Q2 2021 Precision Drilling Corp Earnings Call
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Good day and thank you for standing by welcome to the precision drilling Corporation 2021 second quarter results conference call and webcast.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference of your Speaker today testing honing director of Investor Relations and corporate development. Please go ahead.
Thank you Matti and good afternoon, everyone welcome to precision drilling second quarter 2021 earnings conference call and webcast.
Participating today on the call with me are Kevin nephew, President and Chief Executive Officer, and Carey Ford Senior Vice President and Chief Financial Officer.
Through a news release earlier today precision reported its second quarter 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 are.
Our comments will also include forward looking statements regarding precision future results and prospects, which are subject to a number of certain risks and uncertainties.
Please see our news release and other regulatory filings for more information on financial measures.
Looking statements and these risk factors.
Carey will begin today's call by discussing second quarter financial results. Kevin will then followed by providing an operational update and outlook with that I'll turn it over to you Carey.
Thank you duston before we discuss our second quarter results I'd like to notify the audience on this call that duston will be taken on a new role within precision overseeing the finance operations and other administrative functions within our well service Division.
As you all know Duston has managed P DS investor relations efforts very well.
Past, 2 and a half years and he is ready for a new challenge within our organization.
For the time being you can contact me with Investor Relations matters.
Moving onto our second quarter results.
Precision second quarter results were characterized by increase in North American activity field margin performance exceeding our prior guidance and continued strict focus on cost control and cash flow generation.
Our second quarter, adjusted EBITDA of $29 million.
The share based compensation expense accrual of $26 million.
Absent this accrual adjusted EBITDA would've been $55 million far exceeding our expectations.
The unusually large share based compensation accrual resulted from our share price of approximately doubling between the end of Q1 and the end of Q2 and are cash settled accounting treatment.
As noted on our last conference call the cash treatment.
And share price volatility may may present higher volatility in financial results.
Please keep in mind, we have the ability to pay a portion of these awards is either cash or equity upon vesting.
During the quarter, we received $9 million of accused assistance payments as a reminder, the Qs program supports employment in Canada and precision has utilized this program to preserve jobs within our organization.
The <unk> program has continued into the third quarter and we expect the impact to precision to be approximately $25 million for 2021.
In the U S drilling activity for precision averaged 39 rigs in Q2, an increase of 6 rigs from Q1 daily.
Daily operating margins in the quarter were 6752 U S dollars a decrease of 275 U S dollars from Q1.
Primarily due to legacy contracts rolling off into the spot market.
Offset by higher spot market price, you know new rigs and increasing adoption of Alpha technologies.
Absent impacts from I B C and turnkey daily operating margins would have been 227 U S dollars lower than Q1.
During the quarter, we activated 6 rigs and the reactivation expense remained in the 150000 to $200000 range and we expect the same cost per reactivation for the coming quarters.
For Q3, we expect normalized margins to be in line with Q2 and indication of average field margins bottoming. This summer.
In Canada drilling activity for precision averaged 27 rigs an increase of 18 rigs from Q2, 2020, and representing a tripling of the rig count.
Daily operating margins in the quarter were <unk> $7124, a decrease of $1918 from Q2.2020.
Absent the Qs impact margins would have been $5247 or $1378 higher than Q2 last year.
For Q3, we expect margins.
Absent of Qs and onetime recoveries to be consistent with Q2 and.
And slightly down compared to Q3 of last year due to rig mix offset by price increases improved fixed cost absorption and higher alpha technology adoption.
For reference daily.
Daily operating margin in Q through Q3, 2020, absent cues and onetime recoveries were $6270.
Internationally drilling activity per precision in the quarter average 6 rigs.
International average day rates were 54269 U S dollars consistent with the prior year.
And our CMP segment adjusted EBITDA This quarter was $4.3 million up approximately $5.5 million compared to the prior year quarter.
Adjusted EBITDA was positively impacted by a 466% increase in well servicing hours.
In addition, a lower cost structure Qs program support and well abandonment work supported the quarter's financial results result.
Well abandonment work represented less than 20% of our operating hours in the quarter.
Capital expenditures for the quarter were $20 million and our full year 2021 guidance has increased to $63 million comprised of $41 million for sustaining and infrastructure and $22 million per upgrade and expansion.
Which relates to anticipated investments supporting alpha technologies and contracted customer upgrades.
As of July 22nd we had an average of 33 contracts in hand for the third quarter and an average of 34 contracts for the full year 2021.
In June of this year, we completed a 400 million U S dollar offering of senior notes due in 2029 with a coupon of 6 and 7.8%.
And an extension of our revolving credit facility to 2025.
These transactions enabled us to push out our first maturity to 2026 reduce our interest cost and left approximately $200 million of pre payable debt on our balance sheet.
All while maintaining a strong liquidity position.
As of June 30th our long term debt position net of cash was approximately $1.1 billion and our total liquidity position was approximately $500 million excluding letters of credit.
Our net debt to trailing 12 month EBITDA ratio is approximately 5.8 times and our average cost of debt is 6.3%.
We remain in compliance with all of our credit facility covenants in the second quarter with an EBITDA to interest coverage ratio of approximately 2 times.
During the quarter, we reduced total debt by $23 million and year to date debt reduction is $52 million over halfway to meeting our debt reduction target range of $100 million to $125 million per year.
Our capital allocation program remains substantially weighted to debt reduction and we remain on track to meet or exceed our long term reduction target of $800 million between 2018, and 2022, where we have already reduced debt by $602 million since the beginning of 2018.
For the remainder of 2021, we expect to continue generating free cash flow through operations with higher activity improved pricing and only $22 million of cash interest due we.
We expect cash flows to be robust in the second half supporting further deleveraging.
For 2021, our guidance for depreciation and G&A before share based compensation, our $280 million and $55 million respectively.
As a result of our recent debt refinancing our run rate cash interest expense is less than $80 million and we expect it to move lower as debt pay down should continue in 2021.
Finally, we expect our cash taxes to remain low and our effective tax rate to be below 10%.
With that I will now turn the call over to Kevin.
Thank you Gary and good afternoon.
I'll now take a few minutes to discuss the strong recovery developing our north American businesses and update you on our progress towards our 'twenty 'twenty 1 strategic priorities.
But before I start I want to reflect that the last year has been last year and a half has been extremely challenging for industry, especially the people who work here at precision.
The pandemic health challenges the lockdowns the industry layoffs and early retirements and the increased individual workloads have taken a huge personal tool or people are.
Our field operations that remain fully staffed and unavoidably working in close contact but have manage the pandemic challenges on the job and at home exceptionally well.
Over the last 2 months, we have fully restocked, our corporate offices in Houston, and Calgary and I think our people from the excellent work they performed in their roles remotely over the past year and I appreciate the challenge as they continue to face every day.
We are in the beginning stages of what's emerging as a strong industry recovery and we rely on the hardworking loyal precision team to execute our business support our customers and helped drive the results our investors and stakeholders expect.
Yeah.
Well Terry fully covered off our recent debt financing activities I will just add that I am extremely pleased to have substantially resolved our maturity profile and lowered our interest carrying expense and maintained our strong liquidity all while continuing to make excellent progress towards our both our short term and long term debt reduction targets we.
We believe that reducing our debt levels and bringing our leverage level below 2 times EBITDA will create substantial value for investors.
It should be clearer now than ever before that our skill based business model utilizing high value long life assets, coupled with highly skilled crews and leading digital technologies creates a strong full cycle free cash flow profile and the asset base will require minimal capital of reinvesting for the foreseeable future.
So turning to our regional markets I believe the rebounding customer demand, we see in Canada in the Canadian segment has broad implications as leading indicator for what we expect to develop in the U S.
From a high level Canadian customer demand has returned to above pre pandemic levels.
Even during the second quarter, our Canadian drilling activity, while tripling last year's level was in line with 2019, and our well service business second quarter activity was over 7 times, what we experienced last year also in line with 2019 activity levels now.
Now several weeks into the third quarter, we see demand levels trend ex substantially higher than 2019, and I'll come back to that in a few moments.
Looking closer at our Canadian customer mix, while private equity producers play an important role over 2 thirds of the demand. We see comes from publicly listed producers. This.
This group has seen has experienced several years of operating within capital constrained and fiscally disciplined framework.
<unk> focused on debt reduction and return of capital to shareholders since the middle of the last decade, and they've driven cost efficiencies through all aspects of their business models.
Additionally, we've seen several key consolidator in transactions, our customer space, but further builds our producers scale and efficiency.
And now with the improving commodity fundamentals with firm eco gas and Western Canada select oil prices, a resilient NGL pricing. They have responded quickly, but modestly increasing drilling activity, while remaining highly capital disciplined.
This modest increase in spending has a meaningful impact when multiplied across the full producers producer space I'm confident we'll see a similar trend emerge in the U S as public producers.
As the public producers are older producer hedges roll off and are replaced with the current strip and those customers find a path to balance modest growth with sustained shareholder returns.
Currently our Canadian drilling rig count to 52 operating rigs compares to 13, this time last year and ex.
Seeds, both 20th 19 in 2018 levels.
We mentioned on our press release that we had several more rig activations planned through the third quarter and should see activity trend into the upper Fifty's later this quarter with the potential for additional rig activations in the fourth quarter as our customers prepare for a busy or 'twenty 'twenty 'twenty 'twenty 'twenty 2.
Unusually we expect precision Q3 total drilling days will exceed the Q1 winter drilling season.
The only other time I've seen this happened was during the 2010 recovery following the global economic recession that.
That flow down pales in comparison to what we've experienced over the past 18 months.
Early in July we agreed with the customer to a long term contract, which includes the cost to mobilize the precision super Triple rigs from Colorado to northeastern BC further strengthening our market position in the Montney play.
We will have additional opportunities for S. T 1200 rig redeployments to Canada as our customers look to 'twenty 'twenty 2 drilling budgets.
Labor shortages have emerged across the Canadian oil service industry as a serious challenge.
We are finding that many people have left the industry and are reluctant to return.
The east coast commuting workers.
Able to easily travel and the pandemic related unemployment insurance programs seemingly discouraged workers from reentering the workforce at least for now.
We believe that recruiting and training employees of the core precision competitive advantage. It will ensure that we sustain our strong market position as this recovery continues for you, particularly is that the labor tightness is significantly impacting the service industry and providing a meaningful backdrop for rate increases.
We began those price increase increased discussions with our customers during the second quarter and increased rates on all the rig classes several hundred dollars above any cost inflation impacts.
Marching our rates back to positive net income territory is the key objective over sales team, but we believe this will be possible with the rate increases, which you began this spring and will continue as pricing discussions commenced in the fall from the 'twenty 'twenty 2 winter drilling season.
Now turning to our Canadian well service Division the recovery there was remarkable with current activity trending well above 2019 levels. Today, we have 38, well service rigs operating compared to 29 in 2019, we expect this demand to remain strong through the next year.
This healthy rebound has several fundamental based drivers we are seeing increased workover spending by our customers as they look to rework existing wells to improve or restore production.
Customer demand has increased for completions activity tied to the increased drilling programs and of course, the additional well abandonment work related to the government subsidized Goldman per well benefit programs are all driving demand.
Labor constraints are hitting the students recycling hard primarily due to the callout and less predictable day to day nature of the appointment.
<unk> precision recruiting capabilities are largely mitigating this risk for US you have the labor challenge provides a strong travels from price increases.
Because with our drilling group are well serve our sales team is charged with Bart you got pricing and margins back to positive net earnings territory.
So in summary, our Canadian businesses will not require significant capital spending other than customer funded technology enhancements and activity based maintenance capital.
<unk> remains well structured generate strong and increasing free cash flow for the foreseeable future.
I'll remind the listeners that the Canadian recovery is not characterized by massive massive shifts to the E&P spending what we are seeing are modest incremental increases in spending by our highly disciplined group of public producers.
Now turning to the U S. We think the U S market is poised for simple a rebound in activity requiring only modest increases in spending by U S producers.
Our U S customers have learned to operate efficiently they continue to pay down debt and to return capital to shareholders producer consolidations underway, we believe there'll be an urgency to replace the rapidly reclining.
Inventories of drilled but uncompleted wells.
Like Canada, we expect EBITDA modest increase in U S producer spending will drive significant and meaningful demand for super spec rigs like.
Like our Super triples in particularly for our Alpha digital technologies.
Currently we're running 42 rigs in line with our prior guidance and expect to be running 45 rigs by mid Q3 visit.
Visibility for additional rig additions continues to emerge with drilling activity up significantly.
Pricing for idle rig reactivation is improving and our categorize. This range is mid to upper teens for prospective rig activations.
Now regional labor challenges and local rig availability are emerging as pricing opportunities as we see customers wing rig redeployment costs versus minor spec upgrades.
Higher rates.
Now on active rig renewals, where the customer is either looking to retain a running in crude up rig or acquire someone else's running crude up rig price you get is trending in the 20000 dollar plus range now and we see this as a constructive and improving price environment across all rig categories.
To date, the majority of our activity increases have been with private equity and gas focused operators.
Looking forward, we're expecting a shift towards more oil related activity and publicly traded producers.
Our view that virtually all rigs activated this year will be super spec, particularly if they are targeting development drilling programs.
So I think this is a good point to shift to our self a technology update.
As reported in our press release.
It appears we crossed the technology tipping point with our customers at the beginning of this year.
The efficiency gains and predictability improvements, we deliver with alpha automation are becoming well understood and accepted by all customers and we are seeing widescale customer adoption.
Alpha automation days were up 30% sequentially, despite the reduced seasonal activity in Canada.
And now with 16 commercial Alpha apps, we saw Elfa EPP revenue almost double in the second quarter versus the first quarter.
Analytics is also getting strong customer acceptance with sequential utilization also stepping up over 70 per cent.
Notably during the second quarter, we contracted 3 super spec rigs on long term basis with a new customer a major operator. These rigs will be activated during the third and fourth quarter with full alpha automation Alpha apps and health analytics product suite, we view this as a technology driven market share gain.
Clearly digital enablement is a theme we're hearing from virtually every customer today and there's no question that our alpha technology suite deliver strong digital value and our Ala Carte pricing model is ensuring that we get our share of that value creation.
The second common theme, we hear from virtually all customers today is regarding reducing G. H G emissions, our decision to target ESG as a strategic priority. This year could not have come at a better time.
You may have noticed our announcement last week from the precision E team a cross functional group of experts within precision test with leveraging our venmo environmental inhibition strategies.
Also included was the announcement of our evergreen environmental brand and the specific ongoing initiatives to provide reduced <unk> zero emission power sources for our rigs. The team has made excellent progress. This year and we are very well positioned with our customers is a key service provider, helping solve their ghd challenges.
We also published our second annual corporate responsibility report, which is aligned with S. A S. E. T. C. F D disclosure standards I recommend you go to our website and review our comprehensive corporate responsibility disclosure.
Lastly, in our international business segment as Carey mentioned activity was stable during the second quarter with 3 rigs operating in Kuwait and 3 rigs operating in the Kingdom of Saudi Arabia.
We are expecting upcoming tenders for our 3 idle rigs in Kuwait and believe we have a good chance of success on those tenders. This may result in rig Activations later this year.
These rigs will require some equipment re certifications and I would expect capital spending on the order of $3 million to $5 million per rig, which we'd expect to recover inside the first few months of rig operations.
We're seeing increased tender activity in the Arabian Gulf region through several <unk> and expect this could result in further rig activation of opportunities really next year it.
It seems that much of the rig tendering sequencing is linked to the timing of the relaxing of the oil export limits.
As always the national oil company tender process tends to be lengthy but their book results and similarly lengthy contract terms something we ultimately desire.
With the improving outlook across all of our business segments overturns. The people at precision who are critical to every aspect of our services.
Thank all of you for your hard work perseverance and excellent risk management over the last several quarters. So I'll now turn the call back to the operator for questions.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw.
Your question press the pound key.
Please standby, while we compile the Q&A roster.
And your first question comes from the line of Ian Macpherson from Piper Sandler.
Thanks, Good afternoon.
Kevin and Kevin Congratulations on the debt refi, that's that's a great 2.4 for you all financially and operationally so good to see that I was intrigued Kevin by your leading edge.
U S day rate data points.
Just wanted to clarify are those base day rates, excluding Ala carte add ons for the Alpha suites.
Correct those are base day rates for the base <unk> Super Triple rig excluding technology add ons.
Okay.
And that's it's certainly improving higher than than we would've recently expected.
And you mentioned the consolidation of your customer base across Canada.
In the U S. But there's also been some consolidation in your space in Canada, which I think makes that competitive framework even.
Probably a little bit tighter than it is in the U S are you seeing accelerating pricing power more so in Canada than in the U S. At this point and.
Any.
Would you lean further out in time to sort of hazard, where where pricing is going in both markets by the end of the year.
I think that's a.
Very good question first of all but.
The transactions for consolidation in Canada, and the 1 in the U S. Also haven't closed yet, but we expect them to close.
Soon I do think that brings a an appropriate level of rational thinking to the market space and the way I say that is the in Canada. For example, the Montney play in the deep basin and Duvernay are our unconventional resource plays with large pad horizontal drilling these are very much industrialized off.
<unk> they require drilled.
Drillers of scale with a high quality technology driven assets to operate those as economically as possible. So I think that this rationalization, we're seeing we're seeing among the customer base and being echoed in the supply base is constructive and creates a frankly does create a better pricing environment for our services, but probably a more appropriate pricing environment for the services we provide.
But I think the core driver right now for pricing in Canada has been just industry overall demand.
And then some of the labor tightness tightening up the supply side. So I think those 2 combinations are driving the near term pricing, but we do expect to see very rational behavior over the long term on particularly on the deep basin in Canada and I think the same thing will develop in the U S is that consolidation play takes place awesome.
That's great. Thanks, Kevin I'll I'll pass it over.
Thanks Ian.
Your next question comes from the line of Taylor Zurcher with Tudor Pickering Holt.
Alright, thanks, guys.
First question, Kevin you talked about.
The Canada market backdrop has clearly improved and you talked about.
How you how we might see a similar dynamic is what's going on in Canada right. Now eventually play out in the U S and the U S, where we're still well below pre pandemic levels and so just hoping you could give us a little bit more color on the dynamics that play that you see in the U S. Maybe over the next 12 months and maybe.
Any suggestion on timing as to when.
We might get back to sort of pre pandemic type levels in the U S.
Taylor I think the number 1 answer.
To focus on is that the.
Investor desire for returns and discipline is not going to go away in the U S and it hasn't gone away in Canada, either but I do think what happens is that as our as our customers' customers' hedges rollover into the much more constructive strip do we see today versus 6 months ago or a year ago.
That's going to free up more cash flow I think it sort of allow no additional debt repayments additional investor returns and the room for modest.
Increases in capital spending like we've seen in Canada.
Again, the pivot in Canada isn't a substantial pivot in spending it's a modest pivot in spending but when spread among a 30 or 40 or 50 companies. You know if you have 50 producers in the U S to add 1 rig that's a meaningful step up in demand for Super spec rigs in the U S. So I think youll see.
Dynamic emerged in the U S with modest increases in spending 1 rig additions here and there that across the fleet adds up to 50, 60, 75 rigs maybe between now and the end of the year and that puts a very strong poll on the Super spec fleet, especially when you bake in kind of regional dislocations you know the the Permian might have excess super spec rigs, but most of it.
<unk> don't.
Yeah. It makes sense good to hear and my follow up maybe for you Kerry.
You talked about robust cash.
Flow from the back half of the year I suspect with the seasonality in Canada.
U S activity continued to trend higher that I'm working capital likely becomes a drag on cash in in the back half of the year.
Wondering if you could kind of button up how we should be thinking about that robust cash flow outlook translating into free cash flow and you know getting to the mid point of your debt reduction range, but it would take about $50 million to $60 million of incremental debt pay down when we think about robust cash flow should we expect them you know 50 to 60.
Your line as being kind of the right number to think about for the back half of the year.
Yes, Taylor I appreciate the question. So we don't typically give guidance for EBITDA for.
Well, we'll give enough information. So you can calculate that but I can I can walk you through some of the guidance. We do provide so I pointed out we have only $22 million of cash interest in the second half of the year.
So that would be helpful to cash flow given our capital guidance, where we've got another $30 million or so that we're going to spend on capital expenditures and those will really be the 2 main draws of cash the working capital build since we exited Q2 with with such strong activity in Canada will be.
The typical seasonal working capital build that we would see we think probably it'll be 5 or $10 million of working capital build and likely that's offset somewhat by.
Used asset sales that we typically do in normal course.
Got it thats it from me thanks for the answers.
Your next question comes from the line of Aaron Macneil with TD Securities.
Hey, guys. Thanks for taking my questions and testing and congrats on the new gig. My first question is on the rig moving from Colorado VC money.
I assume the customer is paying for the full mode, but wanted to confirm I'm also wondering if the rig already has the alpha.
Alpha automation technology embedded and if it will when it kicks off under the contract and then.
From a from a pricing perspective, just based on the.
Were you describe current day rate range is how should we think about the pricing on this specific contract given that you entered into a multiyear contract not a short term contract.
Yeah, a couple of comments I'm pretty sure the customer will identify himself. If he is listening to our calls I want to be cautious with how much transparency I give out but the mobe cost.
Is inside the contract meaning that the customer is paying the cost of the mobile.
The rig is equipped with the Alpha digital technologies and the customer is quite pleased with performance of Alfa digital technologies, there will be some recertification costs as we bring the rig back into Canada will spend are.
Under $2 million through the re certifications on the rig.
I think I hit all the points I think.
Fair enough against you and all your questions, but if I missed 1 let me know.
Just on the.
I guess it is the pricing materially different given that it's a multi year contract versus the day rates you.
Described.
I would say that the pricing is structured to give us a return on investment that we think is a.
Well above our cost of capital and the appropriate long term range.
Sure.
The bottom line is it's not a they're not walking in a low market price from long term it's a.
The price that we're happy with and that are that we've negotiated carefully with a customer and delivers a good return and aeronautical side when we're not we're.
We're not executing this move for strategic reasons, it's it's we're getting the appropriate financial return.
Should I interpret the rig moves and it's just a signal that there is extremely limited capacity in this asset class in Canada.
I think so I think that.
I think the demand could move up further maybe another 2 to 4 rigs.
Into 2022.
And I don't think we'll be successful at all for those or 3 of those or whatever that turns out to be but.
We would expect that if we mobilized for the rigs up the cost of mobilization is covered by the customer.
And how many 12 hundreds or.
In the U S and idle or otherwise.
We'll try to move up to Canada.
So I can tell you how many 12 hundreds we have in the U S. We have after this 1 I think we'd have about 15.
210, several of those are working and I think the utilization would be under 50%, but we do have enough idle ones to satisfy the demand that Kevin just outlined.
Got it and then final question from me Carey can you give us a sense of what your expectations are for the wage subsidy from the balance of the year just because.
There's mixed signals on whether those programs ramping up or not or yes, right now, we're saying for the whole year.
We expect around $25 million.
So that would mean in Q3, if it wraps up in Q3, that'll be 6 or $7 million, 6 or 6 or $7 million.
Understood. That's all from me I'll turn it over thanks.
Thanks Darren.
Your next question comes from the line of J B Lowe from Citi.
Hey, guys, how you doing.
Good day JV area.
Pretty good question.
Question I think Kevin you were just you were mentioning something about potential rig reactivation as being in the mid teens can you just clarify what which geographies youre talking about.
So I actually GBS had mid to upper teens, so I'll be clear on that.
Okay.
We see rates moving up if we see rates moving up for a couple of reasons.
Labor is getting tight and it seems it is industry reactivation costs are moving up a little bit.
You can hang your hat on the guidance Kerry gave for our activation cost in the 150 to 200.200000 dollar range, but I think industry wide. There may have been some cannibalization of idle assets, but it seems that our industry.
Industry wide that activation number seems to be a little bit higher.
So that's causing a better pricing discipline among the industry. So we're seeing that price that cold rig activation cost or price go up a little bit to mid to upper teens.
I think it applies pretty much across any oily basin right now and the gas stations are kind of fully utilized.
The U S market JV, if that was what you are asking gotcha gotcha, Okay cool.
My other question was just could you could you I know Ian kind of touched on this with asking about the grades that they include the opposite or not could you breakout potentially like what will your total Alpha suite revenue was in 2 pure like a percentage of the total revenue or anything like that didn't really give some guide posts on.
How much that's really impacting the P&L at this point.
Yes, so so far Jamie we've given guidance from what we're getting per per.
Her items ordered per service utilize so it's 100.
$500 a day for off automation and then we're charging on apps anywhere from $250 a day to $2000 a day per app.
And then we have additional piece for alpha analytics.
We have not yet provided any guidance on what the consolidated revenue number is that something that will likely do in the future but for for Q2 and Q3, it's it's unlikely that we provide that guidance.
Okay.
Alright, thanks, guys.
Great. Thank you.
Your next question comes from the line of coal per Euro with stifle.
Hey afternoon, everyone called high growth.
With Terry's comments on U S drilling margin. So I just wanted to be clear you kind of see.
The margin moving kind of flat to up after Q3, so I would interpret that.
Additional activations coming on in Q4, and Q1 in the U S are offset by higher economies of scale and higher pricing did I kind of get that correct.
Yes, you got that exactly correct and what we've said there is that we think that the margins are bottoming. This summer.
And so you know that.
That probably means that.
Yes.
At some point in <unk>.
July or August is when we're going to see margin as bottoms were average margins in Q3 are.
On par with average margins in Q2.
Okay, Great that's super helpful. Thanks.
A lot of concerns about labor tightness kind of around the Canadian oil field services market.
Do you guys worry at all of that.
The labor issues might kind of put a lid on the rig count heading into Q1 or how do you think about that.
Cole.
I think it's going to be a struggle and there's you know a number of things driving that right now.
The drillers have actually in pretty much every other rebound cycle, that's always been quite sharp the Georgia found a way to reached up rigs I'm quite comfortable that we will re staff our rigs.
I know, there's probably a few PD people listening, they're doing that work right now and they're working pretty hard to find a buying crews, but between our brand and our recruiting or training.
Expect we will be successful and.
I don't think it'll put a lid on our activity.
Obviously, if a customer wants a rig for 1 well for 7 days, we might not do that but any kind of meaningful program I think will build stuff up our crews from that.
Industry wide I think it'll vary.
Certainly.
You know I can I can go to go back to the COVID-19 disease as 1 might be 1 of the tougher environments I've seen.
For recruiting.
Again, Unfortunately, our brand carries a lot of weight up there.
Okay, Great. That's helpful. Thanks, and I mean with the additional upgrade Capex can.
Can you just provide a little color exactly on what that is and with the increase in small increase in maintenance Capex. It's fair to assume that's just.
More robust Canadian outlook.
Yes, I think thats, a little bit higher activity expectations in both markets.
Would be the maintenance capital and then the upgrade capital is the combination of additional alpha automation systems and contracted upgrades.
For customers.
Okay. Thanks.
Third mud pump.
Gotcha.
Okay perfect. That's all from me I appreciate the color thanks, guys.
Thank you Paul Thanks Cool.
As a reminder to ask a question you will need to press star 1 on your telephone.
Your next question comes from the line of White car side with a T b markets.
Thank you very much and again congrats.
Duston on the move I've enjoyed working with you and thank you for all your help you provided.
To me.
Stan and I are.
Thanks, a lot thanks.
Sure.
Kerry just 1 first.
Quick modeling question for the rig that's moving to Canada. The rig mobilization costs are you going to take a lump sum kind of.
Cost in Q3 or is this the cost going to be spread or what the delta contract.
So it.
So the.
The revenue that we're going to be getting for that move to cover that move will be spread over the course of the contract, but I actually don't know right now.
Going to account for the cost I can get back to you on that okay.
Secondly.
You have 6 rigs working in the Middle East right now.
Kevin do you expect.
Incremental rigs to generate some revenues this year.
Okay, It's a little hard to say.
Certainly the tenders are dragging out a little longer than we would've thought even just a month or 2 ago.
Nothing is changing that I think.
I can comment that vaccination rates in Kuwait and.
Saudi Arabia are extremely high.
Fully re staffing office as it seems to be on the agenda. Following the current Edith holiday right now which is wrapped up.
I think there is likelihood we can activate some rigs in Kuwait for the end of the year, but it's.
It might be you know November December and then rolling into January.
So is it the COVID-19 issue, that's preventing them from awarding the contract.
Or is it more.
The current OPEC plus call. It average as you know he's now.
Yes.
The answer might be yes to your question is that I think it's both I think.
It's hard to make a strategic decision to international oil company, when you're still operating remotely or partly remotely right.
But I also think that they are they understand their production depletion curves quite well and they're shut in capacities and our.
Drilling activity in both countries is down for oil and they need the time the restart.
With when they expect their wells that you've got shut in to come back on again, so there's going to be.
I think a pretty careful model about when to bring those rigs back on.
No.
Saudi Aramco has a contract to.
Bill 50 additional rigs over the next day, but even 10 years.
Do you think they have need for current idle rigs that are there will continue to just bring in these new beds into the into the market.
So there are tenders right now that are are in the region, including some in Saudi some of those are our IPM tenders from our direct <unk>.
Drilling tenders as an active tender in Saudi that we've been working on for a while I think we've got opportunities to activate silver idle rigs.
And that could be in Saudi or it could be another.
Arabian Gulf perimeter countries okay.
And do you have adequate suite.
Services running on any of the international rates.
No, we don't and we've been careful to.
Deploy alpha where we can we can well supported well we want to make sure. We can go out and you have 99.9% uptime I would say that we will be ready to start introducing alpha internationally in 2022, okay.
Okay, great. Thank you very much Kevin appreciate the answers. Thank you waqar.
Your next question comes from the line of Sean Mitchell with Daniel Energy Partners.
Hi, guys. Thanks for taking my question I'm going to hit are the hot topic here again, the labor just 1 more time I want to understand.
As we move into the back half of 'twenty, 1 and it sounds like at least according to your work and some of the work we've done.
We agree with you that the rig count will continue to rise.
How do you think about labor today, if you had to crew 1 rig or 2 rigs versus having.
I Havent accrue 5 or 10, what's the lead time for crew and a rig today versus you know 1 rig versus fiber ex for example.
Yes, Sean so typically when we start working with our customers will have.
They were from 2 weeks to a month or.
I mentioned, we have 3 contracts were signed in the U S. On those 3 rigs I think 1 rig activates in either in late July early August and then the next to activate a month or 2 behind that we'll have plenty of time to build those crews out the rig managers and drillers already booked for precision flow leadership teams are on on staff right now working on.
The rig somewhere else. So we'll pull those guys to the rigs that are being reactivated and then will backfill the positions. They leave open and we will recruit for the positions we need to fill.
We've got a very sophisticated staffing model and are really supposed to give the recruiting model.
We typically keep anywhere from 500 to 1000 people on kind of a callback list I'd I'd admit we've worked our way down that callback list, a long ways and now we're up recruiting kind of beyond that list.
I can tell you that in both U S and Canada. The next 5 rigs that we need to activate we have crews identified 4 beyond that we need to continue building cruise up.
So for each market fibers from Canada 5 for the U S identified crews identified leadership and are able to execute beyond that we'll rely on our recruiting training methods.
Got it thank you.
I don't want to underplay, how how much work. It is we have a really dedicated team in Houston at a very strong team of miscue that are that do the recruiting and do the training and they work really hard to do this but the results are excellent and they delivered great results force.
Thanks.
Great. Thank you thanks John.
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Yeah.
Yeah.
Mr. Honey, we have no more questions at this time.
Great well. Thank you all for joining today's call. We look forward to speaking with you. When we report third quarter results in October operator, you may disconnect.
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