Q3 2021 Precision Drilling Corp Earnings Call
Thank you for standing by your precision drilling Corporation 2021 third quarter results conference will begin momentarily.
Please standby and thank you for your patience.
[music].
Good day, and thank you for standing by.
Welcome to the precision drilling.
<unk> Corporation 2021 third quarter results conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press Star then the number one on your telephone.
Please be advised that today's conference is being recorded.
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I would now like to hand, the conference over to Carey Ford Senior Vice President Chief Financial Officer. Please go ahead.
Thank you Amanda and good afternoon, welcome to precision Drilling's third quarter earnings conference call and webcast.
Participating with me today is Kevin <unk>.
President and Chief Executive Officer.
Precision reported third quarter results through a press release earlier. This morning. Please note. These financial results are in Canadian dollars unless otherwise indicated.
So please note some of our comments today will refer to non <unk> financial measures and will include forward looking statements regarding precision future results and prospects.
Which are subject to a number of risks and uncertainties.
Please see our news release and other regulatory filings for more information on financial measures forward looking statements and risk factors.
Prior to Kevin, providing an operational outlook and update and review our third quarter financial results.
Precision third quarter.
The results were characterized by increasing north American activity improved spot market pricing and largely temporary increases in U S operating costs to have a stronger Q4.
In Q1 activity outlook.
Our second quarter, adjusted EBITDA of $45 million.
Included in the share based compensation expense accrual of 14 million.
Absent this accrual adjusted EBITDA would have been $59 million.
The share based compensation accrual resulted from continued strong performance of precision chairs and our cash settled accounting treatment, where each quarter, we accrue and expense or benefit based on market to play in the market and accounting for planned vesting.
In the quarter.
As noted on our 2021 conference calls.
The cash treatment and share price volatility may present higher volatility in financial results.
Please keep in mind that we have the ability to pay a portion of these awards in either cash or equity upon vesting.
During the quarter, we received $6 million of Qs assistance payments and we believe the accused program is largely complete for precision with the 2021 impact of approximately $24 million.
Moving to the U S.
Drilling activity for precision averaged 41 rigs in Q3, an increase of two rigs.
<unk> from Q2.
Daily operating margins in the quarter were 5211 U S dollars a decrease of one.
541 U S dollars from Q2.
Absent impacts from IPC and turnkey daily.
Daily operating margins would have been 1295 U S dollars lower in.
Q2.
Although we were able to achieve price increases of close to 700 U S dollars, we experienced a higher who experience higher costs during the quarter, resulting from higher repair and maintenance expense and rig mobilization costs that will be recouped in a rig contract.
During the quarter, we prepared for rigs for activation.
<unk> and on average they had been idled for 20 months.
Our U S operating costs for the quarter were higher than expected, but we believe the majority of the cost increase is temporary and the actions taken in Q3 are building a larger revenue base for the next two quarters.
For Q4, we expect normalized margins to be.
1500 U S dollars to 2000 U S dollars higher than Q3.
Moving to Canada drilling activity for precision averaged 51 rigs an increase of 33 rigs from Q3 2020.
And representing nearly tripling of the rig count.
Daily operating margins in the quarter were $6238 a decrease of $2268 from Q3 2020, primarily due to rig mix as we had a much higher percentage of shallower rigs working this year.
Absent the <unk> impact margins would've been $5303 or <unk>.
$967 lower than Q3 last year.
And slightly higher than Q2, 2021, which is consistent with the guidance provided last quarter.
For Q4, we expect margins margins absent of Qs and onetime recoveries to be up $500 per day higher compared to.
Q4 last year and.
In 1500 to $2000 a day higher than Q3 this year.
For reference.
Daily operating margins in Q4, 2020, absent cues and onetime recoveries were $6895.
Moving on to international.
<unk>.
Drilling activity for precision in the current quarter averaged six rigs.
National average day rates were 52277 U S dollars down 2000, and 610 U S dollars from the prior year, primarily due to revenue generated during rig moves.
And our CMP segment adjusted EBITDA.
This quarter was $5 $4 million.
Up approximately $1 $5 million compared to the prior year quarter adjust.
Adjusted EBITDA was positively impacted by a 107% increase in well service hours.
Well abandonment work represented approximately 15% of our operating hours in the quarter as customers.
Appear to be focusing more on producing wells.
And plug and abandonment work.
Capital expenditures for the quarter were $20 million and our full year 2021 guidance has increased to $74 million.
The increase in planned capital spending is largely due to advanced drill pipe orders.
Secured at the beginning of the quarter, where we acted on an opportunity to purchase high torque drill pipe from vendor inventory at a significant discount.
Mitigating steel price increases and assuring ensuring availability and a rapidly tightening tightening market.
Our 2021 capital plan is comprised of $51 million for sustaining.
In infrastructure and $23 million for upgrade and expansion, which relates to anticipated investments. According to our alpha technologies as well as contracted customer upgrades.
As of October 20th we had an average of 35 contracts in hand for the third quarter and an average of 35 contracts for the full year 2021.
As of September 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 was approximately six times and our average cost of debt is six 3%.
Staining we.
We remain in compliance with all of our credit facility covenants in the second quarter and the third quarter with an EBITDA to interest coverage ratio of approximately two times.
During the quarter, we reduced total debt by $8 million and year to date that production is $60 million and.
And we expect to make that.
Payments during the fourth quarter to achieve our debt reduction goal of $100 million to $125 million for the year.
Our capital allocation program remains substantially weighted to debt reduction and we remain on track to meet or exceed our long term debt reduction target of $800 million between.
2018 in 2022, where we have already reduced.
Debt by $610 million since the beginning of 2018.
We expect to continue generating free cash flow through operations in the fourth quarter and with higher activity improved pricing and only $3 million of cash and cash interest due in the quarter. The business is well positioned to support further deleveraging.
For.
For 2021, our guidance for depreciation and G&A before share based compensation remains $280 million and $55 million respectively.
Of note our strict focus on cost control as represented by our consistent G&A expense guidance throughout the year, despite realized activity far exceeding our expectations at the beginning of 2020.
'twenty one.
Our run rate cash interest expense is less than $80 million and we expect it to move lower into next year as debt Paydown continues.
We expect cash taxes to remain low and our effective tax rate to be below 10%.
One final note on operating leverage.
Those.
For the land drilling space through cycles understand the operating leverage and torque inherent in the business.
A several year surpassed since.
Since we have experienced a market where both margins and activity were growing I would like to highlight an illustration using today's activity.
And our lean and scalable fixed cost structure.
With 112 rigs running globally today, a $1000 per rig increase in daily operating margin across the fleet should result in approximately $40 million of increased EBITDA on an annualized basis.
With activity expected to increase and continued pricing momentum, we look to demonstrate precision operational leverage.
Through our financial results over the next several quarters.
With that I will now turn the call over to Kevin.
Thank you Gary and good afternoon.
Well. This is the first time in over a decade, where a strong resilient commodity backdrop lines up with the annual E&P budgeting cycle unusual territory. Indeed.
Virtually all of them in fact, I believe all the key leading indicators. We monitor are trending favorably as we develop precision is outlook for 2000 22022 and beyond.
Following the significant drilling activity reduction during the pandemic.
Energy demand firmly rebounding, we are very encouraged by the strong spot and futures strip oil.
And gas commodity prices underlying these key industry fundamentals as the supply discipline demonstrated by OPEC, plus and the capital discipline with a publicly traded oil and gas producers.
Looking at our core U S and Canadian markets, the cash generating capabilities of the oil and gas producers will continue to be strong much stronger than it was expected.
Even just a few months ago much.
Much of the balance sheet repair work the industry needed and the investors saw has been completed.
Or will shortly be complete we believe the mantra of capital discipline and sustainable shareholder returns will continue to be the key strategic focus of our customers, who we expect this will lead to a healthy healthier and more balanced.
Result for industry over the longer term.
On the near term the twin building the dwindling inventory of uncompleted wells in the U S is a key indicator we watch closely undoubtedly the operators will need to shift focus and direct spending back to the drill bit just to sustain current production levels, let alone provide for any increase in demand.
No.
While many have written off the shelves as a swing producer when you look at the shale industry structure for logistics capability infrastructure perspective, it's functionally structured to be one of the fastest responding sources of incremental oil and gas production.
Every aspect of the domestic shale industry has been structured around the rapid return of capital. The industry features include.
It is efficient decision, making short cycle drilling and completion techniques industrialize scale to lower costs and now digital analytics optimization.
We believe that by following a disciplined approach to capital deployment and coupling our capital efficient well managed growth profile. The shales may still play an important role as a swing producer.
Now, it's becoming clearer now over the past few months that while the global energy transition is underway the path will not be a straight line to net zero and that the stable and reliable energy available from hydrocarbons will remain a critical element in the global energy supply chain for some time to come.
Importantly, our industry is.
Urgently responding to energy transition and while it may be difficult to satisfy the most extreme views virtually every producer and most service firms are addressing emissions reductions and lower environmental impacts expanding community engagement, while continuing to drive efficiency safety and financial performance.
At precision we highlighted our ESG.
Positioning by setting it is a strategic priority at beginning of the year.
This led to the creation of two <unk>.
Business teams.
Which we internally branded as the team focused on environmental initiatives and the S team focused on employee and stakeholder engagement.
And early results of these of this initiative was the third quarter launch.
<unk> of the precision evergreen brand of environmental solutions designed to enhance the performance of our drilling operations, while reducing the environmental and emissions impact for our customers.
Two of our Evergreen service offerings are off to a quick start as our customers seek out ways to reduce <unk> emissions.
We deployed our first evergreen hybrid power system during the.
Third quarter.
This system will reduce emissions by dynamically substituting natural gas for diesel and utilizing a battery energy storage system.
Requires fewer internal combustion engines than a traditional system and a lower emissions and fuel costs for our customer while reducing maintenance cost for precision.
We have custom orders and interest for several more of these evergreen.
Grid power system is planned for deployment in 2022.
Also during the third quarter, we introduced the precision evergreen combustion fuel monitoring system. This system provides high frequency and accurate real time combustion fuel monitoring and utilizing and utilizes alpha analytics to determine the precise emissions information.
Green Hypothenar accurate emission profiles monetary during all aspects of the drilling operation and then utilizing <unk> automation.
We can optimize the power demands and engine loading and make other recommendations to reduce recognitions.
The introduction of this system has been a huge success with customer demand widely outstripping supply even before our first field deployment.
Currently we have five of these systems in our backlog with three to be deployed before the end of this year.
We see the potential to install these systems on every rig in our fleet as our customers strive to measure manage report and reduced their GHT emissions.
It's very exciting to see our customers acting on the GHT emission file and are thrilled that precision is a key part of our strategy.
Our Alpha digital technologies continued to penetrate the market with sequential utilization growth with revenue and the associated margins continuing to grow. We now have 46 rigs equipped with <unk> automation in the field and 60% of our North American drilling days on those rigs include Alpha automation.
<unk> apps are fully commercial we've increased.
<unk> activity by 38% sequentially.
Also we continue to add new alpha customers during the quarter supporting our thesis that Alpha digital technologies are key driver of precision is market share growth opportunity.
So it's important to discern that we're not describing a digital aspiration for a future promise. This is today, we're generating significant.
<unk> customer savings with our Alpha digital services, and we're capturing a fair and reasonable portion of that value.
I'd point, you to our Alpha web pages.
Where we post case studies and we demonstrate that our Ala Carte pricing model for Alpha technologies retains 40 plus percent of the total well cost savings we create for our customers.
We view this as a sustainable and enduring value.
Proposition for both our customers and precision drilling.
Turning now to the domestic U S market.
Our activity trend has slightly delayed to our prior guidance and there are a couple of factors that constrained rig adds over the past few weeks.
You will know that from mid July to late August the Delta variant surge and the resulting economic risk drove <unk> down below <unk>.
$60 for a few days this volatility uncertainty delayed customer decisions delayed planned rig deployments that accounted for a couple of rig activations postponed until later this year.
But the second factor, which is probably more important is related to our strong focus on price discipline and day rate increases, which we demonstrated during the third quarter by walking away from several.
Rig opportunity opportunities, where pricing pressure driven by the E&P procurement teams was below our desired thresholds.
We know that in the short term this will cost us some market share.
We believe this the super spec market continues to tighten and activity ramps up into 2022 will be well positioned to take more favorable prices. So I reiterate.
Right, what we stated on our second quarter call that our goal is to March our rates back to positive EPS territory, and we remain committed to that strategy.
Despite those headwinds we are achieving pricing traction we can see it in our renewal book, we are active in hot rigs that re contracting now in the low $20000 range and moving upwards. We can see this on rig activation.
<unk> of the pricing is now moving into the $20000 range and when you can see it in our reported day rates now up $700 sequentially.
Now, while our evergreen solutions and other digital technologies with the Elkhart price premiums, maybe a tougher sell to an E&P procurement executive who is typically focused on the headline all in rig rate.
We are highly successful selling these solutions to most of our customers who have a strategic view on emissions reduction and total wellbore <unk> cost.
Now Carey mentioned certain items dragging our costs related to reactivating rigs are mobilizing rigs.
We view these costs as transitory and expected the bottom for both day rates and margins as well in the rearview mirror.
Today, we are operating 45 rigs, but more interestingly is our bid book, which is a multi year high with over 200 active bids that were tracking now that does not mean that we expect 200 industry rig adds but it's a strong leading indicator of heightened customer interest. There is no question. The U S rig counts are going up into 2022.
Turning to Canada.
Currently we're operating 61 rigs in our Q3 average with surprisingly, 21% higher than Q1, which is typically our busiest time in Canada.
Our Canadian and outlook is further strengthening with the key commodities eco gas WCS oil and the Ngls NGL continent condensate prices offering during the critical budget.
Season for our customers.
We expect Q1 activity for the industry could exceed 2018 levels.
Suggesting peak industry demand in the 200 to 250 to 300 rig range.
Probably be surprised to see even higher demand if operators Frontload 2021 spending during the winter season.
With our strong positions in the Montney in heavy oil along with broad industry demand and the consolidated Canadian drilling market. We are bullish on the near term and mid term outlook for both utilization and day rates.
The pricing discipline I mentioned, our U S business is also a focus in Canada, we will continue driving our day rates to achieve positive EPS, we believe the market structure.
<unk> will support this strategy.
Now turning to our international business activity remained steady with the process of renewing two of our three Saudi Arabia rig contracts for additional two to three years and expect these rigs remain stable for the next several years.
<unk> is in the process of reactivating idle, but contracted rigs and we expect new tenders.
To be developed once those rigs being reactivated in early 2022.
In Kuwait, we have also extended contracts for two of our operating risks and this indicates that our customer is now beginning to forward plan.
The pending multi rig tender we've been talking about is expected to be released later this month.
As we understand our customers delayed the tender waiting on the government to reopen.
Visa process now remember that virtually all field crews in Kuwait, our foreign expatriate workers and the work visas are not in the control of the National oil company.
Earlier this week the visa process was reopened and this should clear the way for the rig tender to proceed.
Outside the Nrc's in Kuwait, and Saudi Arabia, we're currently addressing customer inquiries.
At the highest level in several years, clearly, we see activity trending upwards internationally.
Our well servicing group remains very busy with 40 rigs running today in Canada and five in North Dakota.
Accruing service rigs as an acute industry challenge that our team has managed exceedingly well and we continue to meet our customers' needs.
We believe crewing.
<unk> will remain an important competitive advantage for precision in well servicing and will also drive forward further upward pricing tension in the well service sector are focused on driving our rates back to positive EPS is also a key objective for this business.
Regarding our strategic priority for cash flow leverage and debt reduction I believe Carey.
Cover those topics well and as he explained we remain on track I'll reinforce.
That when we make these multi year commitments focused on creating shareholder value. We support those commitments by building the internal systems and aligning our people to deliver on those commitments on that note I want to conclude by thanking the employees of precision all of you out in the field operating our rigs all of you of our support.
Port facilities, and our corporate team for all doing their part to deliver our strategic priorities and making precision successful thrust in an intensely challenging period. Thank you.
Now I'll turn the call back to the operator for questions.
As a reminder to ask a question you will need to press Star then the number one on your telephone.
You may draw your question press the pound key.
The first question comes from the line of Ian Macpherson with Piper Sandler Your line is now open.
Hi, Ian.
We were.
We're seeing a lot of.
Toes in this cost environment.
Brushing to hear that it feels it looks from your results and be able to give a good handle on containing the.
The cost inflation throughout your.
Your labor and elsewhere, but.
Where do you think the.
The differentiation that you spoke to.
<unk> on your part for sourcing quality labor.
Can you speak to that in what other ways, maybe your business of your company are unique and insulating you from these these pressures that we're seeing elsewhere throughout the industry.
Yes, well, so those kind of pressures in two areas, obviously labor costs, but generally our contracts both in the U S and Canada and internationally have provisions to pass those through to our customers.
So we're a little bit less concerned about labor cost inflation, but I want to come back to the recruiting question in just a moment.
On the material cost inflation most of what we experienced in the third quarter was related to kind of start up costs and some re mobilization costs.
We're continuing to work with our partners on on supply chain, and we think we're able to mitigate.
Customer inflation on the near term and we expected over the longer term our price increases will outstrip the effects of inflation, but you did see us increase capital spending during the quarter to pick up an opportunity to buy some drill pipe.
There was an inventory at a very good price and kind of get out ahead of the steel price increases are imminent.
Now back on the recruiting front.
It's a challenge to every market, we face a challenge in the U S and Canada, particularly at our well servicing group in fact, I just got a couple of days off with our recruiting team and this SKU last week and we're working on some systems there to really amp up our recruiting efforts that concludes.
Everything from referral bonuses to kind of a centering our recruiting team tied to activity levels.
For the industry. The precision brand has a very strong attractor for employees, our training systems attract employees, but I think it's our systematic approach to generating.
Applications reading through the applications to find the right types of candidates and in training those candidates and getting them out to our rigs with a good training program that helps us.
As for the challenge.
Hopefully that answers your question Ian.
Yes, no that's great. That's great. Thanks, Kevin you also talked about.
Turning down more work recently in order to to help help.
Help your sales team push push rates, where you need them to get.
Where are.
With regard to that and is it becoming are you how many more rigs do you think in the U S.
The market needs to absorb before.
Yes.
There's really no more turning down rates its more.
Liberated pricing power on your part.
Or are we sort of cherry.
Cherry picking your battles.
We are right in the Middle I commented on a couple of hundred.
Active in the U S and our head count in Canada is probably over 100 rigs right. Now also had a different requires we're bidding on so I really don't get into too much narrative.
Either ups and our customers or our sales.
As oppose discussions.
What I would tell you is that our willingness to.
To walk away at work right. Now tells you that we think that.
There are better opportunities to price into <unk>.
Mentally.
Got it.
I'll pass it over for now and look forward to catching up Morrison. Thanks.
Thank you.
Your next question comes from Aaron Macneil with TD Securities Your.
Your line is now open.
Yes.
Yeah.
Hi, Erin.
I think I'll piggyback on <unk> question, Gary I think you did a good job of covering the cost pressures in the U S. But.
But I guess Im wondering from your prepared remarks was there also labor cost inflation in Q3 unit.
How much of that call. It $700, a day was saying gross pricing increase versus being out of labor.
And.
Implied in your 500 to 2000 sequentially increase in.
In Q4, how much of that would be gross pricing versus lower costs or.
Anything else that you might be able to parse out I can give you a few pieces of information to.
To kind of help me on your calculations, so I'd say that we averaged 41 rigs in the quarter.
Margins, if we're going to activate four rigs at some pretty pretty.
Pretty chunky.
<unk> for each one of those rigs not not a whole lot of rigs to spread them out over and then having a rig move and you are probably talking.
Two maybe $3 million for for those cost spread over 40 rigs. So we don't expect to have similar cost Nick.
<unk> in the fourth quarter.
And there may be may have been a little bit of higher R&M costs and.
<unk>.
Overhead burden on the rig activity, we had this year or this quarter, but as we got a next quarter.
Expect that to be spread.
Cross more activity in Q4.
Four and again not have those lumpy costs, we didn't have any meaningful wage increases in the U S market, where industry wage increases in the Canadian market during the quarter.
So I think.
Those are some.
Those data points on the cost side for you to consider and I can't break out how much of the.
<unk>.
Day rate increase was a gross or net for you.
I'm really just I'm less interested in the <unk>.
Onetime costs, just trying to parse out your implied pricing guidance for Q4, and it would obviously be.
Yes.
Yes, you can you can.
Takeaway that we are planning to have day rate increases in Q4, and we expect the daily operating cost to go down in Q4, which is why the margin jump expectation is so large.
Got it okay.
Hi, Kevin.
Sequential app growth seem to be out of step with.
The growth in automation and analytics I think it's a function of new apps that are getting spread across the fleet, but can you maybe give us a bit more on that in.
It is our new App can you share specifically, what you rolled out this quarter that had good uptick.
Really.
Kind of a kind of three components.
One is to drive that up.
Pick up.
I'll tell you that we're having really good success with our managed pressure drilling up.
One important piece and but we're also seeing though are that.
More and more rigs are using multiple apps not just went up as our operators get more comfortable with the value that apps create and then there is word of mouth transfer from rigs.
Rick so good.
<unk>.
New customers sort of adoption of apps.
<unk>, adding more absolutely up we're comfortable in the App that.
One assets out there that seems pretty good right now is managed pressure drilling.
Understood.
Last question from me, you mentioned Covid impact on the commodity but.
You see that impact on day to day operations in your fleet in either Canada or the U S. In the third quarter.
Are you open the door, so I'm going to jump in if that's okay.
Sure.
We actually did see kind of a surge of.
A surge of infections kind of what's the delta.
<unk> in August.
And it was so so sharply so quick that we implemented a.
Policy on September the first that was a mandatory vaccine or provision of negative test and we were expecting.
Some pushback in the field there was there was some noise, but with a product with them.
The procedures went live in mid September.
Out of almost 4000 employees I think the number of employees. It didn't comply is less than four.
Four people out of 4000, everybody else for compliance with either full vaccine or providing negative tests and since the implementation of that.
With that requirement, we haven't had a rig out.
<unk> impacted by COVID-19, I'm really pleased with the response of our people and the effectiveness of the program wish everybody would do it.
Gotcha, Alright, that's all for me and I'll turn it over thanks.
Thank you Sir.
Our next question comes from Taylor Zurcher.
With Tudor Pickering Holt.
Your line is now open.
Hey, Taylor.
Kevin and Kerry Thanks for taking my question I've got a bit of a high level. One that starts in for 2021, a strategic three primary strategic priorities have been digital leadership balance sheet deleveraging and delivering.
Carey.
The ESG performance all of which you use.
<unk> made pretty good progress on it.
Through the year and I guess my question is now upfront around in 2022.
Curious if you could give us a sneak peak sneak previews.
Any sort of buckets.
Might change on the.
Strategic direction for 2012.
Two I would rather see them.
A much different commodity price environment as well as in much different activity environment seems like improving pricing is going to be right. There at the top in terms of our strategic priorities, but.
Where we sit today just curious if there are any sort of items that stick out to you that there might be different in terms of strategic priorities for 2022.
Good question.
We'll release those in February with our Q4 conference call, but I would tell you.
ESG is not going away anytime soon it's going to be up there on the top priority for quite a while.
Leveraging our scale and delivering strong shareholder returns will be up there.
<unk>.
I think.
We may get to the point, where the technology digital initiatives become come in.
Of course business for us, but I'm not sure we're there quite yet but.
But I think it's a fair question.
Just a reinforced I'm sure ESG will be there are extra financial performance will be there.
Okay fair enough and again for 2022.
<unk>.
If you think about pricing you've got a number of different rig classes in Canada, and then a more of a.
Uniform rig class at the high end of the market in the U S.
Just curious as we think about the next 12 months is there one bucket, where whether it's just U S versus Canada, where where you see the best chance of improving pricing clearly pricing.
Higher across both markets.
Particularly in Canada and at the high end of that Super Triple market feels like it's fully filled out today. So you probably have a great chance of pushing pricing there, but I'm. Just curious if you could maybe rank for us where you're seeing the strongest tightness today and best chance and significant pricing momentum as we get into 2022.
Taylor unless something changes from the macro that we kind of described at the beginning of my prepared comments, it's probably a rising tide across all classes.
Okay.
And right now that's what we're seeing so far and that's what this macro is kind of laying out there for us.
Okay, and then last question.
Can be tricky.
On Capex.
'twenty one budget has come off a piece of that is maintenance some of it's just opportunistic spending.
And again for 2022.
You can kind of build out the.
Our capex forecast and starting with maintenance you probably have some growth for for alpha and maybe some.
For me for evergreen any other sort of opportunistic or growth oriented bucket.
Whether it's in the back half of 2022 for Q4.
Q4, 2021 or full year 2022, any sort of growth area. That's very intriguing intriguing to you today from a capital allocation perspective.
Some growth from.
From a north America expected perspective, it's going to be maintenance capital, which will be linear with activity and then these contracted upgrades that we're doing which are.
Be half a million dollars to $2 million per rig to increased pump capacity or adding up to the rig so don't expect real.
Real Big dollar amount per rig in North America.
And internationally.
Likely to be the same thing if we're reactivating rigs internationally.
We're not talking about a $60 million U S newbuild and it'll probably be.
Anywhere from.
$3 million to $6 million to reactivate a rig.
In the international market that might be a little bit chunkier, but I would say that.
The Capex plan, given our activity increase.
Increases activity expectations would be.
Similar to the plan this year with <unk>.
Probably.
Probably an increase in dollar amount.
We are in the increase in activity.
Understood makes sense. Thanks for all the answers guys.
Thank you.
Yes.
Our next question comes from Mccarthy from 80, a T P capital markets.
Your line is now open.
Mt Global car.
So the first one Congress rejecting.
A job rather than taking a low rate.
I hope all other management teams staked similar kind of steps.
This is certainly needed in the industry and thank you for taking a leadership.
And in that respect.
My question is.
Carey in terms of.
International rig reactivation, you mentioned the costs that we're going to the Capex budget would there be any cost on the opex side as well as you reactivate some rigs.
It would be.
A lot smaller than the Capex side.
It would be like $100 million type opex per rig reactivation and what we're talking about is the.
Three idle rigs.
As we reacted to reactivate those and then potentially moving some rigs from North America for opportunities.
Were they all need some modifications, but it would be.
Well less than $10 million per rig.
Okay.
Secondly.
And Kevin you mentioned that they were at about 200, or so that's out there and in the U S market.
Could you could you give us a split.
Between like privates and Publix amongst those are those bids.
The waiting has shifted.
Kind of back to more traditional.
You know I think we're seeing.
Kind of a majority would be public, but still a large percentage of.
Private equity I don't have the.
Numbers in front of me, but think about it like it's 60 40.
Okay great.
And then you have 45 rigs.
Thanks, Mike.
What of course, you want that number the 200.
Don't take that we don't we're not projecting that as 200 rig adds.
We're in budgeting season price discovery season, there's a lot of moving pieces.
Currently is.
Easily in order of magnitude higher than a year ago.
Interest and inquiries.
Great.
And then.
You're currently running 45 rigs in the U S.
You still expect to exit the year around 50 or has that number changed now given.
But it's true.
Given some of your recent.
Actions.
It seems like every time I projected a rig count going forward I come up a couple of short the last couple of calls sort of a little.
The lyrics, let's say anything about rig count going forward certainly we have really good line of sight and with.
Can be pretty solid opportunities to get rigs deployed by the end of the year.
Through that 50 50 threshold.
And as soon as that we've just reading something might change that.
It looks very promising.
Take care of it.
Bin bin crack the previous couple of quarters.
That's okay. It's okay.
So then just final question on the well abandonment program.
When do you expect that to be exhausted and when you're servicing.
Servicing revenues me.
In the Canadian market.
Yeah.
Really good question Waqar.
So first of all the well servicing program, it's actually scheduled to enter funding at the end of next year, but the only have used up a fraction of the available funds because it's been quite slow.
I wouldn't say for your product, but it's kind of complicated and how they've been distributing the funds the Alberta, BC and Saskatchewan.
I think there is a.
<unk>.
Going to be a good push to extend it so it could be extended but.
There's been no indication yet I think that will be mid.
Mid to late 2022 government decision if it goes that way.
So I think we commented that 15% of our activity has been tied to that work.
There is enough.
I would say traditional.
Demand.
It could replace that work and not see the work pulled back in.
Went through about.
Five year period from 2014 through 2020, even before the pandemic and before this program.
The first thing we've got a couple of the operating companies that they've moved into discipline was reducing and.
Eliminating well service work and really focusing on the drill bit.
But now in this period of real capital efficiency. It actually makes good sense to work over a lot of wells. So I think theres a lot of core demand both in heavy oil and conventional oil and gas.
Sure.
Core well service work core abandonment work that well.
We will continue with that program finally runs out.
Okay, great and if I, if I may just sneak in one more question.
Kevin mentioned that there may be some rig moves out of the U S into the international markets.
Would those be for Super spec rigs are more traditional SCS.
Briggs.
And would it be to the same kind of markets, where you already have a presence are you looking to enter into new markets as well.
So there will be a bit vague with my answer but I think also answer your question. So we're looking in the Arabian Gulf region, the bordering countries.
Golf, including Kuwait, and Saudi Arabia.
There is a high interest in pad style drilling.
The AC Super Triple rig I think we will have attractiveness, we saw one of our other competitors actually do a deal with.
The Abu Dhabi National drilling company, a couple of months back so I think.
Got all points too.
Kind of a growing opportunity for pad drilling and we also see opportunities right now for some heavy oil drilling with shallower rigs. So it's.
<unk>.
Again, what we see in international markets are that they tend to be a bit slower, but then they reactive industrialized manner to both technology and opportunities in North America and covers.
So I think pad drilling we will grow in the middle East I do think that.
Even the heavy oil drilling will have a future of the middle East.
And there's things that.
Several north American drillers will bring into it.
To play they are certainly precision with our Super singles that are.
Todd Super triples.
Very interesting opportunities both in the places we work in adjacent.
Countries.
Great. Thank you very much.
Great. Thank you.
Our next question comes from Keith Mckey with RBC.
Your line is now open.
Hi, Keith.
So just wanted to start.
In Canada, we've heard anecdotal evidence of.
Labor restrictions keeping same rigs from going back into the field through kind of Q3 timeframe. So just curious what what gives you the confidence and I guess, how confident are you that the industry can.
Can reach that 200.
$50 to 300 rig count level in Q1.
Well you've made notice of my comments were.
Where demand.
Not necessarily activity.
So.
I'd comment that for sure we see we see that level of demand whether or not the industry can actually stefanos.
Rigs I think I think it is a challenge the.
The industry has a good history of staffing rigs and getting rigs fired up.
Generally in every previous rebound that has been this sharp or even sharper. The drillers have been successful staffing rigs, but boy I'll tell you, it's a big challenge right now.
Yeah got it is it challenging in any.
Particular areas.
Singles versus triple as or is it across the board.
Well for sure well servicing which is called style business, where the job isn't as secure as the rig job that would likely be for months on bandwidth.
To find rotation, so I'd say drilling is a bit easier than well servicing.
Certainly.
Through the summer both in every market simply every market. We participate every geographic market. We participate in there seemed to be a reluctance for people to go back to work we saw that improve in September maybe maybe those young member recruiting wanted to take the summer off we're not sure, but certainly recruiting improved in September.
And we really really doubled down our recruiting process.
Starting September so it's actually working well for US now I think that so going back to that original question. If the demand is 300 rigs as a peak and that means precision has to step up $75 80 to 80 590 rigs. So I think that we'll be able to get there.
Got it okay.
That's very helpful.
Just shifting gears to your car.
Comment about <unk>.
Seeking to get day rates. So that you can get back to positive EPS levels and things like that can.
Can you maybe just comment on relative to 2019 levels, what say activity.
Activity levels in general and day rates in general would be.
The required to hit that target.
Yes, I actually don't have those numbers at my fingertips here, but it's going to be I think.
Now to cover our depreciation interest and taxes depreciation <unk> interest.
Call It 80.
Tax rate would be relatively low but.
We need to get to an EBITDA level, that's getting close to $400 million, which is where we were in 2018 in 2019.
And we think that the mix of activity could be a little bit lower than it was then.
Number one we've got a lower fixed cost.
Base than we did back in 2018 in 2019 and number two we have a.
Rapidly growing but maturing technology business that we did not have in 2018 and thats.
That's helping drive pricing and EBITDA.
Perfect I appreciate the answers.
It very much.
Got it.
Yeah.
Thank you and as a reminder, if you have a question. Please press Star then the number one on your telephone keypad.
Our next question comes from Josef Schachter from Sacha energy.
Please go ahead.
This is Kevin and Carey.
I think my question.
With your discussions with customers are you finding.
They are wanting to.
Walking.
They're comfortable with cruise they're comfortable with.
The technologies they are using longer then.
And to the end of 2022 pushing into 'twenty three.
Okay and is there a difference in the customer discussions between Canada and the states on longevity of contracts.
Given the desire to have there.
The rigs and the crews.
They've worked with regularly for awhile.
Joseph and good question.
And it's a bit complicated, but I would.
Three.
The human behavior in both markets is relatively similar corporate behaviors relatively similar and so what answer kind of applies to both markets.
I would tell you that for most operators. They will have some base level of activity that they are highly certainly going to be running even though their budgets havent been approved.
So for those.
Tell you, yes, absolutely, we're seeing customers trying to lock in rigs and crews for full year 2022.
And sometimes even a little bit beyond that.
Certainly theyre trying to capture.
You know call. It 2020 rates, if they can or even early 2021 rates are locked them in for a longer period of time, so a little opportunistic.
Rig front.
But then also there is a larger component of rigs probably haven't been approved yet but are in there and their sites in budget, and thats, where theyre being either running those rigs on a well to well basis right now or on shorter term contracts. So it's a bit of a mix.
But I would say that.
The behavior, we've seen so far has been a bit more opportunistic.
They are a little less strategic if that.
It makes sense to you.
Okay.
And do you see much contracting pushing into 'twenty three yet anything material in terms of the.
The book of business.
We're not anxious to to project.
Mr rates that far out so we're not we're not digging those up and pushing for them.
There would be the odd.
City, where a customer comes forward and says we would like to book in for two years, but there is no real trend yet.
No momentum in that direction.
And I wouldn't read that as any certainty or uncertainty in the market right now.
Kurt.
I still think that the.
Market.
As you know firmly up space.
<unk>.
Spending is going to increase to some degree activities going to increase.
The best rigs are contracted I expect that our as our book builds for 2022.
There'll be a mix of.
One year contracts, and probably probably a growing mix of two year contracts the deeper we get into this recovery.
Last question for Kelly.
In the fourth quarter that you just released under your adjusted EBITDA corporate with $15 four of five 5 million expense versus seven eight and then you.
The first nine months it was up by 49% the quarter was up by 99% can you walk me through what happened in the quarter that number was such such a big difference.
So.
The big the.
Big variable on our corporate expenses share based comp.
Compensation accrual.
We're looking for our three year long term share based plans, we mark to market based on the share price at the end of the quarter and then based on the time vesting of each plan participant.
So we had a.
Continue to have really strong share price performance. This year. So the value of the plan is to increase and so we just.
Several during the quarter I would say on an SG&A broadly at the very beginning of the year, we gave guidance that our G&A before share based comp accrual would be $55 million for the year.
And we've tracked that.
Every quarter and Theres still providing that guidance, even though we've had a significant increase in activity.
Throughout the year. So it's really been a big focus of the management team to try to keep the cost structure.
As long as we can as we're going into this recovery.
Okay.
Clarification, thanks, very much guys.
Thank you. Thank you.
Activity. Thank you I'm showing no further questions at this time I'd like to turn the call back over to carry forward for any closing remarks.
Thank you that concludes our conference call I appreciate you joining us today and we look forward to meeting with you all again for our Q4 conference call in February.
This concludes today's conference.
Thank you for participating you may now disconnect.
Cool.
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