Q1 2022 Calfrac Well Services Ltd Earnings Call

May 3, 2022

Operator: Good day and welcome to the Calfrac Well services Ltd first quarter 2022 earnings release and conference call. Today's conference is being recorded.

Operator: At this time I would like to turn the conference over to Mike Olinek, Chief Financial Officer. Please go ahead, sir.

Michael D. Olinek: Thank you. Good morning, and welcome to our discussion of Calfrac Well Services' first quarter of 2022 results. Joining me on the call today are George Armoyan, interim Chief Executive Officer and Lindsay Link, Calfrac's President and Chief Operating Officer.

Joining me on the call today are George our Morgan <unk> interim Chief Executive Officer.

Lindsay link <unk>, President and Chief operating Officer.

Michael D. Olinek: This mornings conference call will be conducted as follows: George will provide some opening commentary. After which I will summarize the financial position and performance of the company. George will then provide an outlook for Calfrac's business and some closing remarks. After the completion of our prepared remarks, we will open the conference call to questions.

George will provide some opening commentary.

After which I will summarize the financial position and performance of the company.

George will then provide an outlook for Cal Frac business and some closing remarks.

After the completion of our prepared remarks.

And the conference call to questions.

Michael D. Olinek: In our news release issued earlier today, Calfrac reported its unaudited third quarter 2022 results. Please note that all financial figures are in Canadian dollars unless otherwise indicated. Some of our comments today will refer to non [inaudible] measures such as adjusted EBITDA and operating earnings. Please see our news release for additional disclosure on these financial measures.

Please note that all financial figures are in Canadian dollars or otherwise indicated.

However, our comments today will refer to non <unk> measures such as adjusted EBITDA and operating earnings.

Please see our news release for additional disclosure on these financial measures.

Michael D. Olinek: Our comments today will also include forward-looking statements regarding Calfrac's future results and prospects. We caution you that these forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause our results to differ materially from our expectations. Please see this morning's news release and Calfrac's SEDAR filings including our 2021 annual report for more information on the forward- looking statements and these risk factors.

We caution you that these forward looking statements are subject to a number of known and unknown risks and uncertainties.

Could cause our results to differ materially from our expectations.

Please see this morning's news release and <unk> SEDAR filings.

Including our 2021 annual report.

For more information on forward looking statements and these risk factors.

Michael D. Olinek: Lastly, as we have outlined in our press release, given the events that have occurred in Ukraine, the company has discontinued its operations in Russia committed to a plan to sell those assets, and designated the operations in Russia as held for sale. The focus of this call will be on Calfrac's continuing operations. George, over to you.

Given the events that have occurred in Ukraine.

Company has discontinued its operations in Russia commit.

Committed to a plan to sell those assets.

Resignation of the operations in Russia as held for sale.

The focus of this call will be on Cal Fracs continuing operations.

George over to you.

George Armoyan: Thank you, Mike and good morning, and thank you everyone for joining our call today. As you're probably aware, this is my first call, so please take it easy on me. So before Mike provides the financial highlights for the fourth quarter, I'd like to make a few opening remarks.

So before Mike provides the financial highlights for the fourth quarter I'd like to make a few opening remarks.

George Armoyan: Right now is an interesting time at Calfrac with the tightening of the North American market and the types of conversations that we started having with our customers. The market dynamics are more similar to 2017-2018 than 2020-2021. We're enthusiastic about the opportunities and returns that we expect the business to generate for our stakeholders in 2022 and beyond.

The market dynamics are more similar to 2017 18 them to 1000 2021.

We're enthusiastic about the opportunities and returns that we expect the business to generate for our stakeholders in 2022 and beyond.

George Armoyan: The company created good momentum throughout the first quarter and expect to build upon it through the remainder of 2022. Our team fought through operational supply chain challenges to finish the quarter very strong. Calfrac has benefited from some pricing improvements this year and has formed an understanding with our customers that while we pass through inflationary costs as closest to real-time as possible, we'll also need to raise pricing to a level that provides a substantial return on our investment. This is paramount to us that we have to get returns. As we look towards the rest of 2022 into 2023, we're confident that our renewed efforts toward generating sustainable financial returns- and I emphasize that-and operating efficiencies enable us to capitalize when the world's increased demand for oil and gas. Now, I'll pass it on to Mike who will present the overview of our quarterly financial performance.

The mers that wildly pass through inflationary cost is closest to real time as possible.

we'll also need to raise pricing to a level that provides a substantial return on our investment. This is paramount to us that we have to get returns. As we look towards the rest of 2022 into 2023, we're confident that our renewed efforts toward generating sustainable financial returns-

and I emphasize that-and operating efficiencies enable us to capitalize when the world's increased demand for oil and gas. Now, I'll pass it on to Mike who will present the overview of our quarterly financial performance.

Michael D. Olinek: Thank you, George. Calfrac's consolidated revenue from continuing operations during the first quarter increased by 38% year-over-year to $294.5 million. The revenue increase was mainly due to the fracturing revenue per stage increasing by 39%, resulting from higher input costs being passed through to the customers and all operating divisions combined with improved pricing in North America.

<unk> consolidated revenue from continuing operations during the first quarter increased by 38% year over year to.

$294 5 million.

The revenue increase was mainly due to the fracturing revenue per stage increased by 39%.

Resulting from higher input costs being passed through to the customers and all operating divisions.

Combined with improved pricing in North America.

Adjusted EBITDA from continuing operations reported for the quarter was $20.8 million compared to $10.8 million a year ago.

Operating income from continuing operations increased by 83% to $21 million from operating income of $11.5 million in the comparable quarter of 2021. These increases were primarily due to better utilization and improved pricing in the United States, as well as higher equipment utilization for all service lines in Argentina.

$11 5 million in the comparable quarter of 2021.

These increases were primarily due to better utilization and improved pricing in the United States.

As well as higher equipment utilization for all service lines in Argentina.

The net loss from continuing operations for the quarter was $18 million versus a net loss from continuing operations of $23 million in the same quarter of 2021.

For the three months ended March 31, 2022, depreciation expense from continuing operations was relatively consistent with the corresponding quarter in 2021. The slight decrease in first quarter depreciation expense was primarily due to the mix in timing of capital expenditures related to major components.

The slight decrease in first quarter depreciation expense was primarily due to the mix.

Many of capital expenditures related to major components.

Interest expense during the first quarter of 2022 increased by $0.7 million from the same period in the prior year due to higher borrowings under the company's revolving credit facilities combined with the interest expense related to draws made under the company's bridge loan.

Combined with the interest expense related to draws made under the company's bridge loan.

Calfrac spent a total of $12.1 million on capital expenditures from continuing operations in the first quarter compared to $10.5 million in the same period of 2021. These expenditures were primarily related to maintenance capital and reflected the change in the amount of active equipment in North America between the two periods.

These expenditures were primarily related to maintenance capital and reflected the change in the amount of active equipment in North America between the two periods.

The company had an inflow of $9.2 million from changes in working capital during the first quarter versus an outflow of $20.8 million in the comparative quarter in 2021. This change was largely driven by the timing and the accounts receivable collections and payments to vendors offset partially by higher working capital due to an increase in revenue.

This change was largely driven by the timing and the accounts receivable collections and payments to vendors offset partially by higher working capital due to an increase in revenue.

During the first quarter of 2022, $0.6 million of the company's 1.5 lien notes were converted into common shares and cash proceeds of $0.7 million were received from the exercise of warrants.

$6 million of the company's one five lien notes were converted into common shares and cash proceeds of $1 7 million were received from the exercise of warrants.

To summarize the balance sheet as at the end of the first quarter, the company had working capital of $130.2 million from continuing operations, including $11.8 million in cash.

<unk> $11 $8 million in cash.

At March 31, 2022, the company had used $0.9 million of its credit facilities for letters of credit and had $200 million of borrowings under its credit facilities, leaving $49.1 million in available borrowing capacity at the end of the first quarter.

leaving $49.1 million in available borrowing capacity at the end of the first quarter.

The company's credit facilities are subject to a monthly borrowing base, which at March 31, 2022, was $243.8 million.

Under the terms of the Company's amended credit facility arrangement, Calfrac must maintain a minimum liquidity of $15 million during the covenant relief period.

Cal Frac must maintain a minimum liquidity of $15 million during the covenant relief period.

As of March 31, 2022, the company had drawn $50 million on its bridge loan and can request further draws up to an additional $10 million for maximum proceeds of $25 million. Subsequent to the end of the quarter, the maturity date of this loan was extended to June 28, 2022. I'll now turn the call back to George to provide our outlook.

We request further drives up to an additional $10 million from.

Maximum proceeds of $25 million.

Subsequent to the end of the quarter. The maturity date of this loan was extended to June 28 2022.

I'll now turn the call back to George to provide our outlook.

George Armoyan: Thanks, Mike. I will now present an outlook for Calfrac's operation across our geographic footprint. Our North American market continues to play out as we expected through the first half of the year with increased equipment demand from producers compounded with limited readily available supplies. We anticipate that the market continues to tighten, some producers will be unable to complete their work, which bodes well for our ability to increase prices to earn a viable return on our deployed equipment.

<unk> that the market continues to tighten some producers will be unable to complete their work, which bodes well for our ability to increase prices to <unk>.

<unk> return on our deployed equipment.

In the United States, our first quarter results showed meaningful sequential and year-over-year improvement primarily due to the tremendous growth in utilization viewing the final six weeks of the quarter. The first six weeks were not very good. We had improved utilization for all of our eight fleets in March where we completed 75% more stages as compared to January.

<unk>, 75% more stages as compared to January .

The combination of higher utilization with pricing resets also in March allowed the company to deliver significant better financial performance as it exited the quarter.

Our ninth fleet will begin in early May and we intend to maintain that level for the rest of the year, unless customer-driven demand and pricing justifies making any further equipment re-activations. We have the ability to do a 10th fleet and maybe a little bit more depending on the pricing and the demand.

Unless customer driven demand and pricing justifies, making any further equipment re activations, we have the ability to do a 10 fleet and maybe a little bit more depending on the pricing.

And the demand.

In Canada, the first quarter results were tempered by startup costs and rapidly increasing input costs that we are trying to recover from clients. We activated the fourth tracking fleet and our fifth coiled tubing units to meet growing customer demand, which positions us well for a strong second half of 2022.

The second quarter is progressing as we expect a slow start due to seasonal breakup, but we anticipate robust utilization of our four large fracking fleets toward the end of the quarter, which will extend through to the end of the year. To manage our field personnel costs during spring breakup, the Canadian division temporarily redeployed employees from Canada to the United States to help with our large activity increase in the United States.

Indian Division temporarily redeployed employees from Canada to the United States to help with our large activity increase in the United States.

Our operation.

Our operations in Argentina continue to be challenged by the significant currency devaluation and inflationary pressures as well as the capital controls surrounding the movement of cash out of the country. However, we recently renewed a contract [inaudible] that integrates improved pricing for our dedicated tracking fleet and coil tubing unit with an existing customer that commences in the second half of 2022. We expect to maintain a high level of utilization through the rest of the year.

Argentina continues to be challenged by the significant currency devaluation and inflationary pressures as well as the capital controls surrounding the movement of cash out of the country. However, we recently renewed a contract yet in that come worked a shale play that integrates <unk>.

Pricing for our dedicated tracking fleet in coil tubing unit with an existing customer that commences in the second half of 2022, we expect to maintain a high level of utilization through the rest of the year.

In summary, we continued to capitalize on the early stages of the current demand cycle to generate sustainable returns for our shareholders. I would like to thank our team for their efforts in the past quarter and I'm looking forward to the progression over the remainder of the year, and next. Thank you very much. Back to Mike.

I would like to thank our team for their efforts in the past quarter and I'm looking forward to the progression over the remainder of the year and next thank you very much back to Mike.

Michael D. Olinek: Thank you, George. I will now turn the call back to our operator for the Q&A portion of today's call.

I will now turn the call back to our operator for the Q&A portion of today's call.

Operator: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad, and if you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause just a moment to allow everyone an opportunity to signal for questions.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad and if you are using speaker phone. Please make sure. Your mute function is turned off to allow your signal Frito equipment again press star one to ask a question, we'll pause just a moment to allow everyone an opportunity to signal for questions.

And we'll go to our first question from Keith Mackey with RBC capital markets.

Well go to our first question from Keith Mackey with RBC capital markets.

Keith Mackey: Hey, good morning, everyone. Now, I just wanted to start out with the US EBITDA per fleet exited the quarter at a certainly much stronger level than it started the quarter. Where do you see that trending in the second half of the year? Do you think you can average say a $15 million dollar EBITDA per fleet range in Q3, Q4 or how should we see that trending?

Good morning.

Now I just wanted to start out with the U S.

EBITDA per fleet exited the quarter at a.

Certainly much stronger levels than it than it started the quarter, where do you see that trending in the second half of the year. Do you think you can average say a 15 million dollar EBITDA per fleet range in Q3 Q4 or.

How should we see that trending.

George Armoyan: This is George. We're trying to bench our market against our competitors. We're far from optimal numbers. We'd like to start with a $10 million first before we go to the $15 million. So we're trying to see progress and right now, we're focusing on utilization and eliminating white spaces in our schedules, but ultimately, yes, we'd like to be somewhere between $10-$15 million and we are going to thrive to do that as soon as we can.

Look we were trying to bench hour. This is George we're trying to bench our market against our competitors, we're far from optimal optimal numbers, we like to start with a $10 million first before we go to the $50 million. So we're trying to see progress and right now, we're focusing on utilization and eliminating <unk>.

White White space.

Our schedules, but ultimately, yes, we like to be somewhere between 10 and $15 million and we are going to thrive to do that as much as soon as we can.

Keith Mackey: Yes, got it. That makes sense. Maybe just capital wise, if you were to activate a 10th fleet in the US, what roughly do you think that would be capital wise if you've got an estimate on that currently?

Maybe just just capital wise, if you were to activate it tends fleet in the U S.

What what roughly do you think that would be capital wise. If you have if you've got a you know a.

An estimate on that currently six six.

George Armoyan: $6 million.

Keith Mackey: Got it.

George Armoyan: And we do have the ability to go to 13 fleets in total, but fleet 11, 12, and 13 will require more money than the $6 million and we're trying to get the final numbers just in case the demand exceeds and people are starting to be willing to pay for the utilization of equipment.

Exceeds and people are starting to willing to pay for the utilization of equipment.

Keith Mackey: Got it. I appreciate that color. Just finally from me, you did mention that you had shifted some employees between Canada and the US in Q1, maybe just talk a little bit more about the supply chain in general, what you're seeing on the labor front, and what you're seeing on the sand front, we're hearing that's becoming a larger concern or was a larger concern at least in Q1 with respect to governing the pace of activity in the industry.

Just finally for me you did mentioned that you had.

Shifting some employees between Canada and the U S. In Q1, maybe just talk a little bit more about the supply chain in general what youre seeing on the labor front.

And and what Youre seeing on the sand front, we're hearing that's becoming a larger concern or or was a larger concern at least in Q1 with.

With respect to governing the pace of activity in the industry.

George Armoyan: Yes, I think we said we moved people not in the first quarter, in the second quarter because the US is busy in the second quarter, where there's breakup in Western Canada. I just wanted to clarify that, but there are challenges. Supply chain challenges are being faced by every industry, everybody and we're trying to make the best we can. There were [inaudible] issues in Canada in the first quarter and we tried to deal the best we can. But it is an evolving, dynamic situation and we have to stay on top of it like everyone else, but we are hoping these things will not hold us up from really being able to deliver good quality jobs to our customers.

In West in Western Canada, just wanted to I just wanted to clarify clarify that there is challenges supply chain challenges are being.

Being faced by every industry, everybody and we're trying to make the best we can there was sent issues in Canada in the first in the first quarter and we tried to deal the best we can whether.

It is it is an evolving its a dynamic situation and we have to stay on top of it.

Like everyone else, but we are hoping these things will not.

That's up from really being able to deliver good quality jobs to our customers.

Keith Mackey: Perfect. I appreciate the color, thanks very much.

Thanks Lee.

Operator: And we'll go to our next question from Cole Pereira with Stifel.

Cole J. Pereira: Hi, good morning, everyone. Just wanted to go back to the comments that you might add another fleet or two in the US. I mean, just at a high level is there sort of a percentage increase in pricing that you would need to reactivate those fleets, and if so, are you able to kind of set some goalposts around what that might be?

Are you able to kind of set some goalposts around what that might be.

George Armoyan: So we're running eight fleets right now. We start the 9th one on Monday, the 8th of May. Look I mean, there's two things here, we want to be able to get the returns and we wanted to be able to get the certainty of a commitment from the customers. It's almost like a take or pay type of--We're not going to go and deploy capital and make it a loose arrangement where they can get rid of us at any time they want to. So there are a few facts taken into consideration for us to be able-- We want a firm commitment and if they just change their mind and they have to pay us for the cost of deploying these things here. But again, we have to be able to make sure we can get between the $10 and $15 million per fleet to be able to deploy these new fleets or the extra fleets, I'm sorry. So I hope that answers it.

Look I mean, there's two things here, we wanted to be able to get the returns that we wanted to be able to get the certainty of a commitment from the customers. It's almost like a take or pay type of we're not going to go and deploy capital and make it a loose arrangement, where they can get rid of us at anytime they want they want to so there are a few facts.

taken into consideration for us to be able-- We want a firm commitment and if they just change their mind and they have to pay us for the cost of deploying these things here. But again, we have to be able to make sure we can get between the $10 and $15 million per fleet to be able to deploy these new fleets or the extra fleets, I'm sorry. So I hope that answers it.

EBIT. Per fleet to be able to deploy to be able to deploy these new these new fleets. The extra fleets I'm sorry. So I hope that answer yes.

Per fleet to be able to deploy to be able to deploy these new these new fleets. The extra fleets I'm sorry. So I hope that answer yes.

The extra fleets I'm sorry. So I hope that answer yes.

So I hope that answer yes.

Cole J. Pereira: Maybe to restate, pricing is obviously getting close to those levels, but it's more so you want to see a contracted commitment from a customer, is that fair?

George Armoyan: 100% percent because the customers got a way with a lot of stuff in my opinion over the last-- We just want to change from being a charitable foundation to being a business, right? Instead of subsidizing E&P companies, we want to just start sharing some of the benefits that they're getting.

Cole J. Pereira: Got it, that makes a lot of sense. And so just going back to your comments on maybe you get to 13 fleets in 2023, depending on how things shake out. I mean, just out of curiosity. do you think broader US fracking activity could reach 2018 levels or do you think maybe it comes in a bit lower but you can capture some market share?

George Armoyan: Sure, like the demand for oil-- Like I'm bullish on hydrocarbons I guess, that's why I invested in it. So I believe there is a lot of momentum going as long as the prices stay over $85 or so for oil or maybe $4.50 for gas. Above that, I heard gas this morning hit like $8. So we're not counting on that. We're counting on $75, $80 then I think there will be a lot of demand. And depending what happens with the Russian situation about the European countries trying to really boycott by the end of the year and everything. I mean, that supply has to come from somewhere and between Canada and the US, we have to be able to do that. The prices of the commodities today, as much as they were in 2017 and 2018 and even better so I think the sentiment about oil and gas is changing a lot. I was just this past week in New York in a financial conference and everybody's talking about oil and gas being the next best thing, people have forgotten about technology.

I like.

The demand for oil like I'm, a bullish I'm bullish on hydrocarbons I guess, that's why invested in it. So I believe there is a lot of momentum going as long as the prices stay over 80, $585 or so for oil or maybe $4 50 for gas above that I heard gas. This morning hit a like an $8.

So as long as we're not counting on that we're counting on $75 $80. Oil then I think there will be a lot of there will be a lot of demand.

And depending what happens depending what happens with the Russian situation about the European countries trying to really.

But boycotted by the end of the year and everything we've done I mean that supply has to come from somewhere and between Canada and the U S. We have to be able to do that but things are looking in the prices of the commodities today as much as they were in 2007, 2017 and 18, even better so.

I slowed but I think the sentiment about oil and gas is changing a lot I was just this past week in New York.

Financial conference and everybody's talking about oil and gas being the next best thing people have forgotten about technology.

Cole J. Pereira: Gotcha. Well, that's great to hear, I guess. On the Russian divestiture any details that you are able to share around how you're thinking about timelines or anything you think on the likelihood of success for that?

On the Russian divestiture any details that you were able to share around how youre thinking about time lines or you know anything you think on the likelihood of success for that.

George Armoyan: I think we can succeed, it depends how much--We'd like to do it this year. So let's just say we'd like to do it in fiscal 2022. And we are engaged in some conversations right now and we're hoping to conclude it within a reasonable period of time. But we have an obligation to our shareholders to ensure also we don't give things away, right? But we are confident that we can do something in 2022.

How much.

We like to do it this year, so lets just say we'd like to do it in physical in fiscal 2022.

And we are engaged in some conversations right now and we would hope it to conclude it within a reasonable period of time, but we have an obligation to our shareholders to ensure also we don't like we don't give things away right. So.

I do but we are confident that we can do something in 2020.

Cole J. Pereira: Okay, got it. That makes sense and onto the assets themselves, maybe I'm misunderstanding, but I mean, I assume if you didn't impair the Russian assets, do you think you can sell them for greater than or equal to that $45 million net book value? It's just a little bit higher than I would've guessed. I mean, you have kind of a confidence in that figure based on some of the ongoing conversations.

Kind of a confidence in that figure based on some of the ongoing conversations.

George Armoyan: We're optimistic. I just wanted to give you a little bit of a background, I mean, I just found out this. You know how much we invested in Russia as a company ourselves Calfrac? $175 million over the years and if we can't recover some $45 million then I don't think we're doing a good job. So even though it shows 45, we have a lot more had sunk into this as a company or enterprise so it hasn't been a good experience.

I just wanted to give you a little bit of a background I mean I just found out. This you know how much we invested in Russia as a company ourselves Cal Frac $175 million over the years and we can recover some 40 some $45 million then I don't think we're doing a good job.

So are.

Even though it shows 45, but we have a lot more had sunk into this.

The company address enterprise so it hasn't been a good experience.

Cole J. Pereira: Got it. Go ahead, Mike.

Yes.

Go ahead Mike.

Michael D. Olinek: It's Mike here. I just want to remind you that we took a significant PPA impairment in the second quarter of 2020 related to our Russian Division. And so that, really I think, removed a lot of the capital PPA from the balance sheet at that point in time. So the remaining assets are predominantly related to the working capital held in Russia.

And so that. Really I think. Removed a lot of the capital. The PPA from the balance sheet. At this point in time, so the remaining assets are predominantly related to working capital held in Russia.

Really I think. Removed a lot of the capital. The PPA from the balance sheet. At this point in time, so the remaining assets are predominantly related to working capital held in Russia.

Removed a lot of the capital. The PPA from the balance sheet. At this point in time, so the remaining assets are predominantly related to working capital held in Russia.

The PPA from the balance sheet. At this point in time, so the remaining assets are predominantly related to working capital held in Russia.

At this point in time, so the remaining assets are predominantly related to working capital held in Russia.

Cole J. Pereira: Okay, got it. That makes sense. That's all for me, thanks. I'll turn it back.

Michael D. Olinek: Thank you.

Operator: And we'll go next to John Gibson with BMO capital markets.

John Gibson: Good morning, guys. Just looking at pricing dynamics, they appear to be stronger in the US relative to Canada, and we've heard some comments from the larger players in the US that they're sold out for the year and pushing pricing higher. To me it seems like very similar dynamics in Canada where pricing isn't quite as strong. So can you maybe speak to the market dynamics in Canada with regards to pricing and maybe are we now finally getting to a point where you could push that pricing higher?

Just looking at pricing that makes.

They appear to be stronger in the U S relative to Canada, and we've heard some comments from the larger players in the U S with there.

Philadelphia, the euro pushing pricing higher to me it seems like very similar dynamics in Canada pricing isn't quite as strong. So can you maybe speak to the market dynamics in Canada with regards to pricing and maybe every now finally getting to a point where you could pull.

Pushing that pricing higher.

I would say most of the players in Canada finally come into their sense is that they're going to stop the subsidy and it's better to part D equipment down really to do it for a loss or just a change of $1 for four quarters, because what is more than one so.

George Armoyan: I do believe there is demand. I do believe there's going to be an increased capital expenditure by a lot of the producers and I'm involved personally in an E&P company and we're seeing the pressures a lot coming up to 29% on the services. So I think everybody is trying to come to their senses and trying to get some reasonable return for their shareholders. So I'm not too worried about the prices. I mean, I hear some wells that are paying off in four weeks or five weeks or six weeks. There's nothing wrong with sharing some of that with some of these service providers.

Capital expenditure by a lot of them buy a lot of the producers and I'm involved with I'm involved personally in an E&P company and we're seeing the pressures a lot coming up to 29% on the on the services. So I think everybody is everybody is trying to do trying.

Trying to come to their senses and trying to get some reasonable return for their for their shareholders. So I'm not I'm not I'm not too worried about the prices I mean, I hear some wells that are paying off in four weeks or five weeks or six weeks theres nothing wrong with sharing some of that with the with some of these service providers either.

Michael D. Olinek: John, I think also in Canada we exit Q1 of high activity and going into a low so while the pricing pressures still are there, there's a little bit of softness at the same time. So I would expect that as we get halfway through this Q2 that you'll see a catch up to the US as far as the pricing activity goes.

In Canada. We exit Q1 of high activity and going into a low so while the pricing pricing pressures still are there there's a little bit of softness at the same same time so. We I would expect that as we get halfway through this Q2 that you'll see. Catch up to the to the U S as far as the pricing. Activity goes.

We exit Q1 of high activity and going into a low so while the pricing pricing pressures still are there there's a little bit of softness at the same same time so. We I would expect that as we get halfway through this Q2 that you'll see. Catch up to the to the U S as far as the pricing. Activity goes.

We I would expect that as we get halfway through this Q2 that you'll see. Catch up to the to the U S as far as the pricing. Activity goes.

Catch up to the to the U S as far as the pricing. Activity goes.

Activity goes.

John Gibson: Thanks, I guess a follow-up, how much higher do you think pricing needs to go in order to get to more of the healthy full-cycle returns you've kind of been referring to.

I guess a follow on how much higher do you think pricing needs to go in order to get to.

Barbara the healthy full cycle returns, you've kind of been referring to.

George Armoyan: We like to get margins of 30%-35% up from the low twenty's that we're getting right now.

John Gibson: Okay.

George Armoyan: I was going to say something else on Canada. We are preparing our fifth fleet in Canada just in case the demand exceeds the supply that's available there and that's going to cost us roughly $2 million to have our fifth lead on standby and ready to go if the demand warrants it, with the right margins, I reemphasize, with the right margins.

Just I was going to say something else in Canada. We are preparing our fifth fleet in Canada. Just in case the demand exceeds the supply that's available there and that's going to cost us roughly $2 million to have our fifth lead on standby and ready to go if the demand warrants it what the right margins I reemphasize, what the right Mark. <unk>.

<unk>.

Michael D. Olinek: Got it. Yes, that kind of leads to my last question. So you obviously have some opportunities to add equipment in Canada, but would you need to potentially upgrade a fleet in order to do so or could you even potentially move some biofuel equipment from the US to Canada?

So you obviously have some opportunities to add equipment in Canada, but would you need to potentially upgrade a fleet in order to do so or could you even potentially move some some biofuel equipment from the U S Canada.

George Armoyan: Our fifth fleet is being prepared as we speak right now. So for roughly $2 million it will be ready. So I think we are bringing a couple of mixers from the US that we have to complete the fleet that we have, the fifth one in Canada and that takes us to the optimal number that we can have in Canada, five fleets without having to purchase or do any new equipment.

That we can have in Canada, five fleets without having to purchase or do any new equipment.

John Gibson: Okay, great. I appreciate the comments. I'll turn it back.

Multiple speakers: Thanks, John. Thanks, John .

Multiple speakers: Just a reminder, it is star one if you have a question at this time. We will go to Waqar Syed of ATB capital markets. Thank you. George, what is your [inaudible] vision for Calfrac going forward? This is the first meeting with you, so maybe if you could highlight that and what are some of the focus areas for you going forward or what kind of changes should we expect in terms of strategy for the firm going forward?

We will go to what Karen said of ATB capital markets.

Thank you. George. What is your P. J crew vision for Cal side going forward. This is the first meeting with you. So maybe if you could highlight that and how could you know. What are some of the focus areas for you going forward and how good or what. What kind of changes should we expect in terms of strategy for the firm going forward.

George.

What is your P. J crew vision for Cal side going forward. This is the first meeting with you. So maybe if you could highlight that and how could you know.

What are some of the focus areas for you going forward and how good or what.

What kind of changes should we expect in terms of strategy for the firm going forward.

George Armoyan: The biggest strategy is to make money. So that's really first and foremost here. It's a good platform, it has a good brand. We are working on addressing our margin, we're going to try to work on addressing our balance sheet there.

It's a good it's a good platform it has a good brand.

We are working on that but we're working on.

Addressing our margin, we're working and we're going to try to work on addressing our balance on our balance sheet our balance sheet there.

I just want to make things as simple as possible, that's really what I want. I want to make them transparent so I can understand them as a layman. It's not a big secret, I don't know much about oil and gas, right? But I know something about business, you need more revenue than expenses to be successful and that's really the biggest focus, it's to take the complexity out of this business here and to make it as simple and transparent as possible. So I'm working with the team and we're trying to simplify things and working again, as I said on the balance sheet. And the balance sheet could be-- first we have to produce good results and then ultimately we'll be rewarded for that.

out of this business here and to make it as simple and transparent as possible. So I'm working with the team and we're trying to simplify things and working again, as I said on the balance sheet. And the balance sheet could be-- first we have to produce good results and then ultimately we'll be rewarded for that.

This is both a financial and a personal challenge for me. And I put more pressure on myself trying to see this being successful than anyone could put on me, especially where I don't know much about this space. So I'm not sure if I addressed your question or not but--

And I.

I put more pressure on myself trying to see this being successful than anyone could put on me, so, especially where I don't know much about this space.

So I'm not sure if I addressed your question or not but.

Waqar Mustafa Syed: No, you did. I appreciate that, thank you very much.

I appreciate that thank you very much.

Could you give us like an updated Capex number for this year given that Russia, you won't be investing in future and also a small investment to begin with in Russia, but maybe again any updates to the Capex?

George Armoyan: I'm going to let Michael answer the question, but how do you define Capex anyway?

Waqar Mustafa Syed: Well, one of the main Capex is for the equipment plus some growth--

Well one of the maintenance Capex is for the for the equipment plus some growth.

George Armoyan: The reason I asked that question, I'm just learning in this industry the different ways people call Capex. But anyway I'll let Michael address it.

The different ways people call Capex then.

Still but anyway I'll, let Michael address it there.

Michael D. Olinek: Okay, thanks, George. Yes, Waqar, I would say that the reduction in our previous estimate for capital is really minimal as it pertains to our Russian operations. In our original budget, we probably had between $3-$4 million Canadian of capital related to Russia, and I think right now we're looking to minimize that spend here as we go forward. So that's really a very minor tweak to the estimate that we've provided on a consolidated basis.

Thanks, George Yes.

Yes, Waqar I would say that the reduction in our previous estimate for capital is really minimal as it pertains to our Russian operations.

And our original budget, we had probably had between three and $4 million Canadian of capital related to Russia, and I think right now we're looking to minimize that spend here as we go forward. So that's really a very minor tweaks to the estimate that we've provided on a consolidated basis.

Waqar Mustafa Syed: And then just one final question, could you talk about the price increases in Canada? You see [inaudible] for the second half and I think there were some comments made by George as well along those lines, but you seem a little bit more optimistic. Could you highlight what drives the confidence that you'd be able to get net price increases in Canada in the second half?

And then just one final question.

Could you talk about.

Price increases in Canada, you see me, who have full for the second half and I think there were some comments.

But Georgia is model.

Deadlines, but to gain a little bit.

You seem a little bit more optimistic could you highlight that.

What drives the confidence that you'd be able to get net price increases in Canada in the second half.

George Armoyan: I think it's simple. The demand is exceeding the supply. Every oilfield service company is having challenges with personnel, with the equipment, with many different things. And what the prices what they are I do believe and I'm starting to see it just by the calls I get from CEOs of some producer companies that they all are working right now on increasing their capital budget. Alibi, they're not coming out and saying it as blatantly as they should they are trying to keep low the lid on price increases.

I think I mean.

It's simple.

Men is exceed the demand is exceeding the supply everybody every oilfield service company is having challenges with personnel with the equipment with many with many different things.

And what the prices what they are I do believe and im starting to see it just by the cause I get from Ceos of some producer companies that they all working right now on increasing their capital budget alibi, not coming out and saying it as blatantly as they should they are trying to keep low.

But we're starting to see it and most of these producers are right almost I expect by September, October to have paid all of their debt and they have to start drilling activities on some of the new--some more production just to maintain what they have and also to increase their production because at these prices it is crazy not to be able to go and do some more work or get to extract more production there.

Somewhat production and that just to maintain what they have and also to increase their production because at these prices.

It is crazy not to be able to go in.

And do some more more work or.

So this is just the sixth sense sentiment and you're seeing it. People are a lot more optimistic. And there's a great amount of cash flow being generated by these companies. It's mindboggling how much cash flow is being generated by these companies.

Michael D. Olinek: And I think if you look on the ability for the suppliers, the other service companies to meet up with even a small general increase over what was projected in Q3, we will start to push dates. When you start to push dates and you can't get on, that should bode well for an increase in pricing. I think we're very confident that we will see that in Q3 for the Canadian market for sure.

When you start to push dates and you can't get on. But that should bode well for an increase in pricing.

But that should bode well for an increase in pricing.

I think we're very confident that we will see that in Q3 four for the Canadian market for sure.

Waqar Mustafa Syed: And I agree and I think there is a lot of anecdotal evidence you're seeing in numbers as well evidence of price increases. Just kind of some food for thought, something to think about it in a supply & demand model, the E&P companies that are reporting and the commentary is they are talking about all these efficiency gains that they're seeing from their pumping providers, and I think one company range just said that like they are now doing 16 fractions in a day. What's your thought about these increased efficiencies, creating artificial supply that tends to start balancing demand?

Anecdotal evidence you're seeing in numbers, what evidence of price increases, but one just kind of.

Some food for thought something to.

Think about it in a supply demand models.

The E&P companies that are reporting and the commentary is they are talking about all these efficiency gains that they're seeing from their pumping.

Providers and I think one company range, just said that like you did now doing 16 frac stages a day.

What's your thought about increasing these increased efficiency, creating artificial supply that tends to start balancing demand.

Michael D. Olinek: I think you had the efficiency gains over the last several years, which probably exasperated the oversupply of the horsepower over the last several years as well. But so far, no one has got better at creating more than 24 hours in a day. So as you're approaching 20 hours a day, 22 hours a day, the 60 stages in a day that you are quoting is pretty well like a sleeve or a ball drop type drop, you run through a physical-- There isn't any more time in the day to actually do more work. And so the efficiency gain is you can do it when you have inefficiencies, but if you don't have inefficiencies at the frac site, which I think are very difficult to more improve--The one piece that we've talked about, George brought it up too, is white space, which is the time between the fracs that still potentially could be addressed and if our clients could start to minimize that maybe there is some gains. I'd like to think that there are some gains that could be achieved on a scheduling side, but short of that, I think onsite, I think we've captured the majority. There always will be something better but the big steps I think have happened in the past.

Adding more than 24 hours in a day, so you know as.

As you're as you're approaching 20 hours a day 22 hours a day.

60 stages in a day that you are quoting is pretty well like a sleeve or a ball drop type type drop.

You run run through a physical there isn't any more time in the day to actually do more work.

And so the efficiency gain is.

You can do it when you have inefficiencies, but if you don't have inefficiencies at the Frac site, which I think are very difficult to.

Two two more improve the one piece that we've talked about George brought it up too is white space, which is the time between.

The fracs that still potentially could be addressed and if our clients. Good good start to the.

Minimize that maybe there is some gains there at all.

To think that there are some gains that could be.

Achieved on an honest scheduling side.

But short of that I think on onsite.

Think we've captured the majority there always will be something better but but.

The big steps I think have happened in the past.

Multiple speakers: Great well, thank you. I was just going to add, we are adding a lot of efficiencies, but we've not been rewarded for it, that's a problem. We're not being compensated for it.

Yes, no problem I would just going to add we are adding a lot of efficiencies, but we've not been rewarded for it that's a problem, we're not being compensated for it.

Michael D. Olinek: Thanks Waqar.

Waqar Mustafa Syed: Thank you, sir. Thank you very much.

No.

Operator: And we'll go to our next question from Andrew [inaudible] of Millennium.

Unknown Speaker: Hi, thanks for taking my question. I really appreciate the update George today. I wanted to ask/revisit if there are any tax assets that you have from the restructuring or anything strategic around your tax situation that we should be thinking about?

I really appreciate the update Eric Georgia today, I wanted to ask a revisit if there is any.

Tax assets that you have from the restructuring or anything strategic around your tax situation that we should be thinking about.

George Armoyan: The biggest asset this company has is we have too much goddamn tax losses, which is a good and bad thing, right? So I think we got close to $1 billion of tax losses, so we can make a lot of money without having to pay taxes. And honestly, with my other businesses that pay a lot of taxes, it's like a kid. This is exciting to me and part of this strategy is how to make some money in cash flows that will be sheltered without having to pay to the government. So it's a great hidden asset that we have in the company.

So I think we got close to $1 billion of tax losses that so we can make a lot of money without having to pay taxes and honestly with my other businesses that pay a lot of taxes selected kidneys.

This is this is exciting to me and just as part of this strategy is how to make some money in cash flows that will be shelter without data the government and that's so.

It's a great. It's a great hidden asset that we have in the company.

Unknown Speaker: Is there any way to accelerate the utilization of that whether it's with your core operations or some sort of merger and acquisitions, bolt-ons, something outside of the industry just thinking outside the box a little bit?

George Armoyan: We're looking at all alternative ways to enhance shareholder value, but right now, I mean the easiest way to use them is to make money. That's the simplest way to do it, it's to make money on our operations. And some of the other things we'll add them on later on but right now that's really the big focus. We have to be laser-focused on trying to make margins and make money.

Ways to enhance to enhance shareholder value, but right now I mean the.

Easiest way to use them is to make money. That's the simplest way to do it is to make money on our operations and some of the other things.

<unk> added on later on but right now that's really the big focus we have to be laser focused on trying to make margin and make money.

Unknown Speaker: Fair enough, understood. Thank you.

Operator: And it appears there are no further questions at this time. I'd now like to turn the conference back to Michael Olinek for any additional or closing remarks.

Michael D. Olinek: Thanks, Jenny. I just want to thank everyone for joining us for the call today, and we look forward to hosting our Q2 call in late July. Thanks very much.

Operator: And this concludes today's call. Thank you for your participation. You may now disconnect.

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Q1 2022 Calfrac Well Services Ltd Earnings Call

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