Q2 2021 Trican Well Service Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the trade can well service second quarter 2021 earnings results conference call and webcast.
And as a reminder, and this conference call is being recorded.
I would now like to turn the meeting over to Mr. Brad Fedora, Preston and cheating.
I could have officer attract can well service Ltd.
Please go ahead Mr Fedora.
Yeah.
Thank you good morning, ladies and gentlemen, I would like to thank you for attending the truck and well service Q2 conference call.
Brief outline of how we intend to conduct the calls for Scott Mats, and our Chief Financial Officer will give an overview of the quarter and resolve.
And then I will address issues pertaining to current operating conditions and near term outlook and then well open the call for questions with me with me and Scott has talked to you our chief operating officer. So the there is people and the room available to answer basically any question that comes up.
Before I turn over the call I'd like to refer you to our website.
Try Ken well service Dot com and on that you will find our legal disclaimer that talks to.
Forward looking any forward looking statements. So now I'd like to turn the call over to Scott to provide an overview on net financial results.
Brad and good morning, everyone.
As Brad noted like to point out that this conference call may contain.
All statements and other information based on current expectation of results for the company certain material factors or assumptions were applied in drawing conclusions or making a projection as reflected in the forward looking information sector section of our Q2.2021 M DNA.
And number of business risks and uncertainties could cause actual results to differ.
Materially from these forward looking statements and financial outlook and.
Some of these risks and uncertainties may be further amplified due to the ongoing effects of the COVID-19 pandemic. So please refer to our 2021 annual information form and the business risks section of our MD&A for the quarter ended June 30 of 2021 for a more.
Different any description of the business risks and uncertainties facing try again.
This call well refer to several common industry terms and we will use certain non-GAAP measures, which are more fully described in our quarterly MD&A.
As you know our quarterly results were released after close of markets yesterday July 27th and are also available on SEDAR.
And so with that most of my comments will draw comparisons to the second quarter of the prior year, but also provide some commentary with respect to sequential results from Q1.
So Q2 is as you know is typically our most challenging quarter due to the effects of spring breakup, but momentum from a strong first quarter definitely carried over into the second quarter with.
With robust commodity pricing driving the rig count and our activity higher than maybe we expected as well.
Revenue for the quarter was $93.7 million down sequentially from Q1 levels due to the seasonal effects of spring breakup, but up significantly from the $28.4 million that we saw in Q2 of 2020.
W. T I average just over $66 a barrel during the quarter sequentially up from an average of about $58 a barrel through Q1 of 2021 put up dramatically from an average of $28 a barrel and Q2 of 2020 eco gas pricing averaged about $2.94, and Mcf for the quarter consistent with Q1, but again.
And quite a bit stronger than the Buck 90, and Mcf, we saw in Q2 of last year.
So strong commodity prices resulted in an average western Canadian rig count of about 84 during the quarter again down sequentially from Q1, as we would expect but up significantly compared to an average of 23 rigs running and Q2 of last year.
So the rig count accelerate.
Celebrated as we moved through June and is continuing to climb as we move into Q3.
And so those factors led to activity levels that were significantly higher than the same quarter of last year across all of our service lines.
Higher activity, continuing improvements and the efficiency of our operations and a strong focus on profitability, including the structural fixed.
Fixed cost improvements made over the last year led to significant improvements in all key financial categories as compared to Q2 of last year.
Fracturing operations were down sequentially from Q1, 2021 as expected, but were significantly busier than the same quarter of last year proppant pumped was down 22% as compared to Q1 of 2021.
1, but up more than 400% as compared to Q2 of 2020.
We maintained 6 fracturing crews through the period with utilization increasing as we exited the quarter operations were heavily focused on pad based locations, which helps minimize both downtime between jobs and travel time and improve efficiencies.
Capturing margins remained healthy through the quarter and were a significant factor and the financial performance of the company during the second quarter.
We're also pleased with the financial performance of our cementing and coiled tubing service lines cementing activity for the quarter was robust dipping with the rig count, but anchored by high levels of abandonment work.
Coiled tubing activity.
From a quite strong with steady utilization from a number of key clients.
Cost inflation is certainly starting to creep into the business and will be a factor in coming quarters.
Disciplined supply chain management, and our continued focus on cost control through the quarter preserved margin, helping minimize the impact of spring breakup, which.
He was also a sequential revenues adjusted.
Adjusted EBITDA came in at $14.2 million a significant improvement over Q2 of 2020 levels.
And I would note that our adjusted EBITDA calculation does not add back cash settled stock comp expense, which was about $2 million and the second quarter. This expense fluctuate.
Drove lump and he is movement and share price, which saw on appreciation of just under 30% over the last 3 or 4 months.
And it also includes expenditures related to fluid and replacements of $2 million as they were expense to the period.
And finally, I would note that the Canadian emergency wage and rent subsidy programs positively affected EBITDA by 6.
And with $1 million during the quarter.
And so on a consolidated basis, we generated and overall loss from continuing operations of $8.4 million and the quarter or about <unk> <unk> a share.
On a bit of a step down from our Q1, 2020 results as we expected, but it is a significant improvement over the loss of $27.5 million or 10 cents a share and we incurred in.
And Q2 of 2021.
Cash flow from operations was $43 million for the quarter and as a result of strong operational performance and the release of working capital that is typical as we move through this part of the year.
Operating cash flows and proceeds from the disposition of some non core assets were more than sufficient to fund our capital expenditures of about.
$10.2 million.
Flip between capitalized maintenance and our ongoing capital projects.
The company's full year 2021 capital budget remains at approximately $40 million with roughly 50% allocated to sustaining and infrastructure capital and 50% allocated to growth capital, which includes our previously announced program to upgrade.
Grade conventionally powered diesel bumpers with cap cap tier 4 dynamic gas blending engines. Please.
Please engines can displace up to 85% of the diesel fuel required with cleaning and cleaner burning natural gas, thereby reducing carbon dioxide and particulate matter emissions.
And if this is a significant upgrade and a key part of track and individual.
And <unk> commitment and our prime way of supporting our key customers and and meeting their ESG goals as well.
So we exited the quarter with $58.9 million and cash and cash equivalents positive non non cash working capital of approximately $42 million and no drawn bank debt.
And finally with respect to our NCI program.
And we continue to view share repurchases as a good long term investment opportunity for a portion of our capital and we have been active and the market of late and well continue to remain active on the program going forward.
So with that I'll turn things back over to Brad who will provide some further comments on our operating conditions and our strategic outlook going forward. Okay. Thanks, Scott and I think.
Graham provided a very thorough.
And summary of the quarter and so I'll keep most of my comments to the market and general and what we're seeing and and the market today here as we work our way through Q3 and most of my comments will include all 3 business divisions fracturing does represent about 70% of our revenue, but everything that I didn't say it.
It is probably going to apply to fracturing cementing and coiled tubing.
The 3 operating divisions that we currently house. So we had a great we had a great quarter.
Q2 was was much better than past Q2s, it's very refreshing change to have.
EBITDA of about $16.5 million adjusted.
EBITDA of just over 14 million and.
And free cash flow. So we're now we've been free cash flow positive and both Q1 and Q2 of this year.
So on.
Certainly from a competitive perspective, we're doing quite well and as Scott did mention too we do expense a lot of things that.
At our particularly fluid ends that are capitalized by certain companies and our industry and so I encourage you to.
Provide some diligence to to the income statement with respect to expenses versus capitalized items.
The Q2 was.
And much more active than past quarters, I think we did a really good job.
Aligning ourselves with the right customers late last year and early this year to ensure that we did other busy Q2.
We did have our usual interruptions that we always get from weather and various logistics issues, but generally I think the quarter wind went fairly smooth and we did have some work pushed into July.
It's fine you can never you can never planned perfectly well.
And we had a lot of large pad work done and that enabled us to operate efficiently throughout the quarter and of course, we had a much better rig count this year than last year. We had I think we averaged 81 rigs throughout the quarter peaked at just under 140 in June.
But that and we currently sit at just over 150 and so the quarter was.
Was busy there is our customers are doing a better job of it.
Smoothing out the work throughout the year and just sort of level loading throughout the year to ensure that you don't have this big shutdown and and break up like we have in past years, and we hope that continues.
And future years.
So well.
And what happened with pricing and I've made a lot of comments on price starting I think 2 conference calls ago.
And I had mentioned that we are targeting a 10% price increase and unfortunately.
We were not able to achieve that.
And that are not even though we are trying to push pricing higher we've got absolutely no support from our competitors and in fact, some of them are even reducing pricing, which is just astonishing.
I think some of that media has stopped there was a lot of positioning happening in Q2.
And with the reduction.
Believes <unk> trying to gain market share and of course that never works, you just sort of and chuckling customers around and market share and never really changes and so.
We hope they've come to their senses on pricing.
We're certainly not operating and economic levels, our industry as a whole we are.
Cap of free cash flow positive, even though some of our competitors are not so the industry as a whole obviously is not economic and we expect that pricing well.
We'll slowly but surely go up from here.
We didn't get our 10% target, we did get modest gains and are in our pricing and I think for the most.
Most part of customers understand that pricing has to go up.
I just wish our competitors would understand that.
And the E&P cash flows are at record high almost historically.
Free cash flow and <unk>.
Cash flows and general from our customers have quadrupled.
When you look at well.
And it will look like 6 to 9 months ago, and so we're very focused on getting pricing and a level that allows us to achieve a positive return on invested capital. So that we have a sustaining and growing business that allows us to provide state of the art services to our customer base. So.
So we will I'll commit to.
And we'll continue to focus on this and try to get our pricing up and.
And we just need a little bit of cooperation from our competitors.
We did operate 6 frac crews about 15 cement crews and 6 coil crews and we're happy with those levels. We're focused very much on the sort of red deer, and north which.
It will include the Montney and deep basin, I think almost 90% of our revenue comes from from those areas.
And with the improved gas prices, we expect that the Montney and deep basin will continue to get busier and more active and and certainly pressure pumping.
As a core service as these plays get developed.
So we don't expect that our focus will change, we still expect that our gas and liquids rich gas will represent over 70% of our up our work on our revenue and and now that oil prices are above $70, we expect to be more active and oil and we expect that it'll be sort of 20% to 30% of our revenue.
We are.
And so did pump a lot of their own sand, which.
Is a growing trend.
And that we expect to we expect to continue.
And that's fine and helps with logistics and from a working capital perspective. Its we just have to ensure that the prices that are charged for the equipment only and.
Customer service is that don't include and are appropriate that we can now that we're not getting a margin on the sand we have to make that up on the equipment side.
We continue to see our customers focus on getting more sand placed per well and certainly placed per meter.
And so we've been asked this.
For years, where are we with.
With respect to the Frac industry as a whole and the fifth inning, the seventh inning well.
We're not really sure it feels like we've been stuck on the seventh inning now for 5 years. So.
Certainly I think as everybody understands you cannot get oil and natural gas to flow without without.
As for the more effective the frac the more economic wells.
Come for our customers and the quicker payout. So we're always looking at ways to improve.
And how we play sand and to make it more effective of course to get better flow out of these very tight reservoirs.
Frac, we've continued to focus on cost is something that will never stop doing. This was started a few years ago to really change the cost structure of this organization and certainly we've continued to add over the last year and we will continue that going forward and I think it's important to note that even though we've had a massive reduction and cost.
Still positioned.
Have a large increase in revenue and crew count without an increase in any of our fixed our G&A costs and so we're at a really nice place where as revenue continues to go up as the industry gets busier, our fixed cost will not go up.
And so we will benefit from all of that operating leverage.
And on.
On a very on a.
Fixed system.
And that's 1 of the attractive things about the pressure pumping industry is as things get busier, the cash flows and the and the earnings grow very quickly.
The outlook for the second half continues to get better E&P cash flow is like it was staying right on or.
<unk> I think.
Spent a lot of money on on debt repayments and Theyre focused on dividends and Theyre focused our customers our focus on generating returns and that's all incredibly positive to make this industry healthier I think we all have to have real businesses.
And so the growth the growth and spending feels.
And very thoughtful very measured by our customers and <unk>.
So think we think we're actually going to have a very sort of nicely controlled growth over the next few years, but are very optimistic about the about the rest of this year and next year.
We've had a really good start to Q3 with customers taking advantage of commodity prices.
Mrs and drilling efficiencies and fracturing efficiencies, we expect that to continue.
We don't have a ton of visibility beyond the fall, but certainly on a daily basis, almost now when we're talking to our customers everybody is sort of slowly but surely increasing.
They are well count for the remainder of this year and we're starting to.
Get a feel for Q1 of next year, and we're very optimistic and it feels like it's going to be very busy and it's important to note to take time and note here that theres about $1.8 million total horsepower and Canada.
Oh and by all the various pressure pumping companies theres about $1.2 million of that is active today.
So there's roughly 600000 horsepower spare spare capacity to put to work as the industry heats up and.
And I think on want to stress that try can owns about half of that.
It's really important to note that as this industry gets busier, we effectively have captured half the upside.
Syed.
And of course, we have a very healthy balance sheet. In fact, we have cash on our books and so we can afford to activate.
That equipment without any issues and we can continue to invest in and new technologies like these tier 4 engines that we've press released a few months ago.
Uh huh.
Where does pricing go from here I mentioned, it briefly but I do I do feel like we are in discussions with with our customers and we expect to have maybe another price adjustment in the next sort of 60 days.
Fuel margins are still very skinny and.
And in order to generate.
Returns.
We do need to focus on getting prices up and all of our divisions.
Our focus remains on passing through any inflation that we receive we have had inflation on diesel steel costs, we're starting to see it and sand and of course as diesel costs go up the entire logistics chain.
<unk>.
The cost of that of operating out whether it's rail or trucking. They go up as well so we're starting to see inflation.
And when and I do talk about price increases I do I do mean net price increases. So we expect to pass on any inflation that we're receiving to our customers directly.
I.
General and I think our crew size, whether it's fracking our coil, we always want to grow those of course.
Because thats, our most profitable weighted to grow I think we're comfortable with where we're at with 6 fracturing crews. We are adding our seventh fracturing crew. This fall and I'll talk a little bit more about that with respect to investments and technology.
On the people side. This as always happens every time, the oilfield heats up and people are always the issue.
This seems to be worse than prior cycles, and I would say and something that I, probably underestimated even as recent as 6 months ago.
It's been we've done so much damage to the people for the last.
7 years that we're finding that as we're all trying to crew up whether it's us or our competitors. The people issues is going to be a significant 1 that's not going to be that easily overcome.
And so that's also a positive it will control the well control the growth and the amount of crew reactivation.
The industry provides.
Provides and and it should make for a very tight market.
Going forward for the rest of this year and into next year.
And the supply chain and in general.
And we're constantly trying to.
Manage that and.
As we've talked about before do you get the logistics right.
That can really drive.
<unk> profitability.
And so we're always looking for different ways to run our business and manage our costs and I think we've done a really good job of getting efficiencies and our operating system and are well.
The value chain.
And as we look at more technological advances this should only improve and as the industry gets busier.
Well keep our cost stable and.
And get more efficient and should only mean that much more profitability going forward.
On the technology side.
We are very focused on the equipment at this stage, whether it's tier 4 natural gas engines that burn natural gas instead.
And the diesel which provide lower emissions and lower costs.
Or idle or idle reduction technology.
And we've sort of had 5 to 7 years, where there hasnt been a lot of investment and the equipment.
And just given given the bear market that we've endured.
And so most of our when we think about it.
And our technological investments of course.
And to manage everything that we're doing and real time, but it's really to take this equipment to the next level and as ESG becomes more and more of a focus for our customers. The east side of our the E. Part of ESG of course is.
Talking about emissions reductions.
And reduced freshwater consumption.
All other things that we can provide solutions to and so when we make investments into our equipment and whether it's.
Tier 4 engines are idle idle reduction technology. This is all great great.
And help and getting emissions to reduce.
Reduced levels compared to historical levels.
On the <unk> and the <unk> side of course.
We've continued to focus on this whether its relationships with first nations or are getting a more diverse employee.
And board mix, we're not just focused on the E. We are we are looking at all other at the other parts of the ESG as well and I think we've been quite successful we're currently.
We engaged and various initiatives to advance the the ex section of this and we're well.
Whether it's through relationships and the communities with the indigenous peoples.
And our inclusion and diversity strategy.
I think we've all done with all that we've made great advances on our on our ESG strategy as a whole.
And just before I wrap up I'll talk about sort of the capital program, we have announced that.
We will be spending about $40 million and that includes about half.
Half of that is for our tier 4 fleet.
Which will come to the market in October.
On the other half of that capital program is for basically ongoing maintenance capital, which you would expect on an annual basis.
From a growth perspective or from.
And acquisitions perspective.
We're still very focused on just getting our existing.
<unk> business operating efficiently getting equipment off the fence and into the field if theres opportunities. There, we're fortunate enough to be able to afford any any equipment activations or any rebuilds or our upgrades that may need to be done.
And that is always your best return on investment before you start to look at acquisitions.
<unk>, our other growth opportunities. So we feel like we're just going to stay very focused on our core businesses and all 3 divisions and making sure that we can keep up with with the increases and the capital programs that we're seeing from our customers on the <unk> side, Scott had said that we've been active throughout the year and actually even though.
And we've been active it's been sort of frustrating for us it feels like we've kind of chase the stock up and we haven't been as active as we would've liked and I probably won't change a lot for the remainder of the year. So all I can say is that we see that as a good investment.
And well buy as much well by as much.
As we can and the market given that our pricing and volume parameters debt.
And that we're dealing with.
I'll turn the call over for questions.
Thanks for dialing in.
Well you will now begin the question and answer session.
He joined.
Question queue, you May Press Star then 1 on your telephone keypad, you will hear a tone acknowledging your request.
If you were using a speakerphone please pick up your handset before pressing any keys.
To withdraw your question. Please press Star and then 2.
We will pause for a moat.
<unk> as callers join the queue.
The first question comes from Aaron Macneil with TD Securities.
Go ahead.
Hey, good morning, all thanks for taking my questions.
Brad on your comments on pricing.
And the.
<unk> for reactivation.
You think theres any nuance.
And how your customers are they are your competitors are behaving in terms of like how their pricing stuff that's.
Warm and.
It needs to get out versus bringing something off the fence and are you worried that.
And.
Your competitors may seek lower return expectations to bring bringing equipment off the fence versus what you'd want to do that for.
[noise] I'd give up trying to figure out.
How would you view the business flow.
You'd have.
To ask them that.
The pricing behavior and the last 4 months is shocking.
And at least.
Maybe a better question is on the <unk>.
Incremental tier 4.
Dynamic gas blending and gene conversions so.
Specifically.
Are you and the late stages and engaging with 1 or more customers on on incremental frac spread and if so.
Is pricing and the hang up is contract duration and then hang on.
And you know how.
How much of this would you do would you be self governing on how much you can spend.
Yes.
So.
We made that investment and the tier 4 engine, it's about a $20 million upgrade to our existing equipment and so we're not adding horsepower to our fleet or the fleet and Canada as a whole.
But it is a significant investment and so.
We.
Obviously would never have done that at pricing that we were seeing in Q1 or it's certainly in Q2.
And.
And.
We're fortunate we've got good customers that understand they cant have the state of the art equipment that requires a big capital investment at pricing.
And you saw through Covid.
And so you know naturally we would never make any more of these investments. So we didn't we didn't invest in the first fleet and exist at current market pricing. It was at a premium.
And we Wouldnt, we wouldnt, we would continue to sort of evaluate our returns.
Turns on any future or any further fleets that could be upgraded with tier 4 technology, but certainly we would never sell the equipment for the same price as well.
Diesel powered and frac year or free.
Frac gear, that's been has a natural gas conversion.
Kipp that only only displaces, 50% <unk>.
You've effectively got 3 tiers of equipment now and we will have the discipline to and to make sure that that.
Third tier or the where the natural these tier 4.
Dbg engines are getting premium pricing.
Sure.
That's I think should be obvious and I hope are our competitors are thinking the same.
But.
To your last point is pricing the issue with getting this gear contracted of course, right I mean, everybody naturally wants more for less or customers.
We're no different.
And the problem is this industry is quick to give people more for less on a regular basis and so we are hoping there is discipline going forward on on any capital that's put into equipment.
But certainly regardless of what our competitors are doing or not we will not be investing.
And any more tier 4 technology.
Out a clear pathway to.
And.
Good return for our own shareholders.
Very that's a very efficient equipment for our customers is a big cost reduction from a fuel perspective, it lowers their emissions helping them.
<unk> achieved their ESG targets. So naturally we're not we're not giving that away for the.
And the same price that we would.
10 year old.
2 generations old equipment to work for it so.
But price given the given the large.
A portion of the overall ticket that fracking represents pricing is always an issue.
Maybe I'll just ask 1 more.
Okay, maybe I was reading too much into the outlook commentary, but it kind of sounded like you were close on a on an incremental.
Well you know that.
We trialed the tier 4 engine with multiple customers and.
And it was very well received everybody would like.
I would like more of that equipment.
Because we still only have the 1 pump with tier 4 tier 4 technology, we don't if we're obviously.
Our our.
Our crew number 7 our low emission spread number 1 is and construction but.
It was very well received by everybody. So we're and lots of discussions with lots of customers about getting more of this equipment.
But again, they won't be getting it and less.
On here to pay a little bit more for it.
Understood and couple of housekeeping questions on cost inflation first 1.
Are you starting to stockpile critical components like fluid ends and then on the labor side.
And you've communicated any expectations to your customers about potential pay.
Surpluses to retain and stuff.
Yes, we monitor our parts inventory closely.
And we worked with our suppliers.
Sort of daily to ensure that we're not going to have any supply or parts interruptions.
Increased typically discuss.
The nitty gritty of labor costs with our customers.
Other there.
<unk>.
There are all local and <unk>.
Credibly sophisticated rent they understand that.
Given the sort of the pension labor as we try to scale up this.
We don't see as a whole we're going to have labor issues and that of course is going to mean inflation and somebody has to pay for it.
So those those.
And those conversations I think are fairly obvious.
Okay. That's all from me Thanks, guys I'll turn it over.
And next.
And this comes from Andrew Bradford with Raymond James Please.
Please go ahead.
Well thanks so.
Do you want to just pick up on.
And line of questioning on the tier 4.
Do you have coming out and.
So just to be clear Lake.
Depreciation and it.
Jim.
Tried to original pump with.
And number of different.
Would be customers for the equivalent but.
Like are you perceiving that there is from.
And if theres any.
Do you have any competition.
On on say the net.
The basins and second.
Your.
Or is it still very much.
And try and catch up.
Well, we would expect debt, we're better positioned than most to bring a second low emissions fleet to Canada.
Okay.
Okay. Okay.
And so.
Well, it's a pay per turn and say you know the next customers stepped up and said, yes, I understand that.
To give you some term and pricing.
Some are.
A reasonable return on the incremental capital.
And that all happens tomorrow.
What.
What kind of lead times well be looking at.
Okay.
Well 6 months.
So by the end of <unk>.
Pardon me by mid maybe mid winter then.
Yep.
Yeah, well hypothetically okay.
Alright.
I think and did a good job with all the other questions. So I'll just leave it at that for now thanks.
Thanks, Andrew.
The next question comes from Waqar, Syed with ETB capital markets.
Please go ahead.
And.
Thanks for taking my question.
Brad just broadly you know, we're seeing rig count.
Slightly higher than Q1.
Do you think.
Your revenues.
Could it be higher than Q1, and similarly EBITDA in Q3.
Yes.
Unless.
If activity continues.
And in August and September like it has in July.
And we don't have some crazy.
Inflation that we just don't foresee at this stage.
And I would expect both revenue.
<unk> and <unk>.
EBITDA to be.
At least as high as Q1.
Okay.
And then just another kind of broader question could you maybe talk about industry pumping supply demand currently.
And where do you think.
That ends.
Ends up by the end of the year.
So with 150, or so rigs running between 150, and 160 rigs running and Canada.
That basically consumed all of the Frac gear that's active today.
So out of the $1.2 million horsepower.
Sure I would expect that all of that is effectively 100% utilized there is always little gaps here and there.
And for ourselves our competitors with dark tomorrow, and Thats months significant.
So I think anything thats crude today is active.
And so as this year unfolds.
I do expect that customer programs are going to expand and theyre going to like I said theyre going to be modest and measured.
And it's all going to be very thoughtful spending.
Given that we've got gas prices, where they are and oil prices, where they are I mean the payer.
<unk> the payouts on the or the other half.
And on X on these wells they're huge.
These are this is a great time to be and the oil and gas business. So I.
I expect that that $1.2 million is fully utilized for the remainder of the year and net youre going to start to see equipment get pulled off the fence. If you can staff it.
Cycle that and that's not going to be easy.
Yes.
Well figure it out ourselves and our competitors.
We will figure it out.
But I think it's going to be slow.
Okay.
And was still positive.
Yes.
And another question is debt.
And the service intensity, and Canada continues to increase and longer laterals more sand pumped per well.
And then I'm, assuming when you're doing those things youre, increasing the rate at which you're pumping.
And the fact, we're downhole as well now and.
And all of these things that are happening then.
Well requirements bode well.
Likely to increase as well and so your horsepower per crew is going to go up.
And so even with the same number of crews working and you may start to absorb more horsepower and then you're also maintenance capex, probably goes up as well so.
How are all of those things kind of tracking and I would assume debt.
Well.
True kind of pricing increases need to be more meaningful just because of that service intensity that's going up.
No you're absolutely right.
And I mean, everything you said is true and so today's.
Horst price levels don't work.
Okay.
Thanks, Jeff I appreciate the color.
Thanks.
The next question comes from Paul <unk> with banks loans.
Please go ahead.
Hey, good morning, everyone.
So.
As we think about the possibility that additional reactivation and might be needed in 2022. So it sounds like ideally if you can contract a return you would like to add a tier 4.
But maybe in the event that that doesn't occur would you consider bringing back.
Conventional or a biofuel spread into the market.
Yes.
But just given given the focus on emissions.
And operating efficiencies.
And by ourselves and our customers.
And just the requirements for the oil and gas industry as a whole.
And to work towards lower emissions and.
Greener overall industry.
Our strong preference would be anytime we reactivate equipment debt its reactivated with a tier 4.
Natural gas engine.
Okay.
I guess the other the other.
Other thing too would be.
We talk only about the pump, but theres a lot of other equipment on location and so we have started to convert some of the support equipment I guess.
Didn't call, a blenders and support equipment, but we have started to convert some of the non.
Equipment too.
2 to being electric.
And I think Thats, a better overall solution for Canada as a combination of natural gas fired.
Pumps combined with maybe some of the support equipment running off of electricity and that way.
Pump you can get enough electricity on to these pads to run that equipment in order to run all of the pumping equipment to convert it to being full electric is.
A challenge, we don't foresee the industry overcoming anytime soon.
So I guess back to your original question on.
Our focus is on <unk>.
Missions equipment, whether it's tier 4 engines on the frac pump or electrifying our are other support equipment.
Okay, Great that's helpful. Thanks.
And maybe going back to labor shortages can you just maybe give some additional color on exactly what some other drivers are I mean.
And is it people, leaving the energy industry is it different training requirements and regulations or what.
Yes, all of the above I mean, we.
It's only 10 months ago, we laid off 450 people.
Right and so those 4.
<unk> hundred 50 people went and found something else to do.
And they are tired of the volatility of this industry and the past 5 years to 7 years and.
So it has a lot to get them to come back.
We've lost their trust.
They have to make a living.
So.
We have to ask very nicely for them to come back.
And eventually they're going to start making demands on us.
From a compensation.
<unk> perspective that.
We will probably have to fulfill as an industry.
It's all of the above they've left the industry, there theyre going to the best opportune.
Yes.
And we're extremely fortunate that we're busy and we've got a very good sort.
Sort of steady customer base and so.
And if youre looking for a job and the pressure pumping industry. We are there natural first call.
Because of course, they're going to make a living and and a steady.
<unk> and Theyre going to have some predictability and.
And there are monthly earnings so we're in a great position to to get those workers that want to come back into the oil and gas industry, but.
A lot of them have left the industry as a whole.
Okay, Yeah I know.
Living and that's helpful. Thanks.
And I'm, just wondering as well as we think about Q3 relative to Q1.
Can you I believe and Q1, there were maybe some small gaps and your schedule can you just kind of comment on whether you see that at all on Q3 or if you're fairly are fully booked.
No that's the board's blocked but.
Theres always rain and stuff that you know, there's always a GAAP somewhere.
Not nothing significant there and.
Anything that we can prevent in most cases.
And does it.
And have that you're supposed to be on next week gets rained on.
On for 3 days, I mean, theres, just going to be delays.
Okay.
Yeah, that's a that's fair okay, great. That's all from me I'll turn it back thanks.
Okay.
The next question comes from Keith Mackey with RBC.
Please go ahead.
Hi, Thanks for taking my questions I just wanted to just start by following up on the question about your Q3 revenue EBITDA and forecast.
Assuming that that amount and you kind of talk about Q.
Q3 beat in Q1 or on matching it that that is inclusive of any cues proceeds and can do that.
The number that you might expect for Q3 debt that you might receive.
We're not.
Really budget and Qs anymore, and I think it well.
Taking a quite a conservative approach that program is winding down.
And so our assumptions on queues are greatly reduced.
For the second half compared to the first half.
That's probably about all the detail I can give you.
Got it okay I appreciate that and just just to follow up on your on your outlook commentary and marine.
You mentioned customers recognize the tightening market has that translated.
And how has that manifested into into demand.
Mentioned that you've got some visibility into Q3, and then not not a ton and beyond that but have there been rfps coming earlier or are you expecting some.
And startup of any sort of LNG related work coming that might.
That might increase your confidence there or just curious as to where that you know.
Where that comment.
It comes from.
So well.
We have really good visibility for Q3.
At this point and the quarter you I mean, you need to be scheduling.
The last day of September.
And we have some visibility into Q4, but of course as the months and should get out there and the months, it's less and less sort of exact date certainty. It's more just general Hey, we expect too.
To do this many wells and this particular month et cetera, some customers.
Our extremely detailed and their scheduling and they go out way beyond Q4, even but as a whole the longer out you look further out you look less certain you're scheduling gaps. So theres nothing unusual going from an RFP perspective or from and LNG perspective, It's I think it's sort of normal.
<unk> visibility for this time of year.
Would say the industry as a whole does feel like it's getting it has gotten considerably better and its long term planning.
And then sort of a few short years, even sort of 3 to 5 years ago.
And I took a sort of a 3 year hiatus from the industry and.
And the longer term planning is much better now than it was then.
So that's that's a great help from a.
And from it like things like a sand supply perspective, and and our people perspective.
It allows us to do.
A better job planning and that.
Planning and logistics.
Coordination, usually results and better profitability so.
There's nothing unusual happening theres no scramble for Rfps to before prices go operating like that it's.
On the industry's healing itself.
This time last year, there was 2030 rigs running or something.
Thanks.
It's just.
Slowly, but surely warming up.
Yeah.
Got it thanks for the thanks for the comments there I appreciate it that's it from me.
The next question comes from Tim Monticello with ATB.
Capital markets fees.
Please go ahead.
Hey, good morning, guys I just wanted to follow up on some of the labor questions. I'm curious as we look into Q1, 2020.2 and seasonal.
Seasonality would suggest that that should be higher than the second half of this year.
On.
How much do you think your activity.
And increased before labor tightness becomes a real issue and you're and you're looking at sort of hiring completely green crews.
And what's the lead time per training and certifying and crude today.
So we're at that point.
There can be no.
Further increase.
Greece's and activity without.
Additional labor and we've been hiring now for the last 2 months.
And you never have a green crew.
People new to the industry gets sprinkled around with.
And with experienced people from entering purposes.
And training mentoring and training.
And purposes.
So everybody.
We're no different than anybody else with with respect to that the training it comes in stages.
But you at least sort of a month delay and getting a new person into this industry and before there and the field.
And then there is ongoing training that they have to come back into the shop for the training centers for.
But generally.
And the hiring process is probably the longest delay.
And we're starting to hire now for what we expect to need and Q4, just given that it's <unk>.
Given the shortage of.
The lack of interest and are and our sector and the inability to travel around the country as easily as we've had in the past once.
As these COVID-19 restrictions continue to lift you know them well get people from eastern Canada coming back into the industry, which will help alleviate some of our issues but.
Right now everybody is fairly cautious with respect to traveling back and forth.
Got it and well.
There's a growing chorus of those.
Service companies talking about labor tightness and I'm sure that your clients are hearing as well are you starting to get inbounds for clients that want to lock.
Clinton and for their their 2020.2 programs already.
Yes.
And we were fortunate that we have sort of a long term customer base.
So we're always and discussions about you know sort of 6 and 12 months out regardless of what time of year, you're you're you're in.
And so yeah, I mean, we are core customers certainly.
We're trying to plan for the first half of 2022 and.
And to the extent that they can pass on what their plans are they they will share that but.
As you know.
But just need to be approved by.
Directors et cetera, before information can be shared but.
And we certainly understand the trend is that they're all of our core customers are getting busier.
Okay, and then just the last 1 from me as.
And you talked about I guess, the marginal cost of adding labor and what.
The warrants or questions.
<unk> from potential new employees in terms of wage increases and potential perks up can you speak to that at all because I think thats a good guideline for where pricing could go.
Well, it's hard to predict but I mean, certainly.
And a 5% increase and the overall.
Surfaced.
Of labor, whether it's direct day rates or benefits associated with.
With the with the AR and the.
The employees.
We're kind of assuming its at least 5%.
Okay. That's helpful. Thanks, a lot I appreciate it.
Cost and this concludes the question and answer session I would now.
Like to turn the conference back over to Mr. Fedora for any closing remarks.
Thanks, everyone and the management team of <unk> will be available throughout the day to take any further questions.
I think our phone number is posted on the press release and so if you have any further.
Please call us directly thanks again for your interest.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Other question.
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Yeah.
Yeah.
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