time price adjustments required.
We'll see how it goes getting that that is kind of a pass through while you have to use more expensive feedstock Ah, but you nailed it that a lot of our cost of goods is tied to the value of oil and as it moves up and down our stuff.
Is either cheaper to make her more expensive to make my dad always use the bug me that I'd draw of gas guzzling vehicles, and I told them.
I could afford it.
The oil was on her box I could drive a suburban or on escalate and not worry about what it cost of drive so it's it's a little bit like that in our business of.
But there will be a little bit of variability in some of our gross margin because of some of the shipping stuff.
Other than that.
Vertical integration for us and some very clever and we think sustainable work by our supply chain people have helped our of margins, but as I said on the call before we're not lifting the comm mono and helping people copy us.
As I said Oh.
[laughter].
Yes for the well okay.
The the British pound or the or line of sight on of the task.
Or <unk>.
Correct.
[laughter] repurchase right.
Right.
Share the they got the.
Purchase of <unk> cash [laughter] [laughter].
Additional question.
There are some of the current midscale like us that schedule.
[noise], Tom you want to take down are you on the instead.
You know I think we're just going to reserve comment.
Aaron its it's in everyone's interest that we just.
Decide the stuff in real time.
And then announce it as it happens we're going to not run out of money.
We're going to make sure we can pay for the bond and filled the shelves what product line, we need to.
And.
If we're going to buy a lot of stock. The last thing we should do is tell everyone. Before we do it. So I think we just kind of want to keep our head down and run the business.
Okay [laughter] of.
Working capital.
A big part of the capital structure of the positive for you a couple of.
Of course.
The fourth.
The potential increase of work.
Oh.
[noise] far apart in.
On the recovery scenario.
Yeah that was a that was before coal, but it's a new people can fact check. This we've shaved you know probably a nickel a against the dollar of working capital off that's a combination of.
Of people in field offices, getting invoices out faster using AI to be able to carry less inventory on drilling locations by proving to company men that they were over stocking the drilling rigs with the contingent products.
And the production part of the business, which you don't have to be a genius to figure out is becoming a bigger part of the company went upstream collapses. The way. It has it uses less working capital than a the drilling part so we're always going to need working capital.
We wish we didn't but as long as people pay the bills when it slows down we get all the money back it'll be a little less working capital intensive than it was historically, but that's not because the cove. It it's because of a lot of deliberate activities that started to show up you know say.
On a year ago, and that's from Tony and his team to Gary and his people and Midland and you know Vernon Baxter and Ken and there are people running on operations.
Understood.
I'll turn it on.
The.
Thanks, Dan.
The next question comes from Cold Pereira with Stifel. Please go ahead.
Hey, good morning, guys.
So the unit.
Market share was quite strong in the quarter and it sounds like you've got the caught the and you can keep that up.
Can you maybe talk about your strategy for that and whether it's adding additional rigs with existing customers, adding new customers et cetera.
Sure Hi call up so its not using our balance sheet. Unlike some of our competition.
Uh huh.
It's.
Trying to help our customers get pipe in the ground.
Faster than they can using another mud company without losing money doing it.
And the <unk>.
Part of the trick is the infrastructure, we have in the right places.
We think we've got better people better products and when you kind of mix that all together into a mud system.
The proofs in the pudding we've got.
You know high Twentys for market share in the Permian, We're mid Thirtys in Canada.
The deeper the well is the longer the horizontal leg is it.
In the oil sands, the tar sticks to the pipe the trickier the well is to drill.
The better our chances are to distinguish yourself from somebody the just sells on or relationship or on price.
And so as you evaluate you know is gaskin to be economic for the customer again, because the associated gas.
As you know declined in the Permian because money hasn't went back in the ground and people are going to drill some gas wells. The game and you have to drill deeper generally to get that those kinds of wells are better for us for a more in play so like our work mix in Canada today has a weighted less work.
Southeast of Scotch one than historically and the daily revenue is higher on the Montney wells on the Bakken well.
So our strategy is to pursue the technically difficult work.
Have better products better people and not use of our balance sheet.
Got it thanks that's helpful.
Maybe going back to Canada for Canadian production chemicals, or even the indicate which parts of the market you're seeing some strength then it would it be montney or different areas.
[noise] Montney in oil sands.
Gotcha.
For the U.S. of production chemicals.
Have you seen much of it impacts on completions related work. So far is it really more of a lot of the stimulation type jobs.
Oh, the complete that's a great question.
Not very much contribution in Q3 at all but we've seen some in October thankfully.
Okay got it that's helpful. I'll turn it back now thanks for the answers.
The next question comes from Ken one at Chello, the the ATP capital markets. Please go ahead.
Hey, good morning, everyone on it.
Attempt on anything.
Obviously, the U.S. drilling fluids market is fairly transparent yet.
The trial, a fairly quantifiable conclusions on market share there.
Not the same sort of clarity in the production chemicals side. So I'm wondering if you can just talk a little bit of though how your market share the rest of the downturn and production chemicals and if you're seeing some upside like you have in the drilling fluids business.
And really what the the strategy is sort of over the medium term to gain.
More penetration into those larger customers on the.
Production side as well.
Well, we went ahead and built that that lab in the Permian 10, [noise] have expanded that facility, where we blend Phil.
Fill the truck stage of the product train the people do sales calls analytical work.
In Gardendale or Midland.
Because we are expanding our share in the market. We're a clear number three in the lower 48, we actually think we're number two in the Permian.
And there is some third party data out there the.
And in fact, we bought it's not inexpensive.
You guys are a bank you can buy it.
On the corroborate stuff the stuff I don't know of accounts wellbores, but its customer based intelligence about the market. It's not service companies, telling you what they think of their self serve management representations, it's surveys of customers on value crew.
The shouldn't on technology delivery.
And things like that but we're very confident to say the were a solid number three and.
Pretty confident we could be too in the Permian.
And we remain convinced that that's the upside of the U.S. CES the Permian.
Okay, Great have you seen increased penetration in the horizontal.
Production market.
Well the was there all along and everything that's been brought on line in the last.
Five years in the Permian as horizontal unless it's a salt water disposal well.
Yeah, no I understand the apart, but my understanding was that no. Most of the production treating was sort of vintage vertical wells the ad.
On the horizontal wells were sort of higher value of stuff that was tougher to convert on a customer basis Im just curious if that conversion rate has increased.
Uh huh.
You.
You do both we would have on the vertical wells that you almost would prefer not to free because they're not that economic and they require a treat or truck often.
But then your continuously injecting chemical into the big horizontal the could be right beside it taking 10 or 20 times of the volume of product continuously instead of this quarter million dollar milk truck that squirt some chemical on at once a week.
You don't need the then be able to figure out which ones of better piece of business, we do both and obviously you.
You know the all of the shale production comes from the horizontal wells and for US and we think the magic per trip to our business is we don't touch that horizontal well just treating it.
We have a legitimate shot to run the drilling fluids.
Maybe running the chemicals to drill the frac plugs out with the.
And then treat the well forever and you know not very often but sometimes even provide the frac chemicals.
And treat the pipe line or tank the stores the oil or moves it so.
So for sure you've nailed it the the importance of the horizontal spur our business cannot be overstated.
But we do it on the seal to floods polymer floods water floods that stuff's, all the vertical wells and it's good business for us and you have to do all of that for your customer.
Okay got it.
I'll turn the call back I appreciate all the detail.
The next question comes from John Gibson with BMO capital markets. Please go ahead.
[noise] ill [noise] just first on the <unk>.
Looking at the U.S. can you maybe talk about market share outside of the Permian and more specifically I'm just trying to get a sense of where you stand on the gassier regions. It looks like you had a pretty good uptick in job count over the past the weeks I was wondering the correlated to that you know sort of cash focused drilling the increase.
Sure John we ran the six seven maybe eight jobs in the northeast through the quarter same job count today.
I'm disappointed to see the pricing there continues the slide down we've seen competitors come into that market late.
And so the lead what their can then work cheap.
The Dorado play that people are talking about so the extension of the Eagleford, we have been doing that work, we know about that play.
And nowhere.
Excited about the idea that.
Natural gas could be feedstock.
To be converted the hydrogen and then sequester the carbon that might be of five or 10 or 15 year process.
The four fuel cells can be better perfected the power of trucks and buses and stuff [noise].
But [noise].
There could be a way for fossil fuels to continue to create energy and not put carbon in the atmosphere and that'll drive drilling and we.
We supply of products to drill so we're watching natural gas to add.
And the Marcellus used to be our biggest drilling fluid market before all the money went down of the Eagleford and then went to the Permian. So we know how to work there we have people in Pittsburgh, we have two mud plant. There one is basically mothballed and the other one of the support say the half dozen or a day.
The subs, we run every day and we know how to do both the Utica and the Marcellus.
Okay, great. So I guess, it's fair to say the the market share gains on the U.S. are driven more in the sort of shale regions of your or prevalent the.
Yeah. The the gains are in the Permian of so it would be the Midland basin, the Delaware and I should add we've done a bit of research.
On how much of the tax base for new Mexico.
On this from oil and gas and the estimates are anywhere from 40% to 60% depend.
Depending on kind of what part of the [noise].
The tax base, you're talking about but I saw on note yesterday, the as much of 60% of the.
No tax base the pay per schools in new Mexico comes from oil and gas and that our customers of got two years' worth of drilling permits on federal and state plans in place and new Mexico. So far.
We think there's probably runway still in that market.
For quite a bit of activity there.
[noise], Okay, great you might of I asked the same question in Canada, just in terms of.
Your death focused jobs and a potential merger increases there.
For sure that's been the backbone of our Canadian drilling fluid business. It's why we built our big facility on Grand Prairie why Wouldnt put rail there the drove our cost of goods down the core drilling fluids for production of chemicals.
Got a little team together per Frac now on the marketing and the do the Bernie and then all the other plays the people are.
Formation of the people of hoping that between those zones those of the places that we want to play for.
For both of our businesses the wells are hard the drill.
If they don't go well, it's a disaster economically for the oil company and our market share is astounding we have the ways that we can run the drilling fluids, that's unique to us. So we've kind of run on the table. There. That's why we've got almost 40% of the market in Canada.
<unk>.
And it's been how we've been able to get pure Chem profitable.
The tariff and then the condensate the comes out of the Montney.
It's a little bit sour so it's highly corrosive the paraffin break so the plugs up the well and so it's complex stuff to treat it has to be treated properly and so it's good business for the production chemical company and we've been able to.
Sort of sell to the same customer two different ways, then so great operating leverage.
The next one for me, obviously on a large capital or working capital of draw during the downturn at what point or what type of retail environment. What do you need to see in order to pay for it to move sort of the other way too.
Toward the build.
You want to take that Tony.
Yes, hi, so where were obviously naturally going to see a bit of a working capital draw on over the next couple of quarters, and that's really related to the seasonality.
That hangs on we see in Canada with the increased the rig activity in Q4 and Q1 versus Q3.
And the end in the a and the U.S., which is less seasonal and has gradually increased from the on the low fortys that Tom mentioned to the 54 today, they've been able to do that quite effectively with the and still focusing on good working capital metrics. So.
Given what we see in the foreseeable future for the industry rig count and watching on that.
Richard Baxter and the EPS has been able to do and what the team in the.
On the current environment getting up to that 54 rigs.
We expect to be at that 54 rigs and hopefully a little bit higher, but it's not going to be a mass of additional working capital draw based on our current market share and line wrong or anticipated Greg levels for on finding on [noise].
Okay, Great I appreciate the response filtering back.
<unk>.
The next question comes from Matthew weeks, but the industrial a line Securities. Please go ahead.
Hi, Good morning, Thanks for taking my questions I was just wondering if going forward.
You'd be able to provide any granularity on how much more of the Canada wage benefit you expect to get on going forward as it is extended out to June 2021.
Yesterday, Matthew I saw on the elevator, writing up to our board meeting.
That our glorious leader caution everyone that cobot benefits main on last for ever.
Without all of maybe turn it over to Tony the say, what we penciled in for expectations I heard on the radio. This morning that there may be some rent relief for businesses be on small business. We're certainly enjoying the benefit of it that's allowing us to keep.
People.
Thanks, Tom the yeah. Good question and I, probably should have the provided that information earlier, we did provide an estimate for Q3.
It was in that lower 5 million dollar range and ended ended up being a little bit higher based on on the calculations during the quarter just to help you guys out for Q4.
Based on based on our our head count on the current calculations, we anticipate the queues contribution in Q4 to be approximately $3 million.
And for the.
For next year for that first half, where we're expecting to get some queues.
We're expecting a little bit, but given that we're going to be down to 3 million in Q4, it's going to be a pretty small number and as Tom mentioned, we when we talk about our business and our strategy is based on the amount of EBITDA that we generated free cash flow that we generate excluding two so $3 million.
For Q4, and we're not expecting too much in the in the first half of next year.
Okay. Thank you that's helpful.
The focus still focusing on the cost it looks like.
The cost reduction efforts.
Really takes shape are pretty successful of the corridor as you look forward to 2021 on a normalized kind of non fuel base that.
Do you expect that.
You will be able to keep those gross margins.
On the close to where they were prior to the downturn sort of in 2019.
Okay.
From a percentage of finance sorry go ahead of them.
Honestly no I think the things have changed as I said, there's going to be some issues with freight.
And.
Unless we see more attrition of competitors that are using their balance sheet to subsidise huge oil companies.
Company stealing intellectual property and then working on the cheap to get the work things like that.
I think there could be margin pressure for the whole office space.
Once the customer gets you to blink on price.
It's tough to get it back.
Got it.
The agreements with customers that it's peg to oil price you tell us where oil price will be on will tell you what our margins will be that's why I've said when planes and office towers are full will be more bullish we'll put the cash the work.
It's hard to predict when that's going to happen I hope I'm inoculated in six months and everyone takes of vacation then goes back to work in the oil 60 Bucks and gas stays at three.
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We want to get this business to 15% of EBITDA, we want to keep working capital in the low or no higher than mid thirtys on the dollar.
And not get into equipment.
And we don't want to put more debt on the balance sheet, we're proud of where the bonds hung in there, but if the dips down were going to buy some and we're going to keep trying to shrink the share count without getting too cute with how much cash we have in the bank.
But its current theres going to be pressure on margin, that's why am choosing not to get too granular about all the different ways that we can prop up margins of.
As we built out this business. We spent 20 years getting this business vertically integrated on.
We're not going to show our competitors, where the juices in the business. So they can go try and knock it off because of the will.
Yes, absolutely at the.
Tangible I do appreciate the commentary on at certain the United States are you bake the of $60 oil and everyone getting the vaccine and the Nic vacation. So I'll leave it there and during the call back.
On the all add that our job from now to then.
This to not go out of business. So that we can all benefit from this on the other side and you know we don't wish on any one ill will but for people that are running their businesses into the ground and eroding. The overall end market for our business line, we're going to let them run off a cliff.
Thank you for the commentary I will turn it back.
Once again you have a question. Please press Star then one.
Our next question comes from Andrew Bradford with Raymond James. Please go ahead.
Good morning, guys.
Thanks, Andrew Thanks for taking all these questions.
Actually most of the most the cost of the add on already taken.
Taken up by the by others in the call except for one so the thing of kind of curious about is how as were starting to ramp back up again I want to be careful how we describe that for sure and Im sure you do too, but as things start to get busier and you get a call working capital I can understand how.
You might want to view this as kind of binge and justified reviews on.
Ill.
How you finance that working capital you could easily finance it through your credit facilities.
And without really adding any as of shown without really adding any risk of the business because.
It's a good day.
Demonstrated through.
The $150 million drawdown of its completely reversible so.
How are you viewing is this are you going to view this as an opportunity to use your cash flow too.
On that working capital or you can use this to the or you think you might be on debt to ramp back up once again as things start to get busier werent philosophical question than anything and and again that would be notwithstanding what are your plans might be with respect to the into the idea.
So I'll handle this one Tony we're going to make everyone tune into the Q4 call.
And find out what we did.
I'm in the steal the low.
Words of the CEO of one of our top customers.
I think we have a generational opportunity Andrew it's horrible what's happened in the world, obviously with the pandemic, but.
I agree with you we've got access to liquidity and as long as we work for people the pay US all of that working capital comes back. The next time there is in the energy bust, which of course will happen.
So we're going to try and be Safi, you with how we spend this money.
And I'm happy that the bonds hanging around 90, but there are days, where I wish it was 70.
So we're going to we're going to act like business people, and we're going to try and deploy that money to maximize what everyone. On this call gets for it.
Okay like I said that was my last question. So thank you very much.
This concludes the question and answer session.
I'd like to turn the conference back over to touch on Simon for any closing remarks.
Well, thank everyone for the great questions, Tony Great job on the call and.
I'll summarize it by saying the people should expect us to continue what we think is prudent the operational and financial management of the company.
We believe that we can continue to generate free cash flow running the business. This way as I said, we're going to retain flexibility to maximize value for all stakeholders and they do want to truly thank our employees and our customers and to share or equity and bond holders.
On the we have our eye on the ball and without them on to conclude today's call.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Uh huh.
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