Q1 2022 Ensign Energy Services Inc Earnings Call

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Operator: Good morning, ladies and gentlemen, and welcome to the Ensign Energy Services Inc. first quarter 2022 results conference call. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Operator: Good morning, ladies and gentlemen, and welcome to the Ensign Energy Services Inc. first quarter 2022 results conference call. At this time, all lines are in the listen only mode. Following the presentation, we will conduct a question and answer session.

Operator: If at any time during this call, you require assistance, please press star zero for the operator. Also note that the call is being recorded on Monday, May 9th, 2022. And I would like to turn the conference over to Nicole Romanow. Please go ahead.

Operator: If at any time during a call, you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Monday, May 9th, 2022. I would like to turn the conference over to Nicole Romanow. Please go ahead.

Nicole Romanow: Thank you, Sylvie. Good morning and welcome to Ensign Energy Services' first quarter 2022 conference call and webcast. On our call today, Bob Geddes, President and COO, and Mike Gray, Chief Financial Officer, will review Ensign's first quarter highlights and financial results, followed by our operational update and outlook. We'll then open the call for questions. Our discussion today may include forward-looking statements based upon current expectations that involve several business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to political, economic, and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the company's defensive lawsuits, the ability of oil and gas companies to pay accounts receivable balances, or other unforeseen conditions which could impact the demand for services supplied by the company.

Nicole Romanow: Thank you, Sylvie. Good morning and welcome to Ensign Energy Services first quarter 2022 conference call and webcast. On our call today, Bob Geddes, President and COO, and Mike Gray, Chief Financial Officer, will review Ensign's first quarter highlights and financial results, followed by our operational update and outlook. We'll then open the call for questions. Our discussion today may include forward-looking statements based upon current expectations that involve several business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to political, economic and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the company's defensive lawsuits, the ability of oil and gas companies to pay accounts receivable balances or other unforeseen conditions which could impact the demand for services supplied by the company.

Nicole Romanow: Additionally, our discussion today may refer to non-GAAP financial measures such as adjusted EBITDA. Please see our first quarter earnings release and SEDAR filings for more information on forward-looking statements in the company's use of non-GAAP financial measures. With that, I'll pass it on to Bob.

Nicole Romanow: Additionally, our discussion today may refer to non-GAAP financial measures such as adjusted EBITDA. Please see our first quarter earnings release and SEDAR filings for more information on forward-looking statements in the company's use of non-GAAP financial measures. With that, I'll pass on to Bob.

With that, I'll pass it on to Bob.

Bob Geddes: Thanks, Nicole and thank you all for joining our call today. As you know, Ensign Energy Services is one of the largest global energy service providers, spanning four continents and eight countries, employing over four thousand people, with three billion of assets consisting of 245 drilling rigs, 100 well service rigs, a directional drilling business and an NPV business line, also a rentals division. With the world catapulted from a COVID-induced demand pinch now to a global supply challenge, the result of sanctions from the Russian-Ukraine conflict, the world needs to bring back production and drill holes in the ground to access energy for a recovering world economy.

Robert H. Geddes: Thanks, Nicole, and thank you all for joining our call today.

Robert H. Geddes: As you know, Ensign Energy Services is one of the largest global energy service providers, spanning four continents in eight countries, employing over 4,000 people, with $3 billion of assets consisting of 245 drilling rigs, 100 well service rigs, a directional drilling business, and an MPV business line, also a rentals division. With the world catapulted from a COVID induced demand pinch, now to a global supply challenge, the result of sanctions from the Russian/Ukraine conflict, the world needs to bring back production and real holes in the ground, access at energy for a recovering world economy.

and an NPV business line, also a rentals division. With the world catapulted from a COVID-induced demand pinch now to a global supply challenge, the result of sanctions from the Russian-Ukraine conflict, the world needs to bring back production and drill holes in the ground to access energy for a recovering world economy.

Speaker 4: and an MPV business line, also a rentals division. With the world catapulted from a COVID induced demand pinch, now to a global supply challenge, the result of sanctions from the Russian/Ukraine conflict, the world needs to bring back production and real holes in the ground, access at energy for a recovering world economy.

Bob Geddes: Ensign's first quarter results is delivering right on schedule as planned and is up sequentially year-over-year and quarter-or-quarter. This industry is coming from all-time low rates and is climbing the hill rather quickly to recapture pricing while continuing to deliver the value proposition our clients have grown to expect from Ensign over the years.

Robert H. Geddes: Ensign's first quarter results is delivering right on schedule as planned, and is up sequentially year-over-year and quarter-over-quarter. This industry is coming from all-time low rates and is climbing the hill rather quickly to recapture pricing, while continuing to deliver the value proposition our clients have grown to expect from Ensign over the years.

Bob Geddes: We continue to see activity manifest itself into quarter-over-quarter pricing leverage which is teeing up accelerated pricing momentum as we move forward. While we had little direct COVID effects on the business in North America in Q1, we still had COVID deflect our activity in our Australia operation which hampered our first quarter results slightly. While the drilling industry is able to finally move pricing up to narrow the gap between rates and value delivered for our services, the question is how cost inflation is affecting our margins. The question then becomes how sticky is a margin increase.

Robert H. Geddes: We continue to see activity manifest itself into quarter-over-quarter pricing leverage which is teeing up accelerated pricing momentum as we move forward. But, we had little direct COVID effects on the business in North America in Q1. We still had COVID effect, our activity in our Australia operation which hampered our first quarter results slightly. While the drilling industry is able to move- to finally move pricing up to narrow the gap between rates and value delivered for our services, the question is how cost inflation is affecting our margins. The question then becomes how sticky is a margin increase? With operational costs- net of labor costs that are exposed to inflationary effects representing about 20% of the sticker day rate, witnessing a quarter-over-quarter projected cost inflation of roughly 5%, the effective margin drag for the business is really only 1% quarter-over-quarter. In other words 90% of a Q-over-Q rate increases sticky and makes it way right to the gross margin bottom line.

Bob Geddes: With operational costs net of labor costs that are exposed to inflationary effects representing about 20% of the sticker day rate, witnessing a quarter-over-quarter projected cost inflation of roughly 5%. The effective margin drag for the business is really only 1% quarter-over-quarter. In other words, 90% of a Q over Q rate increase is sticky and makes its way right to the gross margin bottom line. Keep in mind that most of our contracts, and certainly all contracts in North America, contain a crew wage escalation clause that covered any labor increase as a pass-through, with an increase to the base day rate offsetting any cost inflation is of course overhead per day efficiency. With overhead fixed cost spread over more operating days, our margin gets more torque and easily offsets any operational costs inflation creates. We continue to focus on margin versus market share as a most productive and profitable approach in an obvious uptick in the elastic demand market.

Robert H. Geddes: Keep in mind that most of our contracts, and certainly all contracts in North America, contain a crew wage escalation clause that covers any labor increase as a pass-through with an increase to the base day rate. Offsetting any cost inflation is of course overhead per day efficiency. With overhead fixed cost spread over more operating days, our margin gets more torque and easily offsets on the operational cost inflation creep.

With overhead fixed cost spread over more operating days, our margin gets more torque and easily offsets any operational costs inflation creates. We continue to focus on margin versus market share as a most productive and profitable approach in an obvious uptick in the elastic demand market.

We continue to focus on margin versus market share as a most productive and profitable approach in an obvious uptick in the elastic demand market.

Robert H. Geddes: We continue to focus on margin versus market share as a most productive and profitable approach in an obvious uptick in elastic demand market.

Bob Geddes: We also announced a sale of two oil Mexican rigs that were cold stacked 3000 horsepower rigs, purpose-built for the deep gas Mexican market, which came to us by acquisition a few years back. We have no desire to expand operations into Mexico and, being laser-focused on debt reduction, the opportunity to sell these assets was acted on. Also very happy to report that we had a record zero recordable incidents in four of our five business units. The application and stringent application and outstanding rig operating procedures, coupled with our highly effective standardized training program, the GSS, allows us to continue to train new recruits into a safe and efficient work environment. I'll turn it over to Mike for financials.

Multiple speakers: We also announced a sale of two idle Mexican rigs that were cold stack, 3000 horse power rigs, purpose built for a deep gas Mexican market, which came to us by acquisition of three years back. Having no desire to expand operations into the Mexico and, being laser focused on debt reduction, the opportunity to sell these assets was acted on. Also very happy to report that we had a record zero recordable incidents and four of our five business units. The application and stringent application of standard rig operating procedures, coupled with our highly effective standardized training program, the GSS, allows us to continue to train new recruits into a safe and efficient work environment. I'll turn it over to Mike for financials. Thanks, Bob. Over the first quarter of 2022, the operating environment for the oil and natural gas industry continued to be positively supported by strong commodity prices and the demand for both crude oil and natural gas. Ensign's results for the first quarter 2022 reflects positive improvements to oil services activity, day rates and financial results year-over-year. Operating days were up in the first quarter of 2022, with Canadian operations experiencing an increase of 1,882 drilling days, United States a 43% increase and international operations, showing a 2% increase compared to the first quarter of 2021.

Mike Gray: Thanks, Bob. Over the first quarter of 2022, the operating environment for the oil and natural gas industry continued to be positively supported by strong commodity prices and demand for both crude oil and natural gas. [inaudible] results for the first quarter of 2022 reflects positive improvements to oil field services activity, day rates, and financial results year-over-year. Operating days were up in the first quarter of 2022, with Canadian operations experiencing an increase of 1,882 drilling days, United States a 42% increase in international operations showing a 2% increase compared to the first quarter of 2021. The company generated revenue of 332.7 million in the first quarter of 2022, a 52% increase compared to revenue of 218.5 million generated in the first quarter of the prior year.

Speaker 5: day rates and financial results year-over-year. Operating days were up in the first quarter of 2022, with Canadian operations experiencing an increase of 1,882 drilling days, United States a 43% increase and international operations, showing a 2% increase compared to the first quarter of 2021.

Mike Gray: The company generated revenue of $332.7 million in the first quarter of 2022, a 52% increase compared to revenue of $218.5 million generated in the first quarter of the prior year.

Mike Gray: Adjusted EBITDA for the first quarter of 2022 was 70 million, a 40% increase from adjusted EBITDA of 49.9 million in the first quarter of 2021. The 2022 increase in adjusted EBITDA could be primarily attributed to improved industry conditions, increasing both drilling and well servicing activity. In addition, operational activity increased as a result of the company's acquisition of 35 land-based drilling rigs during the third quarter of 2021. Offsetting the increase was the elimination of the Canadian emergency wage subsidy program in 2021 by the government of Canada, of which 4.7 million was received in the first quarter of 2021.

Mike Gray: Adjusted EBITDA for the first quarter of 2022 was $70 million, a 40% increase from adjusted EBITDA $49.9 million in the first quarter of 2021.

The 2022 increase in adjusted EBITDA could be primarily attributed to improved industry conditions, increasing both drilling and mall servicing activity. In addition, operational activity increase as a result from the company's acquisition of 35 land based drilling rigs during the third quarter of 2021, whilesetting the increase was the elimination of the Canadian emergency wageed subsidy program in two 2021 by the government of Canada, of which four point seven million was received in the first quarter of 2021.

Mike Gray: The 2022 increase in adjusted EBITDA can be primarily attributed to improved industry conditions, increasing both drilling in well servicing activity. In addition, operational activity increase as a result from the company's acquisition of 35 land based drilling rigs during the third quarter of 2021. Offsetting the increase was the elimination of the Canadian emergency age subsidy program in 2021 by the government of Canada, of which $4.7 million was received in the first quarter of 2021.

Mike Gray: Depreciation expense in the first quarter of 2022 was 70 million, 1% lower than 71 million for the first quarter of 2021.

Mike Gray: Depreciation expense in the first quarter of 2022 was $70 million, 1% lower than $71 million for the first quarter of 2021.

Mike Gray: GNA expense in the first quarter of 2022 was 18% higher than in the first quarter of 2021. GNA expenses increased in support of increased operational activity, the end of the Canadian emergency wage subsidy program, the full reinstatement of selling rollbacks, and annual wage increases.

Mike Gray: G&A expense in the first quarter of 2022 was 18% higher than in the first quarter of 2021. G&A expenses increased in support of increased operational activity, the end of the Canadian emergency wage subsidy program, the full reinstatement of selling rollbacks and annual wage increases.

Mike Gray: Net capital proceeds for the quarter were 10.8 million, consisting of proceeds from dispositions of 42.7 million. Offsetting the proceeds were 8.1 million in upgrade capital and 23.9 million in maintenance capital, for a total of 32 million.

Mike Gray: Net capital proceeds for the quarter were $10.8 million, consisting of proceeds from dispositions of $42.7 million. Offsetting the proceeds were $8.1 million in upgrade capital and $23.9 million in maintenance capital, for a total of $32 million.

Mike Gray: Included in dispositions was the sale of two 3000 horsepower AC drilling rigs that were cold stacked in Mexico for proceeds of 34 million US dollars. We are now targeting 115 million in capital expenditures for 2022 and we'll continue to look at projects with the appropriate payouts.

Mike Gray: Included in this positions was a sale of two 3,000 horsepower AC drilling rigs that were cold stacked in Mexico for proceeds of $34 million U.S. dollars. We are now targeting $115 million in capital expenditures for 2022 and will continue to look at projects with the appropriate payouts.

Mike Gray: Long-term debt, net of cash, was reduced by 61.9 million since year-end and debt reduction continues to be our focus. On that note, l will turn the call back to Bob.

Mike Gray: Long-term debt, net of cash, was reduced by $61.9 million since year-end, and debt reduction continues to be our focus. On that note, I'll return the call back to Bob.

Bob Geddes: Thanks, Bob. So we'll provide an operations update, starting with the US. In our US business unit, we own and operate a fleet of 88 high-spec rail rigs across the US platform and also 50 well-service rigs focused on the Rockies and California markets.

So we'll provide an operations update, starting with the U's. In our U's business unit, we own an operative fleet of 88 high-spect raill rigs across U's platform and also 50 well service rigs focused on the Rockies and California markets.

Robert H. Geddes: Thanks Mike. So we'll provide an operations update, starting with the U.S. In our U.S. business unit we own an operative fleet of 88 high spec drill rigs across the U.S. platform and also 50 well service rigs focused on the Rockies and California markets.

Bob Geddes: We also run a tight directional drilling business in the Rockies. The US generates over 54% of our revenue and our consolidated EBITDA. The US is currently running 50 rigs out of 88 high-spec rigs, with visibility to 60 in the third quarter and 65 by year-end. We just recently completed the upgrade of nine high-spec triples into super-spec triples in the US Permian market, which will produce incremental results starting in the third quarter. Our super-spec triples are today being priced into the low thirty's range. We have the ability to address additional shovel-ready upgrade projects which would require notional incremental growth capital paying out in less than 12 months. Let me be perfectly clear, as industry recaptures its pricing platform and claws its way back up, the focus remains margin versus market share. While on the subject to CapEx, we have identified an additional five million in incremental growth quick pay projects of both sides of the border which will guide, as Mike pointed, our 2022 CapEx up only about five million from our last calls to about 115.

Robert H. Geddes: We also run a tight directional drilling business in the Rockies. The U.S. generates over 54% of our revenue and our consolidated EBITDA. The U.S. is currently running 50 rigs out of 88 high spec rigs with visibility to 60 in the third quarter and 65 by year end. We just recently completed the upgrade of nine high spec triples into super spec triples in the U.S. permian market, which will produce incremental results starting third quarter. Our super spec triples are today being priced into the low thirty's range. We have the ability to address additional shovel ready upgrade projects which would require notional incremental growth capital paying out less than 12 months. Let me be perfectly clear, as industry recaptures its pricing platform close its way back up the focus remains margin versus market share. While, on the subject to CapEx, we have identified an additional $5 million in incremental growth quick pay projects of both sides of the border which will guide, as Mike pointed out, 2022 CapEx, up only about $5 million from our last call through about $115 million. California continues to be affected with a lack of well licenses which is keeping four to five of our rigs from going to work any time soon. Nonetheless, we're making up the delta by activating and contracting other rigs across our diverse U.S. operational base. Our directional drilling business in the U.S. is Rockies centric at basically works our turnkey projects with our drill rigs. Our U.S. well service business operates in the Rockies and California markets and is the premier service provider in both these areas. This business continues to enjoy high utilization, 80%+, and is able to attract rate increases quarter over quarter. Moving up to Canada, with the acquisition of the neighbors Canadian assets last August , Ensign has the largest fleet of drill rigs with 123 high specking conventional rigs in Canada. In the first quarter we had expectations that the rig count might hit a peak at 300 rigs and hence we became an early market price maker, raising prices out of the gate in January.

Bob Geddes: California continues to be affected with the lack of well licenses, which is keeping four to five of our rigs from going to work any time soon. Nonetheless, we're making up the delta by activating and contracting other rigs across our diverse US operational base. Our directional drilling business in the US is Rockies-centric and basically works our turnkey projects with our drill rigs. Our US well-service business operates in the Rockies and California markets and is the premier service provider in both these areas. This business continues to enjoy high utilization- 80% plus- and is able to attract rate increases quarter-over-quarter.

Speaker 4: up only about $5 million from our last call through about $115 million. California continues to be affected with a lack of well licenses which is keeping four to five of our rigs from going to work any time soon. Nonetheless, we're making up the delta by activating and contracting other rigs across our diverse U.S. operational base. Our directional drilling business in the U.S. is Rockies centric at basically works our turnkey projects with our drill rigs. Our U.S. well service business operates in the Rockies and California markets and is the premier service provider in both these areas. This business continues to enjoy high utilization, 80%+, and is able to attract rate increases quarter over quarter. Moving up to Canada, with the acquisition of the neighbors Canadian assets last August , Ensign has the largest fleet of drill rigs with 123 high specking conventional rigs in Canada. In the first quarter we had expectations that the rig count might hit a peak at 300 rigs and hence we became an early market price maker, raising prices out of the gate in January.

Bob Geddes: Moving up to Canada, with the acquisition of the neighbors' Canadian assets last August, Ensign has the largest fleet of drill rigs, with 123 high-spec in conventional rigs in Canada. In the first quarter, we had expectations that the rig count might hit a peak of 300 rigs and hence we became an early market price maker, raising prices out of the gate in January. What happened is that the rig count hit a peak of only 220 and our first quarter results were slightly buffered as a result.

Robert H. Geddes: What happened is that the rig count hit a peak of only 220 and our first quarter results were slightly buffered as a result. We have 25 high spec triple and double rigs operating today over breakup on pad work, with another 25 starting up next month. With a good chunk of our rigs coming off contract in June, we have raised rates about 20% to 25% across the board exiting breakup, depending on the rig type.

Bob Geddes: We have 25 high-spec triple and double rigs operating today over breakup on pad work, with another 25 starting up next month. With a good chunk of our rigs coming off contract in June, we have raised rates about 20% to 25% across the Board exiting breakup depending on the rig type.

Bob Geddes: We are seeing leading-edge bid rates for the high-spec triples close to 30K and low twenty's for the high-spec doubles. These rates are still below the cost inflation-adjusted highs of mid-thirty's and mid-twenty's pre-COVID for the high-spec triples and high-spec doubles respectively. As I pointed out earlier, our Canadian drilling business here is operating without any reportable safety incidents. To execute in a winter season with a quick ramp-up in activity that we see in the Canadian region every year is a testament to our Canadian team. We also operate a fleet of 53 well-service rigs which operate with about 60% excess capacity that can expand into this building market.

Robert H. Geddes: We are seeing leading edge bid rates for the high spec tripples close to $30K and low twenty's for the high spec doubles. These rates are still below the cost inflation adjusted highs of mid thirty's and mid twenty's pre-COVID for the high spec triples and high spec doubles respectively. As I pointed out earlier, our Canadian drilling business unit operated without any recordable safety incidents to execute in a winter season with with a quick ramp up in activity that we see in the Canadian region every year is a testament to our Canadian team. We also operate a fleet of 53 well service rigs which operate with about 60% excess capacity that can expand into this building market. Our directional drilling business had a tough first quarter but is exiting breakup with about 15 jobs lined up at it's higher rates. Unless you own order resteerables, which is only a handful of the directional drilling companies in Canada, the basic directional drilling business is still a crowded space.

Bob Geddes: Our directional drilling business had a tough first quarter but is exiting breakup with about 15 jobs lined up in its higher rates. [inaudible] on order receivables, which is only a handful of the directional drilling companies in Canada, the basic directional drilling business is still a crowded space.

Bob Geddes: We also started to expand our rental fleet within [inaudible] rentals with specialty high torque drill rigs that clients are requesting for longer reach laterals. Any time a client requests a special drills [inaudible] with the rig we put that outside of the rig day rates and charge a rental price.

Robert H. Geddes: We're also starting to expand our rental fleet within Chandel Rentals with specialty high torque drill strings at clients are requesting for longer reach laterals. Anytime a client requests a special drill string with the rig we put that outside of the rig day rates and charge a rental price.

Bob Geddes: Moving the international, our international business unit outside of the COVID-related well scheduling situation in Australia came in as planned for the quarter. Kuwait continues to operate operationally in the [inaudible] with our client. Our two brine rigs are in the final stages of re-contracting for another three-plus years contract. Argentina has put a second deep high spec rate to work in the [inaudible] field this second quarter. We are slowly seeing bid activity improving in Argentina but it is certainly not at the same pace as North America. Venezuela is getting teased with possible olfac loosening, but there is nothing to report at this time. All our rigs are cold stacked and secure yards there.

Robert H. Geddes: Moving to international, our international business unit, outside of the COVID related well scheduling situation in Australia, came in as planned for the quarter. Kuwait continues to operate operationally in the upper decile with our client. Our two brain rigs are in the final stages of recontracting for another three plus year contract. Argentina has put a second deep high spec rig to work in the newcan field this second quarter. We are slowly seeing bid activity improving in Argentina but is certainly not at the same pace as North America. Venezuela is getting teased with possible olfac loosening but there is nothing to report at this time. All of our rigs are cold stacked in secure yards there. Australia has been, has been stuck at seven rigs mostly through all of the COVID time frame and is just seeing some light at the end the COVID tunnel. We have worked for an additional two rigs. It has been delayed and we are in the final stages of securing contracts or one to two incremental rigs that would start up fourth quarter most likely in Australia. Drilling solutions technology, we continue to see high uptake for our edge drilling solutions technology suite, our drilling rigs control technology. We now have our edge AP auto pilot platform on 42 of our rigs today and have an installed backlog of three months. We also introduced our edge ECO monitoring reporting, along with our edge ECO proactive fuel management system, which reduces GHG admissions and fuel costs for our client. All of these edge products are a la carte revenue stream opportunities at price out anywhere from $600 to $2,400 dollars a day. We also leverage our edge technology suite for our performance based incentive contracts where we can make an incremental $3,000 a day at P 90 metrics and up to $5,000 a day at P 50 metrics. The sell for PB contracts is quite simple. We want to earn 30 cents of every dollar we saved a client. The aligns with a notion that the drilling rig services is roughly 30% of the daily spread costs for a client. With that I'll turn it back to the operator for questions.

Venezuela is getting teased with possible olfac loosening, but there is nothing to report at this time. All our rigs are cold stacked and secure yards there.

Bob Geddes: Australia has been has been stuck at seven rigs, mostly through all of the COVID-19 time frame, and is just seeing light at the end of the COVID-19 tunnel. We have worked for an additional two rigs that has been delayed and we are in the final stage of securing contracts for one to two incremental rigs that would start up fourth quarter most likely in Australia. Drilling Solutions technology, we continue to see high uptake for our edge drilling solutions technology suite, our drilling rigs control technology. We now have our edge  AP auto pileup platform on 42 of our rigs today and have an installed backlog of three months. We also introduced our edge eco-monitoring reporting along with our edge eco-proactive fuel management system which reduces GHG emissions and fuel costs for our client. All of these edge products are a la cart revenue stream opportunities that price out anywhere from $600 to $2400 a day. We also leverage our edge technology suite for our performance space incentive contracts where we can make an incremental 3000 a day of P-90 metrics and up the 5000 a day of P-50 metrics. The sells for PB contracts are quite simple: we want 30 cents of every dollar we save the client with the notion that the drilling rigs services is roughly 30% of the daily spread costs for the client. With that, I'll turn it back to the operator for questions.

Speaker 4: AP auto pilot platform on 42 of our rigs today and have an installed backlog of three months. We also introduced our edge ECO monitoring reporting, along with our edge ECO proactive fuel management system, which reduces GHG admissions and fuel costs for our client. All of these edge products are a la carte revenue stream opportunities at price out anywhere from $600 to $2,400 dollars a day. We also leverage our edge technology suite for our performance based incentive contracts where we can make an incremental $3,000 a day at P 90 metrics and up to $5,000 a day at P 50 metrics. The sell for PB contracts is quite simple. We want to earn 30 cents of every dollar we saved a client. The aligns with a notion that the drilling rig services is roughly 30% of the daily spread costs for a client. With that I'll turn it back to the operator for questions.

Operator: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please slowly press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to remove yourself from the question queue please press star followed by 2. And if you're using a speaker phone, we do after that you please lift the handset before pressing any keys. Please go ahead and press star one now if you do have a question.

Multiple speakers: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please slowly press star followed by one on your touch tone phone. You will then hear a three tone prompt acknowledging your request. And if you would like to remove yourself from the question queue, please press star, followed by 2. And if you are using a speaker phone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now. If you do have a question. And your first question will be from Waqar Syed at ATB Capital Markets. Please go ahead. Thank you for taking my question.

please press star followed by 2. And if you're using a speaker phone, we do after that you please lift the handset before pressing any keys. Please go ahead and press star one now if you do have a question.

Operator: And your first question will be from Waqar Syed at ATB Capital Markets. Please go ahead.

Waqar Mustafa Syed: Hi and thank you for taking my question. Bob and Mike, what was the rig reactivation cost in the quarter?

Bob and Mike, what was the rig reactivation cost in the quarter?

Waqar Mustafa Syed: Bob and Mike, what was the rig reactivation cost in the quarter?

Mike Gray: Definitely not as much as we saw in Q4. We only, I believe it was one reactivation in the US in the quarter. We'll see some reactivations in the next couple of quarters. So not material, but definitely not what we saw in Q4.

Mike Gray: Definitely not as much as we saw in Q4. We only, I believe, was one reactivation in the U.S. and the quarter. We'll see some reactivations in the next couple of quarters. So not material, but definitely not what we saw in Q4.

Waqar Mustafa Syed: Okay. So just in that case in Q2, how many rig reactivations are expected and what will likely be the cost there?

Waqar Mustafa Syed: Okay. So just, in that case, in Q2 how many rig reactivations are expected and what would be the likely cost there?

Mike Gray: So we've got nine rig reactivation and upgrades that are occurring mostly in the second quarter Waqar and they are ranging anywhere from 750 to maybe 1.5, somewhere in that range.

Robert H. Geddes: So we've got- we've got nine rig reactivation and upgrades that are occurring in <inaudible> hit mostly in the second quarter, Waqar, and they're- gosh, they're raising anywhere from 750 to maybe 1.5. Somewhere in that range.

gots of RIN anywhere from 750 to maybe one point five somewhere that range.

Speaker 4: gosh, they're raising anywhere from 750 to maybe 1.5. Somewhere in that range.

Bob Geddes: The majority of that is [inaudible] related, as it relates to an upgrade.

Mike Gray: The majority of that is <inaudible> related, as it relates to an upgrade.

Waqar Mustafa Syed: Okay, so 750 would be like, let's say, the OpEx impact and the rest is CapEx impact. Is that fair?

Waqar Mustafa Syed: Okay. So, 750 would be like, let's say, the OpEx impact and the rest is a CapEx impact? Is that fair?

Is that fair?

Speaker 10: Is that fair?

Multiple speakers: [Mike Gray] Yeah. [Waqar Syed] That makes sense. Now in terms of thinking about SG&A costs going forward, is $10.9 million kind of run rate the right way to think about it or should we look at it from a percentage of revenue basis?

That makes sense now in terms of thinking about a you que cost going forward. Is $10.9 million kind of run rate. The right way to think about it- or should we look at- is from a percentage of revenue basis.

Multiple speakers: Yeah. That makes sense. Now in terms of thinking about S&A cost going forward, is $10.9 million kind of run rate the right way to think about it- or should we look at from a percentage revenue basis?

Mike Gray: No, I think that 10.9, so that's essentially 40 to 45 million for GNA is probably a good number to have. We don't foresee really anything that's going to change on the increases. We've done a lot of work in the past to make sure that any increases in activity aren't seen with large increase in GNA.

Mike Gray: No I think that 10.9,- So that essentially $40 to $45 million for GNA is probably a good, a good number to have. We don't foresee really any, anything that's going to change on the increases. We've done a lot of work in the past to make sure that any increases in activity aren't seen with a large increase in G&A.

Bob Geddes: Yeah, our operating costs per today on the overhead side are probably dropping Waqar when we look at budget to actual on days, probably almost $1000 a day.

Robert H. Geddes: Yeah, our operating costs today on the overhead side are probably dropping, Waqar, when we look at budget to actual on days, probably almost $1,000 a day.

Waqar Mustafa Syed: Yeah, and then Bob, in terms of margins, where do you think the margins could go up to? Let's think about like gross profit margins. So roughly could we get to 30% type gross profit margins in the coming quarters or years, or how should we be thinking about what the peak margins are like?

Waqar Mustafa Syed: Yeah. Okay. And then in terms of margins, where do you think the margins could go up to? Let's look- let's think about that gross profit margins. So roughly could we get to 30% type gross profit margins in the coming quarters, or years, or how should we be think about what the peak margins are like?

Coming quarters, or is, or how should we be think about what the peak margins are like?

Speaker 6: coming quarters, or years, or how should we be think about what the peak margins are like?

Multiple speakers: [Bob Geddes] Well, we certainly have got a lot of traction right now. I mean coming out of the gate, we moved rates, as I mentioned, 20 to 25%. We signaled to our clients to expect 10% quarter-over-quarter margins. As I mentioned in my preamble there, about 90% of that is sticky on the EBITDA side. So I think we're probably quarters away from getting close to 30, I would sense, not years. [Waqar Syed] And that's a gross profit margin number right, which is [inaudible] 3% or so in Q1?

Robert H. Geddes: Well we certainly have got a lot of traction right now. I mean coming out of the gate, we moved rates, as I mentioned, 20% to 25%. We signalled to our clients to expect 10% quarter or quarter margins. As I mentioned in my preamble there, about 90% of that is sticky on the EBITDA side, so I think we're we're probably quarters away from getting close to 30, I would sense. Not years.

Quarters away from getting close to 30, I would sense.

Speaker 4: quarters away from getting close to 30, I would sense. Not years.

Not years.

And and that's a gross profit margin number right, which is third per open, 3% or so in Q1.

Multiple speakers: So and that's a gross profit margin number, right? Which is <inaudible> .13% or so in Q1? Right. Right.

Bob Geddes: Right.

Waqar Mustafa Syed: Okay. And then, in terms of Bob, you mentioned that there were some upgrades from triples to super-triple AC rigs, could you maybe provide some detail on what kind of upgrade was that, what equipment was added, and what was the kind of cost should do an upgrade?

Speaker 11: yeah.

Ok.

And then, in terms of Bobby mentioned that there were some upgrades from super trip, from Triples to super tripleacy rigs, could you maybe provide some detail on what kind of upgrade was that, what equipment was added and what was the kind of cost should do in upgrade?

Waqar Mustafa Syed: Yeah. Okay. And then, in terms o- Bob, you mentioned that there were some upgrades from super trip, from triples to super triple AC rigs. Could you maybe provide some detail on what kind of upgrade was that? What equipment was added and what was the kind of cost to do an upgrade?

Bob Geddes: Yeah generally, and it depends on the rig specific. There are rigs that the racking board is easily modified to 25,000 racking capacity. The top drives would have been scheduled in for recertification. While we're doing that, we upgrade those for about another $200,000 to a high torque, then any of the high-spec pipe that the clients are asking, the five and a half pipe is always on the outside and that goes for around $4,500 dollars a day for those drill strings. The drill strings have start lasting as long as I used to because of our durables we're getting a lot of excess wear on the tube, so that's happening. The other component is we've got a good inventory of pumps, so adding a pump onto the rig is relatively easy, it's just the fitting it into the rig. And most of these high-spec rigs already have 7500 PSI fluid handling system, so there is not much required there.

Speaker 4: Yes generally, and it depends on the rig specific. There's rigs that the the racking Board is easily modified to two point zero zero five million foot racking capacity. The top drives would have been scheduled in for a recertification. While we're doing that, we upgrade those for about another $2 thousand to a high torque. Then we're any of the high spec pipe that the clients are asking. The five and a half pipe is always on the outside and that goes for around fortythousand, five hundred dollars a day for those drill strings, the drill strings to start lasting as long as I used to because of our reurables we're getting a lot of excess where on the tube, So that's happening. The other component is: you know we've got a good inventory of pumps, So adding a pump on to the rig is is relatively easy. It's just. It's just the fitting it into the rig, and most of these high spec rigs already have seventthousand, five hundred P SI.

Waqar Mustafa Syed: Okay, so how many rigs would be falling in that 1500 horsepower AC, 7500 PS size circulating systems like that other 25,000 foot racking capacity? How many rigs in the US would fall in that particular category?

Bob Geddes: It would probably be about 36 would be what we would call our super-spec triple category.

Waqar Mustafa Syed: In the US?

Bob Geddes: Correct, in the US.

Multiple speakers: [Bob Geddes] Yeah, in Canada there's not much bifurcation between the high-spec triple and what we would call the super-spec triple in the Permian. There's just no bifurcation quite yet. [Waqar Syed] And in terms of the share-based comp your number was $10.4 million, Mike going forward, what kind of a run rate should we be thinking about and what were maybe some of the factors that drove the number high?

Fa and in terms of the share abbased compp- that was your number- was 5- $10.4 million Mike going forward. What kind of a run rate should we be thinking about and what were maybe some of the factors that drove the number high?

Speaker 8: And in terms of the share abed compp, that was a number of $5.4 million.

Speaker 6: Mike going forward. What kind of a run rate should we be thinking about and what were maybe some of the factors that drove the number high?

Mike Gray: Essentially there was a 100% increase in the share price so our run rate is really going to be dependent on how things kind of roll with the share price. So as of today, that stock-based comp would actually be a recovery with today's price. So you can't really get too much guidance on what that would look like. The option grounds and everything are done end of March, start of the April, so we have stuff roll off, stuff comes back on. So from the number of outstanding securities that would be marketed it's fairly neutral, so it's really just share price driven.

Speaker 7: Essentially it was a hundred percent increase in the share price. So or run rate it's really going to be depent on on how things kind of rolled with the share price So as of today that stockbased confid actually be a recovery with today's price. So you CAn't really get too much guidance on what that would look like. The option grounds, everything are done at a marked start of the April . So we have stuff rolloff, stuff comes back on. So from from the number of outstanding Securities that would be marked to marketed fairly neutral. So it's really just share price driven. I think that's all I have. Thank you very much.

Waqar Mustafa Syed: Yeah, great. That's all I have. Thank you very much.

I mean, that's all I have. Thank you very much.

Operator: Your next question will be from Aaron Mcneil at PV Securities. Please go ahead.

Speaker 2: Your next question will be from Aaron mcneal at T V Securities, So please go aheada morning. All thanks for taking my questions, Bob. You mentioned the 20 to 20 five percent increase on day rates and then I think you said doubles in the low 20.

Aaron MacNeil: Hey, morning all, thanks for taking my questions. Bob, you mentioned the 20 to 25 percent increase on day rates and then I think you said double is in the low twenty's. My question is: can you speak how pricing has evolved for that double asset class over the past year? And what do you see going forward, just given the high utilization of triple in Canada?

Questions Bob, you mentioned the 20 to 20 five percent increase on.

Day rates and then I think you said double.

In the low twenty's. Yes, my question is: can you speak how pricing evolved for that double asset class over the past year?

Speaker 12: yesess. My question is: can you speak how pricing evolved for that double asset class over the past year?

And what do you see going forward, just given the high utilization of?

Speaker 12: And what do you going forward, just given the high utilizationpleyeah? Well last, I mean the Cardium Central oall oil market was quite decimated last few years and the high spec doubles which you know we've got the the highest market share of fleet capacity in Canada, I mean it was. It was down, you know 13, 14 thousand. At one point it started moving up last year in the 15- 16. we saw momentum getting into the, into the high teens here in the first quarter and our current bids on our high spec doubles or are in the low twenty's now 20 plus.

Bob Geddes: Yeah, well last, I mean the Cardium Central of the oil market was quite decimated last few years and the high-spec doubles which we've got the highest market share of fleet capacity in Canada, I mean it was down, 13,000-14,000 at one point. It started moving up last year in the 15-16. We saw momentum getting into the high teens here in the first quarter, and our current bids on our high-spec doubles are in the low twenty's now, 20 plus.

Aaron MacNeil: Perfect. Mike, I know you've mentioned land sales in the past, but is there anything that's sort of high probability in the pipeline in terms of asset sales, in order to kind of accelerate some of the debt reduction plans you have internally? And maybe you could also add, while you're at it, what you think working capital balances might trend over the next couple of quarters. 

Speaker 13: Perfect Mike, I know you've mentioned land sales in the past, but is there anything that' sort of high probability in the pipeline in terms of asset sales in order to kind of accelerate some of the debt reduction plans you have internally? And maybe you could also add player at it what you think working capital balances might, how they might trend over the next couple of quarters?

Mike, I know you've mentioned land sales in the past, but is there anything that's sort of?

You know, high probability in the pipeline in terms of asset sales, in order to kind of fi.

celerate some of the debt reduction plans you have internally, and maybe you could also add, while you're at it, when you think working capital balances might have.

Mike Gray: Yes, for land, we have two properties available for sale. Those are currently on the market, so we're starting to see some increased interest in that. So I don't think it will be anything in the near term but I believe in the future we'll definitely see those property start to move which will definitely go towards the balance sheet and those are North of $30 million in total so we can definitely see some deleveraging from those assets transactions. From a working capital perspective, I mean Q2 is definitely a harvesting of the Canadian drilling winter season accounts receivable, so we'll see Q2 continue to build up our liquidity, and then we'll see kind of going into Q3 how things are shaping up. But Q2 definitely is one of our better quarters for collections.

Speaker 7: Yes for land. We have two properties up in this E available for sale. Those are are currently on the market. So think there's we're starting to see some increased interest in that. So I don't think we'll be anything in the near term But I believe in thefuture will definitely see those property startsto move which will definitely go towardsas the balance sheet, and those are North to $3 million in total. So we can see some <expletive>, some definitely some deleveraging from those assets transactions. From a working capital perspective, I mean Q2 is the definitely a harvesting of the Canadian drilling winter season accounts receivable. So we'll see Q2 continue to build up our liquidity and then we'll see kind of going into Q3 out. Things are shaping up but Q2 definitely is one of our better corarters for collectionsok. That's fe for me.

Aaron MacNeil: Okay, that's all from me. I'll turn it over.

Operator: Thank you. The next question will be from Keith Mackey at RBC. Please go ahead.

Speaker 11: Thank you. Next question will be from piece macking at R B, C. Please go aheadgood morning everyone is. The first question will be on the rig activations. U's your 50 now with a line of site to 60 and Q3 and 60. five by your end is, I believe, what I heard. I think that's a little bit more constructive maybe than some of the some of the? U's peers that are are forecasting for their own rig editions. So you maybeme just talk a little bit about where you see those rigs going back to work and essentially how you you're able to to outperform. You know the market in terms of rig editions throughout the year.

Thank you. Next question will be from key macking at R B C. Please go ahead.

Keith Mackey: Hi, good morning everyone. The first question would be on the rig activations in the US, now with a line of sight to 60 and Q3 and 65 by year-end is, I believe, what I heard. I think that's a little bit more constructive maybe than some of the US peers that are forecasting for their own rig additions. So can you maybe me just talk a little bit about where you see those rigs going back to work and essentially how you're able to outperform the market in terms of rig additions throughout the year?

Bob Geddes: So I mean, if we're staying to the margin versus market share and we're not trying to put more rigs that are required into the market, out into the market at a faster pace than anybody else, but certainly at an equal pace looking to claw back on the margins first. I think specifically the areas, the Permian is the area that's gathering the most amount of attention for us, that's where we got our biggest upside. And then maybe a couple of rigs into the Rockies region. As I mentioned California is still hampered by some well license issues, typical California challenges, right?

Speaker 4: So I mean if, if we re staying into the margin versus market share M MO, we we-'re- we're not trying to put more rigs that are required into the market, out into the market at a faster pace than anybody else, but certainly at an equal pace. Looking to calllawback on the, on the margins first, I think specifically the areasis the Permian is is the area that's gathering the most amount of attention for us. That's, that's where we got our biggest outside and maybe a couple of rigs into the, into the Rockies region. As I mentioned, California is still hampered by by some well license issues, typical California challenges, right.

And we we're. We're not trying to put more rigs that are required into the market, out into the market at a faset pacement than anybody else, but certainly at an equal pace. Looking to calllaw back on the, on the margins first, I think specifically the areas. The Permian is is the area that's gathering the most amount of attention for us' that's where we got our biggest upside. And then maybe a couple of rigs into the, into the Rockies region. As I mentioned. California is still hampered by some well, license issues, typical California challenges, right.

Speaker 9: It makes senseand at the end of the quarter you're good in good standing with credit facility covenants, but fairly tight, I would say, on the senior debt to EBITDA covenant. Mike, can you just maybe talk about how you expect the trend through the remainder of the year? I know both the debt and the EBITDA are going to be moving parts to that, but how, why do you? Why do the margin you expect to have on your, your covenants- the year progresses and you bring more rigs Act into the field but also face some reactivation costsyeswe're definitely comfortable with what we have. If you look- I mean due to the prior year- EBITDA was 45.6 million. If you got to look at where consensus is that.

Keith Mackey: Got it, makes sense. And at the end of the quarter in good standing with credit facility covenants, but fairly tight, I would say, on the senior debt to EBITDA covenant. Mike, can you just maybe talk about how you expect the trend through the remainder of the year? I know both the debt and the EBITDA are going to be moving parts to that, but how wide of a margin do you expect to have on your covenants as the year progresses and you bring more rigs back into the field but also face some reactivation costs?

Mike Gray: Yes, we're definitely comfortable with what we have. If you look, I mean, Q2 of the prior year, EBITDA was 45.6 million. If you kind of look at [inaudible] it's 63.7 for Q2 of 2022, so you're seeing a significant increase in activity in EBITDA. So the bank revenue is on a trailing [inaudible] so as we draw the lower quarters from 2021 you'll see that covenants start to improve as we go out throughout the year. So we definitely have enough room for it and don't forsee any issues.

Or than 63.7 for Q2 of 2020 two So you're seeing a significant increase in activity in EBITDA. So the bank venues on a trailing 12. So as we drop the lower quarters from 2021 , you'll see that covenants start to improve as we go out throughout the year. So we definitely have an enough room for it and don't see any issues on.

Speaker 5: Or than 63.7 for Q2 of 2020 two So you're seeing a significant increase in activity and EBITDA, So the bank revenues on a trailing 12. So as we drop the lower quarters from 2021 , you'll see that covenants start to improve as we go throughout the year. So we definitely have an enough room for it and don't fore see any issues.

Keith Mackey: Got it. And just finally from me, if we think about your contract look and the proportion of long-term contracts that you've currently got, rates are moving up in Canada and the US, how are you thinking about longer-term contracts now? Or do you think rates are still below where they need to be to sign a multi-year contract in these regions or is it starting to look pretty good?

Speaker 14: And just finally for me if we think about.

Your contract. Look and the proportion of long-term contracts that you've currently got. Rates are moving up in Canada and the? U's. How are you thinking about longer-term contracts now? Or you think you think rates are still below where they need to be to sign a multiyear contract in?

Speaker 15: Your contract. Look and that proportion of long-term contracts that you currently got. Rates are moving up in Canada and the? U's. How are you thinking about longer-term contracts now? Or you think you think rates are still below where they need to be to sign a multiyear contract in these regions, or starting to look pretty good?

In these regions were or starting to look pretty good.

Mike Gray: So multi-year contracts are really a no-go right now. Anywhere we've got a client who is looking for an annual contract we're having ladders built in basically every quarter and we'll do present value and give a blended rate if they're really insisting on an annual number and it'll be quite a bit higher than the current quarterly rate that we're suggesting. So when I look on an inflation adjusted basis, most of this labor and other costs are high-spec triples, we're getting in the low thirty's before and when you look at capital replacement, these rigs are all built in US dollars and you look at the degradation of the Canadian dollar, if we focus on that market specifically, these are almost $30 million rigs now and we've always mentioned that to get a reasonable rate of return you need to have a thousand dollars of margin for every million dollars invested and that holds true more particularly in Canada where rigs don't get 365 days a year. They typically get 250-275 days a year, it's different than the US. So you've always got a little bit of a differentiation there. So on a net-net basis, I think before anyone would ever start to contemplate new builds, they're going to have to see day rates in the high thirty's for the high-spec triples and the high twenty's for the high-spec doubles. So we got a way to go.

Speaker 4: So multi year contracts are really a no go head how we're anywhere. We've got a client who is looking for an annual contract. You know we're having ladders built in basically every quarter and you know we'll do a present value and give a blended rate if they're really insisting on a on on an annual number and will be quite a bit higher than the current, than the current quarterly rate that're we're suggesting. So you know when I look at on on an inflation adjusted basis, most of this labor and another cost, you know our, our high spec Triples, we're getting in the low thirty's before and when you look at capital replacement, these rigs are all built in U's dollars and you look at the the degradation of the Canadian dollar if we focus on that market specifically, these are: these are almost $3 million rigs now and you know we've always mention that.

Speaker 4: To get a reasonable rate of return you need to have a thousand dollars of margin for every million dollars invested, and that holds true more particularly in Canada, where rigs don't get 365 days a year. theytypically get two fif 75 days a year. It's different than the? U's, So you've always got a little bit of a differentiation there. So on a net net basis I think to be, before anyone would ever start to contemplate new builds, they're going to have to see day rates in the high thirty's for the high spec Triples and the high twenty's for the high spec doubles. So we've got a ways to GOI'll think there me thinks are much.

So we got a way to go.

Keith Mackey: That's it for me. Thanks very much.

Mike Gray: Thank you. 

Speaker 2: Thank you next question will be from John Gibson. I'd be more capital markets. Please go aheadmorning all first for me to kind of know touching on Keith last question. If you look at the upcoming contracts season.

Operator: Next question will be from John Gibson at BMO capital markets. Please go ahead.

John Gibson: Morning all. First for me kind of touching on Keith's last question, if you look at the upcoming contracts season, what percentage of your rigs under contract today would be at sort of legacy rates? And then maybe, if we look into Q3, what percentage of rigs will be under contract at the higher pricing levels?

Touching on Keith's last question if you look at the upcoming contracts asoneven.

What percent of your rigs under contract today would be at sort of legacy ate rates. And then maybe, if we look into Q3, what percentage of rigs will be under contract at the higher pricing levels.

Speaker 16: What percent of your rigs under contract today would be at sort of legacy rates, and then maybe, if we look into Q3, what percentage of rigs will be under contract at the higher pricing levels.

Bob Geddes: Right. In Canada essentially it's zero. All of our contracts peel off right around breakup which is pretty typical

Speaker 4: Right and Canada and zero. All of our contracts peel off right around breakup, which is pretty typical.

Bob Geddes: Through the neighbors' acquisition they peeled off all their contracts peeled off in June so we're in the middle of re-contracting those at rates that I mentioned. In the US we try and get a cadence of a quarter of the fleet every quarter and we're probably close to that. When I look at the US, international is a different flavor again, the Middle East, our quake rigs are contracted at 25, our Bahrain rigs are in the middle of being re-contracted here for another three years. In Argentina, there are basically annual contracts, we're just in the middle of re-contracting one of them with a major rate increase. The other one already had rate increases into its short-term contract. And Australia is generally on annual contract basis outside of special project campaigns, but I would suggest that its cadence is pretty well blended through the year. It is not coming off in one particular month.

Speaker 4: Through the, the neighbor's acquisition. They peeled off all their contracts peeled off in June . We're in the middle of recontracting those that rids. What I mentioned in the U's we try and get a cadence of a quarter of the fleet every quarter and we're probably we probably close to that. When I look at the U's international is a different flavor. Again the Middle East. Our quake rigs are contracted to 25. our bain rigs are in the middle of being recontracted here for another three years. In Argentina we have there is basically annual contracts. We're just the middle of recontracting one of them with a major with a rate increase. The other one was already had rate increases into its short term contract.

Speaker 4: And Australia is generally on annual contract basis, outside of special project campaigns, but I would suggest that it cadence is is pretty, pretty well blended through the year. It is not coming off in one particular month, is it fair? Assume on that you'll see a pretty big step changing in that revenue per operating day, at least in Canada in Q3.

John Gibson: Is it fair to assume then that you'll see a pretty big step change in that revenue per operating day, at least in Canada in Q3?

Bob Geddes: Oh for sure, I think right across the board, except for the Middle East and Argentina where we've got more stable or less beta contracts.

Speaker 4: Oh for sure, I think right across the Board, except for the Middle East and Argentina, where we've got more, more stable or less beta contracts.

John Gibson: Second of me: can you talk about where field margins are at on your various rate classes? And then given some pricing increase in the back up year, could we go quite a bit North the 50%?

Speaker 16: Second for me: can you talk about wherefield bargainins are out on your various rate classesand then?

The and.

Given some pricing increase in the back up year, could we go quite a bit North the 50% anything?

Speaker 16: Given us a prickingincre in the back up year because be go quite a bit North. A fif percent, anythingohwe. Don't really view the closure on on the rate PX I guess. But I mean we're seeing and I think broad base- I mean all the rigs are- are definitely contracting up from the dayate perspective. A lot of the say inflationary costs like fuel and labor are really on the outside of the contract. So it's more of europees open Dope that would impede on some of that. So I could say a good chunk of the increases ever seeing across the border will definitely go down to our margins. Got it an lap on for me.

Bob Geddes: Oh we don't really do disclosures on the rate patch, but I mean we're seeing I think broad based I mean all the rigs are definitely contracting up from the day rate perspective. A lot of the inflationary costs like fuel and labor are really on the outside of the contract, so it more of [inaudible] that would impede on some of that. So you could say a good chunk of the increases that we're seeing across the board will definitely go down to our margins.

John Gibson: Got it. And the last one from me, sorry if I missed this, but you talked about the cadence of regulations in the US, where do you see your account peaking in Canada at the back half of the year?

A circ missth list, but you talked about cadence of regulitations. In U's wheredoyou your account peeking in Canada at the back half of the year?

Speaker 16: circ on gu this. But you talked about cadence of regulations in the's, where you see your account peeking in Canada at the back half of the year. I think we'll get the 65 John by the end of the year in Canada and in the? U's, So we're going to be mirring each other great. I saw that allal ter about.

Bob Geddes: I think we'll get to 65 John by the end of the year in Canada and in the US, so we're going to be mirroring each other.

John Gibson: Great. Thanks a lot. I'll turn it back.

Operator: Thank you. Once again, ladies and gentlemen, as a reminder, if you would like to ask a question, please slowly press star followed by one on your touchtone phone.

Speaker 2: Joe. Thank you once again. Ladies and gentlemen, as a reminder, if you would like to ask a question, Please slowly PL press star, followed by 1, on your touchstone phone.

Operator: And your next question will be from Andrew Bradford at the Raymond James. Please go ahead.

Speaker 2: And your next question won't be from Andrew Bradford at the wayaymond James. Please go ahead. The morning guys, things were taking my questions I. I just want to revisit the sort of the leading edge rates a little bit. First in the U's, and you sort of talked about north of three thousand a day, which is.

Andrew Bradford: Good morning guys. Thanks for taking my questions. I just want to revisit sort of the leading edge rates a little bit, first in the US, and you sort of talked about north of 30,000 a day, which is not much different than what a lot of your competitors in the US are talking about as well, and you have 36 super-spec triples you indicated. So, like, how many of those rigs do you see are are tracking that kind of rate?

There's not much different than what what the lot of your competitors in you answer for talking about as well, and you have 36 superspepect Triples you indicated. So, like: how many of those rigs do you see are are?

Speaker 17: There's not much different than what a lot of your competitors in the us are talking about as well, and you have 36 super-spect Triples. Is you indicated So like? How many of those rigs do you see are are tractking that kind of rate?

Are tracking that kind of R.

Bob Geddes: Yeah, that's--

Speaker 4: yeah ASA like I just interrupt your Bob. Just it's another way of asking: are all 36 of those rigs?

Andrew Bradford: Sorry, just interrupt you, Bob, it's another way of asking are all 36 of those rigs attracting all the same rates, or are they all similar in spec?

Are they attracting all the same rates or they allse similarly expect?

Speaker 17: Are they atacting all the same rates of the El? Similarly pectyes, they would be all, they would all be working into those rates. I would suggest that certain, certainly in the next four months, that all of those rigs will be at those rates as our contracts are turning over and being recontracted. But the leading and the leading edge today on those rigs for contract coming off and recontracting is in the low 30 S.

Bob Geddes: Yeah, they would all be working into those rates. I would suggest that certainly in the next four months that all of those rigs will be at those rates as our contracts are turning over and being re-contracted. But the leading edge today on those rigs for contract coming off and re-contracting is in the low 30s. That's with pipe and the technology suite that they're used to on that rig continuing.

That's with pipe and the technology suite that they're used to on that rig continuing.

Speaker 4: That's with with pipe and the technology suite that they're used to on that rig. Continuing and fair to say that all 36 of those rigs does that include the nine that are? Subject: upgrade correct.

Andrew Bradford: And fair to say that all 36 of those rigs, does that include the nine that are subject to upgrade right now?

Bob Geddes: Correct.

Andrew Bradford: Okay, and so they are definitely all working in that 60 rig third quarter number 65 rig fourth quarter.

Speaker 17: Okay And so they are definitely all working in that. 60 rig, third quarter number. 65 G, four quarter number.

60 rig third quarter, number 60, five rig fourickar.

Bob Geddes: Right. The other thing we're finding is- and we've got 44 of the 1500, I'm sorry, 46 of what we call the high-spec rigs that can be upgradable. And let me back up, of the 9 probably 4 of those would be the high-spec triple that are being pulled up into a super-spec category so we'll end up with about 40 super-spec triples, but we're finding that essentially the US business is sold out of the super-spec triples and so the operator is saying well, what's your next class of rig? And of course, the high-spec 1500 is the next class of rig and in some cases, the operator is saying that will work just fine too. So the super-spec triple is most desirable when they can't get at the high-spec triple is we're finding able to do similar work. It may not be able to do four-mile laterals, but it can certainly do three-mile laterals very cost-effectively.

Speaker 18: Right the other thing we're finding is- and we've got 44, the 1500, I'm sorry 46- of the but we call the high spec rigs that can be upgrade a bowl. And let me back up of the 9, probably 4- those would be the highspec triple that are being pulled up into a super spec categories, who will end up with about 40 super spec Triples, but that we're finding that the essentially are U's business is sold out of the super spec Triples And so the operator is saying what's your next class of rig? And of course the high spec 1500 is the next class of rig and in some cases the operator is saying that will work just fine two So you know the super spec triples the most desirable. If when they CAn't get at the high spec triple is we're finding able to do similar work it. It may not be able to do four mile laterals, but it can certainly do three mile laterals very cost effectively.

Andrew Bradford: Yeah, all these bells and whistles are nice to have when they're priced lower, [inaudible] They were kind of similar in Canada, I think you alluded to the idea or maybe one of the previous analysts alluded to the idea that as the demand increases for the higher-spec rigs in Canada you're finding some pull on the higher-spec doubles. So when we talk about the rates going from I think you said 13,000 a day or so at the bottom to maybe just north of 20,000 below twenty's today, how many rigs does that apply to in your active rig mix now?

Speaker 19: All theseall these bels and whestsels are nice to have when they are pricing lower. Necessarily need my cases. They was kind of similar. Yes, in Canada. I think you alluded to the idea that, or maybe one of the previous analysts alluded to the idea that as the demand increases for the higher spec rigs in Canada, you finding some pull on the higher spec doubles.

All these bels and whistles are nice to have when they're.

orprice lower not necessarily need to have my cases.

They was kind of similar in Canada. I think you alluded to the idea that or maybe one of the previous analysts little the idea that as.

The demand increases for the higher spec rigs. In Canada you re finding some pull on the higher spec doubles.

And I you know. So when we talk about the rates going from that. You said you know 13 thousand a day or so at the bottom to.

Speaker 17: knowso when we talk about the rates going from that you said 13 thousand a day or so at the bottom- to just north of two thousand and below twenty's today.

We have just north of two thousand below twenty's day.

Is how many rigs? Does that apply to interactive rig mix now?

Speaker 17: Is how many rigs that apply to in your active rig mix nowso in Canada we've got- let me see here: we've got- 30 of the high spec doubles in Canada that fall into that category and we have 44 conventional doubles, and some of the conventional doubles are very close to high spec doubles. Some of them are just missing a 7500 psi system, which is easily upgradable. We've got one rig, in fact, that a client is agreed to pay a surcharge over the next 10 months and we're adding the 7500 psi system on to it. So you know that that basically puts a fleet of 76- I'm sorry, 74- doubles, half of them being high spec doubles, and the highspe doubles get further bifurcated.

Bob Geddes: So in Canada, let me see here, we've got 30 of the high-spec doubles in Canada that fall into that category and we have 44 conventional doubles. And some of the conventional doubles are very close to high-spec doubles. Some of them are just missing a 7500 PSI system which is easily upgradable. We've got one rig, in fact, that a client has agreed to pay a surcharge over the next 10 months and we're adding the 7500 PSI system onto it. So that basically puts a fleet of 76- I'm sorry, 74 doubles, half of them being high-spec doubles. And the high-spec doubles get further bifurcated, some of them have self-moving systems on them and those ones are going for around, low twenty's. We typically add $2000 a day for our self-moving capability on whatever rig it may be.

Let me see here. We've got 30 of the high spec doubles in Canada that fall into that category and we have 44 conventional doubles. And some of the conventional doubles are very close to high spec doubles. Some of them are just missing a 7500 P's SI system which is easily upgradable. We've got one rig, in fact that a client is agreed to pay a surcharge over the next 10 months and we're adding the 7500 P's SI system on to it. So you know that that basically puts a fleet of 76- I'm sorry, 74- doubles, half of them being high spec doubles. And the high spec doubles get further bifurcated. Some of them have self moving systems on them and those ones are going around, you know, below twenty's. We typically had $2 thousand a day for our self moving capability on on whatever rig may be.

Speaker 4: Some of them have self moving systems on them and those ones are going for around below twenty's. We typically add $2 thousand a day for our our self moving capability on whatever rigor may be. But But of the of those 74 rigsx, how can you ballpark the me like how many would be in your rig mix moving up today? But I mean, would you anticipate being your active rig mix early in the summer?

Andrew Bradford: But of those 74 rigs, can you ballpark from me like how many would be in your rig mix maybe not today, but I mean, would you anticipate being in your active rig mix early in the summer?

How can you ballpark from me like how many would be in your rig mix?

moaving up today, but I mean, would you anticipate being your active rig mix?

Early in the summer.

Bob Geddes: Certainly, the biggest uptick has been on the high-spec doubles where we've had capacity to increase. I would suggest that we're probably going from 15 to 20 to 25. We'll probably be sold out of our high-spec doubles here going into the fourth quarter, based on some of the initial conversations that we've been having with certain clients.

Speaker 18: The certainly the biggest uptick has been on the high spec doubles where we've had capacity to increase. I would suggest that we're probably going from 15 to to 20 to 25 will probably be sold out of our high spec doubles here going into the fourth quarter, based on some of the initial conversations that we've been having with certain clients.

Andrew Bradford: That's encouraging, thanks for that. And sorry, I don't want to stretch this too log here, but you'd also indicated earlier on that a lot of the neighbor's rigs contracts were rolling at the end of June. Would those contracts have already had price escalators built into them to accommodate cost inflation that you've seen to this point--some of that increment will be accommodated?

Speaker 17: Surging panks for that and I" S SOR. I don't want to stretch this two log here. But you D also indicated earlier on that a lot of the neighbor's rigs contracts were rolling at the end of June with those contracts have already had price escalators built into them to accommodate cost inflation that you've seen to this, pointsuch as the incre may. Some of that increment will already be accommodated.

Bob Geddes: Yes, sorry, Andrew. They were at prices set over a year and a quarter ago. The cost escalations are afforded by the CADC contract and they're all on CADC contract, so labor escalations have passed through and any other general industry increase they may see as a pass-through as well.

Speaker 4: Yes sorry andrered, yet they were at prices set over a year and a quarter ago. The cost escalations are afforded by the CDC contract and they're all on cadc contract. So labor escalations a pass-through. In any other general industry increase they may see as a pass-through as well.

Andrew Bradford: So that 20 to 25% price increase that you had mentioned, and then you said 10%, I think you said net cost, is that 20% to 25%? Should we be thinking about that as notionally around $5000 a day pumped tier margin on those rigs or is that just the top line bonus? 

Speaker 17: So does that to that 20%, 25% price increase that you had mentioned? Is that at this? And then you said 10 percenti think you said net of cost, is that 20% to 25%? I think should we be thinking about that as notionally around $5 thousand a day?

Price increase that you had mentioned.

Is that at this? And then you said 10%.

I think you said net.

Of cost. Is that 20% to 25%? I should we be thinking about that as notionally around $5 thousand a day.

Pumped Tier margin on those rigs.

Speaker 17: Bump, tieryour margin on those rigsor grant the top line BU? MP. yesno, that's the margin bump. Yes yes, my point was that labor is a le biggest cost, but it's covered by my contract escalation, the. If we assume $4 thousand a day as an operating cost, on on a triple and you get 5% inflation on as you're talking $200, that 200, let's say, at two thousand day rate, is 1%. So if you use that simple map, the point being that we are expecting some cost inflation, we found in the first quarter, thousand and 22, our Canadian business unit was able to hold costs through the quarter, but I think it'd be unreasonable to think that there won't be some cost inflation. So I was just trying to put it in a perspective.

Or address the top line, bum. Yes no, that's the margin, bum.

Bob Geddes: No, that's the margin bonus. My point was that labor is the single biggest cost but it's covered by contract escalation. If we assume $4000 a day as an operating cost on a triple and you get 5% inflation on that, you're talking $200 on let's say at 20,000 day rate is 1%. So if you use that simple math, the point being that we are expecting some cost inflation. We found in the first quarter of 2022 our Canadian business unit was able to hold cost through the quarter but I think it would be unreasonable to think that there won't be some cost inflation. So I was just trying to put it into the perspective to your point there Andrew in that example about $5000 on the high-spec triples is the increase in the margin, yes.

Speaker 4: To your point there, John irandrew, about in that example about $5 thousand on the highest spec Triples is the increase in the margin. yesok, and I'm sorry to labor the point. But subsequent cost increases- it's just labor- are both the incremental to that new rate or is that your certain bumping the price to accommodate future cost exclutionthe labor is a complete pass through operational cost increase and if you pick a number of $4 thousand a day and 5% quarter and quarter, you're getting about $200 a day margin reduction from that. That's that you can last question. For me I promise it just relates to customer retention.

Andrew Bradford: Okay, and I'm sorry to labor the point but subsequent cost increases, even if it's just labor, are those incremental to that new rate, or is that you're sort of bumping the price to accommodate future cost escalation?

Subsequent cost increases, even it's just labor. Are those be incrementsal to that new rate, or is that you're sort of?

Bumping the price to accommodate future cost excalation.

Bob Geddes: The labor is a complete pass-through operational cost increase and if you pick a number of $4000 a day and 5% quarter-on-quarter, you're getting about $200 a day margin reduction from that. That's it.

Pick a number of $4 thousand a day and 5% quarter on quarter, you're getting about $200 a day margin.

Reduction from that, that's.

Andrew Bradford: The last question from me, I promise. It just relates to customer retention, particularly in within your US fleet. Are you finding that as contracts roll the rig is changing customers or is [inaudible] to stay with the customer, and do you have a preference or one or the other when it comes to rate bumps?

Speaker 17: Particularly within your U's are you finding that is contracts rule. The rig is changing customers or inting to stay with the customer and you have a preference or one or the other when it comes to to rate bumps yeah. What we've got. We've got lots of long term customers. We haven't we haven't lost a good client because of rate bumps. They all quite understand what's been happening. I mean we're drilling wells and in a third of the time that we did five six years ago. So we've been we've been creating real value to the client. They understand the market they understand the wage increases for the crews. They also understand the great safety regcordular continue to deliver. We also are finding in the U's more so in Canada. A lot of private companies emerging companies and names we haven't heard before but we're certainly not losing any clients with our.

Or one or the other when it comes to two rate bumps.

Multiple speakers: [Bob Geddes] Yes well, we've got lots of long-term customers. We haven't lost a good client because of rate bumps. They all quite understand what's been happening. I mean we're drilling wells in a third of the time that we did 5-6 years ago. So we've been creating real value to the client. They understand the market, they understand the wage increases for the crews. They also understand the great safety record we're continuing to deliver. We also are finding in the US-more so in Canada-a lot of private companies, emerging companies, and names we haven't heard before, but we're certainly not losing any clients with our rate increases. [Andrew Bradford] So you're indifferent then?

Speaker 4: Are rate increases, So you're. So you're indifferent, then exactly okay, that's perfect, Thank. Thank you very much for foranswering questions. Thanks edtor, Thank you, and at this time we have no further questions. Please proceed with closing remarks.

That's you see you're indifferent then.

Multiple speakers: [Bob Geddes] Exactly. [Andrew Bradford] Okay, that's perfect. Thank you very much for answering the questions.

Bob Geddes: Thanks, Andrew.

Operator: Thank you. And at this time, we have no further questions. Please proceed with closing remarks.

Bob Geddes: Alright, well, thanks everyone. The entire industry has come through arguably the most challenging times it's ever seen and, while rates severed as a result of the climb back to reasonable returns on the assets, investment continues. While we claw back our rates to pre-COVID numbers and notwithstanding, while we are clearly in an inelastic demand market, we will continue to focus on delivering and de-levering value to our client base, and continue to focus on safety for our professional crews out in the field. We look forward to our next call in three months time. Thank you.

Speaker 18: All right. Well, thanks everyone. The entire industry has come through arguably the most challenging times it's ever seen and while rates seffered as a result of climb back to reasonable returns on the assets invested continues, while would claw back our rates to precovid numbers and notwithstanding, while we are clearly in an inelastic demand market, we will continue to focus on delevering, on delivering and delevering value to our client base, and continue to focus on safety for our professional crewise out in the field. Look forward our next call three months time, Thank you. Thank you, sir ladiesy the gentleman. This does indeed conclude your conference call for today. Once again, Thank you for attending and at this time we do ask, as you, please disconnect your lines.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you please disconnect your lines.