Q1 2021 Precision Drilling Corp Earnings Call
[music].
Okay.
Ladies and gentlemen, thank you for standing by and welcome.
The drilling Corporation 2021 first quarter results conference call and webcast at this time all participant lines are in a listen only mode. After the speaker's presentation, there will be a question and the interest session.
It's a good question during the session you will need to price.
Sorry, and one of your telephone.
Please be advised that the conference is being recorded.
And you require any further <expletive>istance. Please press star zero and I would now like to hand, the conference over to you.
Because today that's been pony.
That's really true and corporate development. Thank you. Please go ahead Sir.
Thank you Denise and good afternoon, everyone welcome to precision Drilling's first quarter, 2020, One earnings conference call and webcast.
Participating today on the call with me are Kevin nephew, President and Chief Executive Officer, Carey Ford Senior Vice President and Chief Financial Officer.
For a news release earlier today precision reported its first quarter of 2021 results. Please note that these financial figures are in Canadian dollars unless otherwise indicated.
Some of our comments today will refer to non <unk> financial measures, such as EBITDA and operating earnings.
Our comments will also include forward looking statements regarding precision future results and prospects, which are subject to certain risks and uncertainties.
Please see our news release and other regulatory filings for more information on the financial measures forward looking statements and these risk factors.
Carey will begin today's call by discussing first quarter financial results and Kevin will then followed by providing an operational update and outlook with that I'll turn it to you Carey.
Thank you Dustin and our first quarter adjusted EBITDA of $55 million decreased 47% from the first quarter of 2020 the.
The decrease in adjusted EBITDA, primarily results from a decrease in drilling activity and all regions.
Also included in adjusted EBITDA during the quarter is $11 million and share based compensation expense and $9 million and Qs <expletive>istance payments.
As a reminder of the accused program supports employment and Canada and precision has utilized this program to preserve jobs within our organization.
We are part of the Canadian Federal government for this program and its impact on supporting employment during the pandemic.
The recent Canadian Federal government.
Our budget.
That was presented include a proposal to extend the accused program beyond its current June exploration, we will provide additional guidance on how the program will affect precision when details for them up but now but for now we expect the precision.
Impact to be greater than what we communicated in February.
And the U S drilling activity for precision averaged 33 rigs in Q1 and increase of seven rigs from Q4.
Daily operating margins and the quarter were 7027 U S dollars of decrease of 4131 U S dollars from Q4.
The decrease and margins is primarily due to lower <unk>.
Idle, but contracted revenue earned during Q1.
This year higher operating costs, driven by start up costs relating to 12 year 12 rigs activated year to date and turnkey activity.
Absent the impacts from out of our contracted rigs and turnkey daily operating margins would have been 1217 U S. U S dollars lower than Q4 with the balance of the difference driven mostly by lower day rates and start up costs.
For Q2, we expect startup cost and turnkey activity to continue.
Along with no IPC revenue, such that normalized margins <expletive>et and turnkey and I B C.
The decrease between 500 and $750 per day.
I'll make a few comments on the startup costs and the U S.
And 2018 of our peak activity reached 82 rigs and November.
And activity trough at 19 rigs and September last year.
And that 22 month period over 60 rigs were stacked and preserved and good condition to be reactivated at a later date.
Precision had 57 rigs working in March of last year and <unk>.
Essentially all of the rigs we have reactivated since the trough last year, we're working and the first part of 2020.
Activating those rigs require us to incur some of them operating cost to cold start rig crews inspected and certified critical components, such as top drive and the engines.
The stock consumables, and sometimes mobilize the rig the rig components.
We have found the average cost of activate each rig has been approximately $150000 to $200000. Some of these costs are incurred before the rig goes to work and some of it is incurred and the first few months of operations.
We expect this level of the startup cost to continue as we add the next 25 to 30 rigs and our U S fleet.
And Canada drilling activity for precision averaged 42 rigs and the quarter of decrease of 21 rigs from the first quarter of 2000 22020.
Daily operating margins and the quarter were 8001 of her $6 and increase of $901 from Q1 and 2020.
Margins were supported by a strict focus on operating cost and Qs the <expletive>istance offsetting lower fixed cost absorption.
Absent the acute impact margins would've been $6760.
For $445 lower than Q1 last year.
For Q2, we expect margins absent of queues and onetime recoveries to be up $500 to $1000 per day compared with last year due to cost reduction initiatives higher fixed cost absorption from increased activity.
For reference daily operating margins in Q2, 2020 apps and cues and onetime recoveries were approximately $4000.
Internationally for drilling activity for precision and the current quarter average six rigs.
The International average day rates for 52740 for U S dollars down approximately 500 U S dollars per day from the prior year. This was due to rig mix and lower rig move revenue.
And our CMP segment adjusted EBITDA This quarter was $7 8 million.
And.
140% increase.
The increase from the prior year quarter.
Adjusted EBITDA was positively impacted by a 2% increase and well service hours, reflecting improved industry activity lower cost structure used program support and.
And $2 $3 million of restructuring charges and the prior year quarter.
Well abandonment work in the first quarter of this year represented approximately 15% of our operating hours.
Capital expenditures for the quarter were $8 million and our full year 2020, one guidance remains $54 million.
Comprised of $38 million for sustaining and infrastructure and $16 million for upgrade and expansion, which relates to anticipated investments supporting alpha technologies and contracted customer upgrades.
As of April 21st we had an average of 36 contracts in hand for the second quarter and an average of 31 contracts for the full year 2021.
Moving to the balance sheet, we continued to reduce both absolute and net debt levels, primarily through free cash flow generation.
As of March 31 of our long term debt position net of cash was approximately $1 1 billion and our total liquidity position with approximately 700 million.
<unk> letters of credit.
Our net debt to trailing 12 month EBITDA ratio is approximately five two times and average cost of debt of six 6%.
We remain in compliance with all of our credit facility covenants and the first quarter with and EBITDA interest coverage ratio of two one times.
During the quarter, we reduced total debt.
By $29 million and.
<unk> made an additional.
$22 million.
Debt reduction and subsequent to the quarter and.
Totaling $51 million debt production year to date.
Over halfway to meeting our debt reduction target range of 102 of $125 million for this year.
Our capital allocation program remains substantially weighted to debt reduction and we remain on track to meet or exceed our 2021 debt reduction targets and our long term debt reduction target of $800 million between 2018 and 2022.
We have already reduced debt by $601 million.
At the beginning of 2018.
For 2021, we expect to continue generating free cash flow through operations.
We expect some benefit from working capital release in Q2.
With lower activity during the Canadian spring breakup.
After an $18 million working capital build and Q1.
For reference of the working capital build since our trough and Q3 2020 has been approximately $44 million, which has been driven by higher activity.
For 2021 of our guidance for depreciation and SG&A and interest expense remains unchanged at $290 million $555 million before share based compensation expense and $85 million respectively for the year.
We expect cash taxes to remain low and our effective tax rate to be and the 5% to 10% range.
Of note.
As a result of the previous previously reported change and our accounting treatment for a portion of our share based compensation plans from equity settled to cash settled.
We incurred an additional charge of $2 million and the quarter as a result of our increased stock price.
The this treatment of share based compensation change will lower future equity dilution and we'll introduce a bit more volatility and reported share based compensation expense and the future.
With that I will now turn the call on for Kevin.
Thank you Gary and good afternoon.
We're in the midst of the strong drilling services recovery cycle coming off the cl<expletive> of 2020 without any doubt the outlook of substantially improved even from just a few weeks ago.
Global excess inventories of crude are rapidly declining.
And for crude continues to recover trending towards pre pandemic levels as the global economy gradually opened.
And while the pricing for our services generally legs, increasing demand through.
Three of these recovery cycles, we see many indicators of the fundamentals for land drilling are well into a rebound.
We firmly believe the firm and stronger commodity prices for both gas and oil will lead to increased drilling demand as the year progresses, however, financial discipline by our customers the oil and gas producers is here to stay.
Prioritizing the investor returns, while carefully managing growth as the way of today and the future of the oil and gas industry.
Precision digital technology offerings fit this need by enabling our customers for Lockheed and performance improvements and eliminate human error and variance, but most importantly, this drives of industrial scale based cost and risk reductions across the complete drilling programs.
So let me begin by updating you on customer adoption and the success, we're having with our alpha digital suite of technologies.
First we view the very strong sequential of customer adoption is leading indicator that the efficiency the performance and repeatability that Alpha provides will drive market share growth for precision. We noted eight new customers utilizing these technologies since the beginning of the year. We also mentioned, 27% sequential growth and.
Billable days for the health of automation platform.
We've also increased our suite of alpha of apps from 6% to 16 as we commercialized 10 additional office during the quarter.
And this resulted in apps revenue doubling the pace of last year with over 200 billable apps days during the first quarter and.
Importantly, our alpha digital technologies are allowing our customers the drove better quality wells and reduce our drilling costs and reduced fuel consumption and importantly, reduce GHT emissions, while delivering consistently predictable and industrial scale repeatability and other operations.
Alpha analytics utilizes precision on Steph experienced drilling engineers, who comprehensive comprehensively analyze offset well data to improve the customer drilling plan by providing process placement and performance recommendations.
Through the first quarter, we built analytics for almost 1000 drilling days and our customer view of customers view. This is of high value service and we expect customer adoption to accelerate.
If you want more details of the specific efficiency and cost reduction benefits of our office suite of technologies, you can find over dozen and field case studies on our website.
Turning to our business update I'll start with our Canadian well service business, which is experiencing a sharp improvements in customer demand and offers insight to the operating leverage of precision can deliver as this recovery takes shape.
Most of the listeners on this call will know that we undertook a comprehensive organizational restructuring and cost reduction effort and this segment over the past couple of years.
Of note that sequentially, our well service activity was up 28% to 35000 man hours during the first quarter returning to pre pandemic levels.
Also pointed out the only 15% of our work was due to the federal well abandonment programs, suggesting a strong increase and underlying customer demand.
We expect demand will stay strong throughout the year.
And notably by the close of business on the first day of April.
Our 2021 monthly hours exceeded the full month of ours, we achieved in April of 2020.
And as another reminder, today, we have 20 services 26 service rigs running compared to zero of the same day last year.
So, we're obviously seeing the business rebound nicely into the stronger commodity prices.
We expect this business is on track to deliver strong free cash flow and we'll continue to demonstrate excellent operational leverages the activity remains strong.
Moving to the U S.
Drilling activity and the U S recovered a little faster than we expected with precision now operating 40 rigs by mid April well ahead of our prior guidance, which suggested we would reach this level by the end of June and.
And as mentioned earlier, we continue to see strong uptake on our alpha technology products with 60% of our U S rigs running out of automation and off of apps.
We continue to closely monitor our customers' completions activities as it worked through the excess inventory of drilled but uncompleted wells current drilling activity levels are not matching the completion rates were.
Even at levels to sustain current oil production volumes. We believe this points to increase the rig demand with the DUC inventories are exhausted later this year.
We have further visibility for potential rig activations through the end of the third quarter and expect our activity to move into the upper Forty's later this year.
From a pricing perspective, we believe leading edge rates bottomed and the first quarter and we see opportunities to charge two to $3000 premiums with these recently reactivated rigs re price as our customers have a strong preference for with the term hot rigs.
And now Kerry mentioned, the activation cost, we experienced restarting and rigs during the first quarter.
And I expect these transitory costs to linger as we activate additional risks yet I'm confident those each of these rigs returned to full operation the costs will quickly normalized in London, and the long term averages.
Now the potential inflationary effects of the pandemic economic recovery of stimulus plans is a growing concern.
Labor cost inflation is less of a concern as most of our customer contracts provide for increased day rates of labor cost increase and labor accounts for roughly half of the daily operating cost of our rigs.
The other half of the operating cost is procured materials, including rig expendables spares and miscellaneous repairs parts.
Steel and other commodity inflation, the likely impact of these product costs as the year progresses, we believe our operational scale of our volume procurement and leveraging our supply chain will help mitigate some of these potential inflationary factors and I think this reinforces the importance of scale is a key competitive advantage and the land drillers segment.
And we believe the impacts of inflation will be well understood across the drilling value chain and rate increases to increase to offset these costs will ultimately be expected by our customers we.
We will keep a very close watch and inflation and we still expect to improve our margins as the year progresses.
Turning to our international business as mentioned in our press release the financial performance of this segment remained stable encouragingly pre tender work has commenced and Kuwait and we are expecting to see opportunities develop and the second half to reactivate, possibly all three of the rigs in Kuwait.
And Saudi Arabia forward visibility is less clear, but our expectation is the once all of the industry <unk> rigs in country are reactivated debt the tender opportunities will begin to emerge and.
It seems the rig Activations will track the reduction of OPEC related export curtailments.
Moving to Canada.
And the middle of the seasonal spring breakup slowdown period, we mentioned in our press release that we have 20 rigs operating today and this compares to less than 10 at this time last year, we of indications of commitments for a normal summer recovery period, and expect to exit Q2 with close to 40 rigs operating and.
And again more than twice last year's activity and we expect that will trend up through Q3 into the fourth quarter.
While pricing has been challenged over the past 12 months and the Canadian market, we see opportunities for price recovery.
And the year and would expect to fully recover any inflationary of inflationary factors.
We also expect full utilization of our Super Triple rigs of the Montney and Duvernay drilling programs and <unk>.
<unk> strong customer uptake on our alpha digital projects and products for these risks.
The company's positioning and Canada and the Canadian market remains very strong and provides us an excellent source of free cash flow as we seek to continue reducing our total debt levels.
And as Carrie mentioned with $51 million of debt reduction already achieved.
We remain highly confident and our ability to meet or exceed our 2021 debt reduction targets.
Moving onto our third priority.
We have several customer collaboration based GHT emission reduction projects underway in both Canada, and the U S and Canada, we will be deploying of hybrid natural gas generating and battery energy storage the storage system of a drilling rig during the third quarter.
And the U S. We have several customers transitioning to 100% natural gas for blended gas diesel power systems, and say, we estimate our risks.
During the quarter, we deploy the real time rig based ghd emission monitoring system of the field debilitated monitor precisely direct rig emission estimates.
We're also developing several partnerships with green power solution providers to seek solutions to further drive down and field emissions we.
We believe the strategy, which is similar to our partnership the partnerships, we utilized to develop of our alpha digital products spreads up both the risk and investment requirements to several industry participants as we develop green solutions for our rigs.
We believe the precision drilling will be of critical contributor to reducing and eventually eliminating the GHT emissions from the upstream oil and gas drilling industry.
I will conclude by thinking of the employees of precision for their perseverance and dedication and hard work as we of all dealt with the many challenges of the past 12 months and.
And especially proud of the high quality work our team has delivered and the strong and effective pandemic risk management program. Our team has implemented and successfully executed.
And precision and our people have completely avoided any field service interruptions due to the virus and the related challenges. So thank you for the full precision team.
I'll now turn the call back of the operator for questions.
Ladies and gentlemen to ask a question.
The number one on your telephone keypad.
Can you draw your question the question.
And.
Your first question comes from Taylor Zurcher with Tudor Pickering Holt Your line is open.
Hey, good afternoon, and thank you, Kevin and I wanted to start.
Asking the question on pricing and you made the comment that in the U S market, you think youll be able to get at our command of two to $3000 per day premium version.
I guess, some other rigs out there at least for the rigs that are hot and.
I, just wonder and the rest of the market and the rest of your peers.
All doing the same thing and Theyre all of reactivating hot rigs as well. So I was hoping you could just ex.
Helane that a bit more and what you mean by two to $3000 of day, what premium are you measuring that against.
Any color there would be helpful.
For sure Taylor I think.
As this market has kind of evolved off the bottom of 2020.
And we and the industry activate the rigs those rigs are being activated from from stacked into operations. We are bringing crews back out to the rigs we are getting the rigs kind of back up and going again.
The competition was fairly intense.
Lots of talk about leading edge day rates some of those rigs.
The comment that those are kind of like mid teens, sometimes a little higher some of those a little lower for the activation of those rigs once those rigs have been running and drilled through their first contract. Those contracts are generally short term, we've been trying to keep that book.
Kind of near term, so 30 day contract some 60 day contracts.
And some will dwell contracts when those rigs reprice on the next contract. That's what we expect of that rig will get a premium over a cold stacked rig.
And that premium could be we're seeing the range of two to $3000, maybe more depending on the location of availability and timing. Okay. Yes that makes sense and just to be clear when you identified that two to $3000 a day and you talked about some labor and input cost inflation that net two to $3000 per day, youre talking about would be and pure margin fall through of that decent.
Cost recovery as well.
Our view that is pure margin flow through okay. Okay, certainly of the day rates coming off of bottom where unsustainable for the industry and we need to see strong leadership on getting rates back into a sustainable range.
And my follow up.
Internationally, you talked about some early tendering exercises going on and Kuwait and elsewhere in the middle East and.
Hoping you can help us think through what the typical timeline it as it relates to.
Some of these early of tendering activities and eventually turning into the contract and eventually the rig going back to work and you talked about and the potential for all three of the rigs including to go back and work in the second half, but any color around the typical timeline there would be helpful.
We did give some guidance, we'd hoped or thought that we might have a likelihood of getting some or maybe all of those rigs activated before the end of the year.
I would just say stay tuned and listen to our updates.
Likely we'll have a lot more information from our July Q2 conference call.
The the work right now in Kuwait, and all pre generally and work, it's kind of the vendor surveys and.
Analytics to make sure of the rigs meet the specification and certainly our Newbuild rigs all meet specification. So we're quite confident that we'll be quite competitive on these rigs.
And that's helpful. I'll turn it back thank you.
Thank you.
Your next question comes from the Wolfberry.
Capital markets. Your line is open.
Thanks for taking my question.
Kevin you mentioned that your rig activity in the U S could be up into the high Forty's by late this year.
All of those mix of kind of spoken for already or is that.
Do you have from contraction, because just like and discussion.
Right now.
Waqar I think of the combination of open bids we have out there of customer discussions we have ongoing and.
And then maybe a little bit of reading the tea leaves that we see out there.
And is this incremental demand still from the private and so you're seeing some public e&ps and getting involved as well.
It's still weighted towards the privates, but what we've seen so far.
This year has been about two thirds private is about one third publics and I think that waiting and looking forward.
Would be similar.
But I think there is likely room for the publics to start moving.
Moving into a few more rig activations and the second half of the year puts and demonstrate a couple of quarters of good free cash flow, which we think they will.
Yes.
And the call yesterday mentioned that they now expect U S E&P budgets to be up.
About 10% or so year over year.
Previously you gave of commenting that it's going to be down by maybe 2% to 3% or so.
And your discussions with private and public do you get that sense.
[laughter] Walker, usually with the lost to hear because of course, they are trying to.
Run game theory, and us and our day rates. So we're less likely to hear forward guidance on capital spending than some other services might but but listen the makes sense.
To realize these budgets were probably created when the WTO prices were in the 40 is not the 50% of <unk> late last year and certainly we expect that our customers both in the U S and Canada will demonstrate very strong free cash flow during Q1, and obviously again during Q2. So we think some of that money comes back into the drilling.
Okay. Good yes.
And the expectation is that.
Public E&ps, maybe pickup activity neither of the year in November December.
And then that Capex number may be reported and next year's number and not and this year's number so that's kind of debt thinking from from discussions.
And hopefully hopefully that's the case.
And that's all I have.
I was going to say one thing we are certain of is the current drilling rates are inadequate to support current E&P production levels. We.
And we do see our customers using their inventory of.
Uncompleted wells to support production right now of that can't go on forever, that's going to work its way down.
Okay, Yes.
Thank you that's all I have thank you very much.
Great. Thank you.
Your next question comes from Kunal <unk> with Stifel. Your line is open.
Good morning, everyone.
Just wanted to start on margins, so and the U S. It sounds like they're going to take a bit of the step down next quarter, which I mean, it's understandable with the.
All of the startup cost, but I mean, as we think about the rest of the year. Obviously the startup cost will continue but at the same time I expect there'll be some sort of economies of scale.
I mean you.
Can you kind of expect a bit of a recovery and that metric even as you activate more rigs or how should we think about that.
I think the thinking about the right way call. Kevin mentioned, we think that the spot pricing bottomed and the first quarter. We've got more rigs that are fired up so we have hot rigs to market, which should push pricing up a bit more and Youre also correct about the startup costs that will be spread over more activity days as we keep adding to the rig count So we would.
Expect after the second quarter, if the fundamentals for the industry of hold together that the margins will start expanding and the third quarter.
Okay perfect that's helpful. Thanks.
So as we think about the international rig tenders. I mean are you are you able to quantify how much capex you might how much you think you might need to spend to activate these rigs and I <expletive>ume if you did have to spend and that it would be obviously contracted.
Cool that's great question and.
There will be Capex involved we have those rigs have been idled now for a year and before that the ages.
Little over six years old so it'll be some time based re certifications and particularly on things like <unk> where the.
And that's going to be and the range of $3 to $5 billion per rig and.
And we would expect that that will be recovered very quickly and the contract likely wells and the first year and we'd expect the contract that.
And as measured in years duration not not quarters.
Okay perfect that's helpful. Thanks.
Just curious on the Ghd monitor pilot I mean should we be thinking about it at the relatively immaterial and the near term from a cost perspective.
And how are you thinking about that from a revenue model standpoint would you like it to just be sort of the day rate add on or how do you think about that.
Yes, I really see all of the things, we're going to be doing around reducing our environmental footprint as part of the value we provide and the first of all of the capital we will look for capital recovery and some normal upgrade window, whether that's one year two years of for years will kind of depend on the scope and the length of the contract.
But we think that I would tell you that.
And with our customers and finding ways to reduce the footprint.
But doing it on and capital recovery basis is very important for us.
Okay, Gotcha and does that.
As for your question.
Yes, yes, that's net.
So from.
The balance sheet perspective, I mean, given where the bonds are trading right now.
Do you see yourself more paying down the credit facility and the near term and then maybe think about terming out some of that debt, even more and the later half of the year.
And so so we're in a position where we have optionality, obviously, we're generating free cash flow that we can use for debt reduction we have a healthy cash balance we have a little bit of balance left on our revolver and we have our 23 notes that are callable at par and December of this year. So we'll look to.
Essentially to make open market purchases throughout the year or pay down the revolver and at the end of the year.
The ability to call those 23 notes to meet our debt reduction targets.
And in terms of of longer term.
And at some point and the next call. It 18 months, it's likely that we would <unk>.
Execute our high yield transaction to term out some of the some of the longer it's actually I should say near term maturities.
We think it's probably a little bit too soon right now and.
We actually had been chipping away at the 23 and 2000 for notes so as we move along and time those balances will be.
The smaller than they are today.
Okay, Great. That's good color that's all from me I'll turn it back thanks for the answers.
Thanks, Paul.
Your next question comes from John Guinee with Danielle Energy Partners. Your line is open.
Hey, guys. Thank you for including me.
Hey, John Kevin just on the.
On your activity comments nice progression of the high Forty's can you.
And just elaborate on the.
And the duration of those opportunities given where the strip is are they trying to lock it in for 2022, just any color on that would be appreciated.
We have some customers trying to lock in.
And kind of leading edge rates for a longer period of time.
But few of those go beyond about a 12 months cycle, where obviously you want to always keep a blend of kind of medium and short term contracts were not.
To expose the other direction.
This type of a rising market.
We are anxious to see contracts rollover.
Okay.
And then give you lots of everything on that answer, but I would tell you most of the contracts are less of the year.
Yes.
Understand that and why did the lesson of year to day, but I didnt know because of where the strip is if people are now asking for more term and notwithstanding where you want the pricing of it but just conceptually.
Conceptually if they want to lock these things and more for longer.
Very few companies.
Moving to the budget identified yet so non slot.
As for King beyond the first few months into 2020 two.
Okay got it and then just what the result of additional trying to recover from 2020, and really understand where theyre going to be sitting financially over the course of this year before they get too.
The two committed for 2022, although although I will tell you the long range plenty of 'twenty two is looking quite robust.
Right.
It seems to me that.
There could be a rush.
Waqar alluded to and the fourth quarter and people trying to lock stuff up and of that.
Thanks to you.
The you guys in terms of rising inquiries and the Eagles rising rates and Steve and just wanted to get ahead of it.
And it gets mark to the customer so for sure right now everybody they save matters, but if they're back into getting rigs and of rig is three or $4000 of day more.
And.
And theyre going to be drilling 20 day wells, that's only $16000 against was probably a two or $3 million well. So the rig cost is just a lot less meaningful than.
And I might've been and any previous recovery cycle.
I agree, but they always look at that number first thing they look at on the 90 day rate typically.
And do they do and move with it.
And <unk>.
The rising tide I would tell you that getting a good rig is probably more important attribute and loss of cutting off the price.
Absolutely and I don't think of that last one Kevin just the.
Sort of Big picture thoughts on your well service business and as it relates to opportunities and the United States for expansion.
We have a very small footprint precedent for the North Dakota, which really leverage and as our southern Saskatchewan and capabilities, but we don't really see the expansion beyond the.
The natural extension of of our activities nothing nothing beyond that.
Okay. That's all I got thank you guys.
Thank you John.
Your next question comes from the Nike with RBC capital markets. Your line is open.
Hi, good afternoon, everyone.
<unk>.
And I just have one one question for you.
And appreciate it might be of bid sensitive. So would would appreciate any comments you can make all of it but.
And given given the $9 million and wage subsidy is pretty pretty substantial in the context of cue 175 million EBITDA and like.
What is the advance toward the strategy as that program potentially ramps down through through Q2 like as the day.
For holding on to capability and for for an upswing and the second half of the year or or is there potentially some restructuring to be done and any comments you can make to that net effect with the <unk>.
Helpful.
Keith through most of last year, we did most of the restructuring that we think is necessary, but but I'd add a couple of things here I think that we did preserved jobs.
<unk> the would've otherwise.
And maybe not a bit of the company without the program.
But I would tell you that today, a large portion of the value is actually across the field operations and drilling and well servicing.
And you could say that.
The drilling rigs are running a little cheaper right now and the service rigs and we're able to cheaper and that value is kind of being earned by the operating companies. During the services of little cheaper. So I would expect that as those of.
Likely as those relief program and start to wind down we will look to.
Push rates higher to reflect the increased cost.
Got it and maybe just as a follow up on that and sort of also wondering if the.
And if that.
And any potential ramp up and the site reclamation program spending.
And I'm expecting the section of half of the year kind of.
Plays into into your footprint the way your guidance set up now.
I have to tell you that we're pretty enthusiastic right now, but our performance and well servicing any increase in.
Reclamation awards, and we've been very well.
Got it blanketing the business right now is all of really good flow through the rest of the bottom line for us. So I think we will be pushing hard to win more of those awards and.
And continue to support the increasing demand, we see and the field for conventional well services and remediation work.
Got it okay. That's it for me thanks, very much okay. Thanks, Steve.
And again as a reminder to ask the question.
And the number one.
Hi.
Next question.
And Dan.
And Stanley Your line is open.
Okay.
There's been a lot of talk about whether operators and the U S are going to kind of stick to.
Managing budgets to production maintenance mode, or if we're going to maybe pick up activity.
And kind of wanted to ask a similar line of questioning but in Canada just in your conversations with customers do you get the sense debt.
Canadian operators are kind of and maintenance mode as well.
How would you kind of characterize the strategy and that market.
Dan I would say that that transition of probably happened two or three years earlier, and Canada, where are the e&ps were forced into a maintenance or fiscal discipline mode.
Really as early as 2014 of 2015.
After the first sort of.
OPEC collapse, so I think it's the running longer and Canada, I think the E&ps and Canada are trying to find ways now to do both generate good shareholder capital returns and find ways to develop modest growth you have seen a couple of transactions up in Canada that are designed to eke out a.
A couple of E&P transactions to Eke out some of the <unk>.
Synergies grow production, but not not necessarily increase capital spending.
And certainly we're going to see activity and kind of come up off of the 2020.
And extremely low levels, we experienced last year.
Got it and yes that was kind of my my follow up is.
And the U S and you think that we're running below.
The maintenance activity levels, obviously of the answers a lot more complex and Canada, given seasonality and the resource plays and so just wondering if theres any kind of a bogey you could point to for what might represent maintenance activity levels.
<unk> rig count and.
And Canada.
A little hard to that because the mix of hydrocarbons is a bit different from Canada. The.
And the emphasis the last couple of years for our triples has been around what I referred to the current prepared comments was montney and Duvernay and Thats.
It's a natural gas basin, but it's actually very wet and the the wells are essentially being paid for by the natural gas liquids that are being produced and those are still go into.
Pipelines, you could shift over to the heavy oil producers and it's used as of diluent for heavy oil being pipe for the U S.
So you've got the natural gas liquids, you've got natural gas and you've got oil all three of our quite constructive right now and.
And with the Canadian oil and gas complex operating and a disciplined mode I think theres room to see activity and move up and still be disciplined.
Understood. Thanks, a lot for the color and turn it back thank.
Thank you.
Your next question comes from Jeff.
The.
The company your line is open.
Good afternoon, everyone. Just a quick follow up question on the technology side.
Kevin you've obviously laid out the <unk>.
Adoption of the successes, you're seeing across alpha and some of the emission and stuff how should we think of both the impact on your day rates and margins from both the first alpha but also of the emissions piece.
So on the emission space and I'll start there.
And capital addition to the rig B and a natural gas engine or a battery power pack, we'll look at that like it is and upgrade and we'll look for typical upgrade economics, which means.
The payback within the contract period and that could be one year could be two years unlikely and stretches out for three years.
So if there is of capital enhancement to the rig we'd want to see that capital of recovered. So we view our customers being partners with us and those GHT emission reduction efforts now.
Thank you you've been talked about a couple of those on last call. We had some upgrades we did that were specific.
Vic to both the natural gas conversions and.
And footprint of the rig where our customers pay for those upgrades.
Now coming back to the Alpha.
Great question and I'm glad you asked it so I can dive into this a little bit.
Now the price we've posted for Elfa automation and.
Canada is $500 per day, Canadian and the U S 15 of <unk> per day U S.
That price has stuck in the market price of introduced originally 3% to four years ago.
That's essentially.
The price of allows us to.
Recover any capital investing suited to make within a couple of hundred days.
And.
And after that.
Is essentially EBITDA for us.
On the apps were charging and the range of anywhere from $202 50 up to about of our loss per day, depending on the value of the up creates and.
And some cases, if we own the up although the revenue comes to us of its owned by a partner there may be some revenue sharing agreement, but generally theres no operating cost for now so it's all EBITDA on our.
Revenue model for our optimization of Alpha analytics, we're charging a per day rate for the days that we do.
<unk>.
And the optimization for our customers. So these are all per day average to the base rig cost. So what we see happening Jeff is of the rig may need to compete on a per rig basis.
But all of the other is elkhart to the price into the rig go on top of and there is simply no competition of these technology offerings for not being bid down on our technology offerings.
And so conceptually we should think of bone.
The $500 per day base rate being applied across the 30, plus rigs and consistently that you have running today.
I think we gave a U S.
A penetration rate of about 60% and and Canada on our Super triples, I didn't give of rate on that but it's less than 50% of right now, but we expect over time that both the Canadian and U S fleets will trend towards full utilization.
Thank you and.
On the Capex side of the $54 million budgeted.
Is there some room built in for maintenance capital tied to the U S fleet ramping up faster than you had previously talked about.
And some potential of at your capital program and expand obviously, ignoring the comment earlier about the reactivation of the internationally.
Hey, Jeff, It's Terry I would say that that capital plan of $54 million.
Corporate's steady increase and activity and our U S rig count throughout the year.
And that's how we budgeted it now if there is if there is a sharp ramp and if we get two and activity level, that's higher than what what Kevin guided to kind of high <unk> towards the end of the year there'll be a little bit of and increase but we're talking probably low single digits millions of dollars.
And the $3 million to $5 million per rig for the international debt that would be incremental to the 54 number and Thats currently guidance.
And that would be but again that would be that would be <expletive>ociated with the signing of the long term contract.
Okay. Thanks for the color.
Your next question comes from Dan healing.
Your line is open.
Hi, guys. Thanks, and thanks for taking my question I was looking at it for.
Hi, I was looking for.
Some comment on.
Joe Biden and.
And just and turtle announcing bigger emission targets for Canada and the U S.
By 2030, and I heard on the call debt.
The precision drilling is doing things to help customers with.
Do see mentioned, while they're drilling, but I wonder if from a higher level in terms of what the industry can expect.
To happen and.
And precision drilling specifically over the next 20 years.
What's the what's the impact of the day.
And these are obviously extremely.
Aggressive targets being laid out by leaders in Canada, and the U S and.
I think there is an absence of process for plan behind the targets, but you need to start with the target and I understand that.
And I think the.
The objectives that they're trying to achieve we agree with the we support and.
Our case.
There are solutions for drilling rigs to take them to essentially zero emissions almost immediately we've done that and the past with.
Grid power drilling rigs and Thats not.
The science fiction and it's easy to accomplish the only issue is having adequate grid power in the field to the rig, but as these fields mature and become.
More industrialized I expect to see more.
The industrial grade electric power applied to the fields and likelihood of gets better so I think that from a drilling perspective.
Getting to zero or near zero or are certainly getting to the targets they've talked about which are 40 and 50% reductions.
Are achievable and.
Our case to convert one of our Super Triple rigs from.
Diesel powered rig to highlight powered rig is of very small amount of capital.
Okay, and just as a for.
Follow up.
Are there things that the government should be doing for the oil and gas companies and the drilling companies to get them to the strength.
I think that any of the.
Technology incubators or technology.
The support that the government's giving for all of the alternative energy sources, the oil and gas industry should be looking at very hard and that would include everything from.
Solar and wind power to hydrogen fuel cells and highlight the power, but I think those avenues are open to us now and I think that my.
The team is looking hard at the opportunities we have to seek out for.
Federal R&D.
Assistance for alternative power of the we're looking at.
Okay. Thanks very much.
Thanks, Dan.
And there are no further question and at the time I will turn the call back for closing remarks.
Thank you everyone for joining today's call. We look forward to speaking with you and we report second quarter results in July the needs to may disconnect. Thank you.
This concludes today's conference call you may now disconnect.
Yeah.
Okay.
[music].
Okay.
The.
[music].
Yes.
[music].
Okay.
Okay.
[music].
[music].
[music].