Q3 2022 Precision Drilling Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good day, and thank you for standing by walking through the precision drilling Corporation 2022 third quarter results Conference call.
And I like to turn the conference over to Lisa.
Sorry lavage.
Rector of Investor Relations. Please go ahead.
Thank you operator.
Welcome everyone to the precision drilling third quarter earnings conference call and webcast participating on today's call with me is Kevin W are president and CEO and Terry Forbes our CFO .
Earlier this morning precision reported impressive third quarter results, which Carey will review with you followed by an operational update and outlook commentary from Kevin.
Once we have finished our prepared comments, we will open the call to questions.
Some of our comments today will refer to non <unk> financial measures and will include forward looking statements, which are subject to a number of risks and uncertainties.
Please see our units release and other regulatory filings for more information on financial measures forward looking statements and risk factors.
As a reminder, we express our financial results in Canadian dollars unless otherwise indicated.
Carey over to you.
Thanks, so much.
Precision is revenue in the third quarter was 429 million, 69% higher than the same period last year, while adjusted EBITDA was $120 million, an increase of 163% from Q3 2021.
On a normalized basis adjusted EBITDA, excluding stock based compensation and nonrecurring charges was $130 million, representing corporate margins of approximately 30%.
Results reflect a steadily increasing north American drilling activity improved pricing expansion of our alpha and evergreen offerings and our continued focus on costs throughout the business.
We've been highlighting the operating leverage inherent in our business for several quarters. We believe our Q3 results reflect the beginning of a multi quarter demonstration of how rising activity and rates translate into expanding EBITDA and margins for precision.
During the quarter, we completed the acquisition of high Arctic well servicing related rental assets.
<unk> integrated the business, having already realized $3 million of the $5 million in expected synergies, we expect to realize substantially all of these by the end of Q1 2023.
Moving onto the drilling business Q3 activity increased 40% in the U S and 17% in Canada compared to the same period last year.
There is increased 37% in the U S and 39% and Canada.
In the U S.
Normalized average daily operating margin for the quarter absent any turnkey or RBC impact.
Was 9662 U S dollars.
2488 U S dollars higher than Q2 and in line with our guidance.
With repricing of spot market rigs impact of Alpha technologies Evergreen solutions, We project normalized average margins to increase to approximately $11500 per day.
In Q4, and we expect a similar sequential increase to average margins of 1000 U S dollars per day to 2000 U S dollars per day in Q1 of 2023.
In Canada, our average Q3 daily operating margin was $10034 and significantly exceeded our guidance of 8000 to $8500 per day.
Our strong margin performance was supported by higher day rates Alpha technologies, and Evergreen solutions revenue and increased labor and cost recoveries.
For Q4, we project average daily operating margins to increase sequentially to approximately $12000 per day and expect a similar sequential increase of one to $2000 per day in Q1 of 2023.
And our CMT segment, our revenue increased 101% to $57 million, while adjusted EBITDA was $15 million. These results were positively impacted by 62% increase in well service hours and part due to the completed acquisition of the high Arctic assets improved pricing as industry wide shortage.
Of high quality assets and skilled labor continue to support increases in hourly rates.
Moving to the balance sheet, we remain firmly committed to reducing debt by over $400 million between 2022, and 2025 with the target of $75 million. This year and we're on track to achieve both the short term and long term targets.
We ended this quarter with $40 million of cash on the balance sheet and $540 million of available liquidity, excluding letters of credit and our average cost of debt is six 9%.
We expect our net debt to adjusted EBITDA before share based compensation expense to be below three times by the end of the year.
And to decline further into 2023.
Pacing us to achieve a leverage level below one five times much earlier than expected.
To deliver on our customer back rig upgrades.
Of which we now expect to have over 30 during 2022 and.
And certain drill pipe commitments, we are increasing our capital budget to $165 million this year.
From $149 million.
As a reminder for upgrades we will require cash.
Cash on cash payback within the term of the contract.
And rates of return well above our cost of capital.
Moving onto guidance for 2022, depreciation is expected to be approximately $280 million.
SG&A is expected to be approximately $80 million before share based compensation expense.
Cash interest expense is expected to be $85 million for the year cash taxes are expected to remain low and our effective tax rate is expected to be slightly negative for the year.
That concludes my comments I'll now turn the call over to Kevin.
Thank you Gary and good afternoon.
As Cary explained our business performance and every service line and every region is strong and continues to improve.
I'm, especially thrilled to have returned to profitability.
The next key benchmark, we are focusing on as a return on capital target, but more on that later.
I'll start by Recapping, our recent Kuwaiti contract award. We are very pleased to have been awarded four contracts, which include reactivation of two of our idle rigs bring your active rig count up to five rigs by in Kuwait by mid 2023.
I want to thank our international team for their hard work and perseverance of the successful bid process distressed over several quarters.
Remind you that these are very large 3000 horsepower super triple rigs with a revenue and margin profile that looks a lot more like two north American rigs reached Kuwaiti rig.
Coupled with our recent contract renewals in Saudi Arabia, all eight international rigs will be operating under five year terms.
We continue to look for other good opportunities to activate more of our remaining five idle rigs in the region.
Our international business stands on its own as a meaningful and stable contributor to <unk> cash flow profile and now with firm visibility to the latter part of this decade.
And then following up on a recent well service acquisition as Terry mentioned, the financial performance of precision as well service business is strong Tom and his team have done an excellent job integrating the acquisition will also keeping their focus on the business at hand. There are ahead of plan achieving the expected synergies, but I believe we will see this business continue to perform well for that.
Foreseeable future.
Now as customer budgets wind down later this year and we hit the holiday season in mid December we expect a short term moderation of activity, however, customer bookings and indicated demand for the winter season through 2023, or four year will likely exceed the industry's ability to staff and support those rigs.
No I think this is an area where precision is reputation coupled with our recruiting and training capabilities creates a meaningful competitive advantage.
We recently hosted a group of analysts for a tour of our <unk> drilling support center, where we highlighted our new employee recruiting and training capabilities, including showcasing our elfa equipped super Triple training Rick.
We also introduced the group to our training and talent acquisition teams based on this new center.
By the way for any of you who attended the two or maybe looking for a career change we're expecting accepting applications, assuming you pass our controlled substance screening.
I'm sure that those of you that were able to attend came away with a view that precision as well on top of the recruiting challenge.
Very well positioned to deploy high quality and very well trained personnel to the field for our drilling rigs.
Expect to hear soon.
Difficult Challenge Korea across the industry. This winter for all <unk> services, but I believe our recruiting and training teams exceeded confidence we're up to the task.
Now as we've been saying for several quarters, the Canadian drilling market first drug for precision.
We have 73 rigs running which as expected exceeds our winter peak from earlier this year.
Our Super Triple fleet is fully booked for the upcoming winter and should have 100% utilization during Q1.
During the third quarter, we redeployed a another S. T 200 from the U S to Canada and those of you that attended our disk Q2 or will have seen that rig and rig 536 yard undergoing recertification.
That rig is now on location drilling under a long term contract for oil and gas operator focused on LNG.
So clearly LNG drilling activities underway will increase for the next several years further increasing demand for precision is already fully utilized super Triple fleet.
While term contracts in Canada are less common customers are increasingly looking to secure access to our super triple rigs by locking in those rigs with long term take or pay contracts rather than running the risk to build any risk of the traditional pricing agreement with no firm used commitment.
Besides guaranteed access to our rig the primary customer benefit of a take or pay a rig contract as crew recruitment and retention.
That steady income opportunity firm work schedule, a close operating relationship with Royal Company stabilizes the rate group as a repositioned. This factor alone has substantial value for all customers.
With strong commodity prices and a weaker Canadian dollar conventional heavy oil Clearwater activity is accelerating driving high customer demand for our super single rigs, which are achieving the highest utilization level since 2014, but we expect continued growth into next year.
Our evergreen products, including battery systems fuel monitoring apps and lighting systems are gaining wide market appeal billing activity for the new evergreen products approached 2000 days during the third quarter.
Meaningfully contributing to Canadian revenues and margins.
The outlook for Canadian drilling activity is strong based on our customer expectations. We expect to see peak, what's your activity levels approach will likely exceed 80 rigs with these high demand levels, our confidence in our margin guidance is firm.
Now turning to the U S. While.
While industry rig additions have moderated our rig count continues to grind higher as our customers look to displace lower performing rigs with precision Super triples, and particularly look to activate our offer automation services.
We expect this trend to continue through 2023 with our current support Super Triple fleet to be fully utilized during the first half of next year.
There's a lot of talk about rates in the upper thirty's that approaching $40000 per day, while we agree with that narrative I would point out that with our Ala Carte add ons, such as automation Alpha apps evergreen products and managed pressure drilling systems, we have several rigs that all of the rates well above that range.
During the third quarter over 20 rigs repriced to the current market rates in the fourth quarter, we expect 10% to 15 rigs to reprice at a similar pace of the first quarter of next year.
Based on our current contract book, our Super Triple utilization and the customer interest we see we have a high degree of confidence in our forward margin guidance for the U S.
Now our press release mentioned that we're ahead of schedule on Elfa automation installations, and we expect to have our full super spec fleet tended up by early 2020 for almost a year ahead of our plan.
The value proposition for Alpha is compelling and customer uptake is outpacing our expectations. Our technology deployment team has been very busy installing also kits, but more importantly, also training our drillers to become alpha drillers offer a shout out to our technology and remote ops team for the great job, they're doing training and supporting our new offer drillers.
Now our alpha drillers loved how it also automation frees them up from all the mundane and highly repetitive tasks. They typically perform emmanuel drilling with alpha they're better able to leave their crew and oversee the hole drilling operation.
Alpha substantially improves the drilling performance the crew safety and the overall execution of the customer's wall plan everybody wins.
So I want to circle back on pricing and value for a moment.
And our customers in both Canada, and the U S are struggling with cost inflation across all Oss services.
The drilling rig rates inflation is concerned it for them.
So our sales team's job to help our customers understand our cost drivers are capital investments in the efficiency gains driving the incredible value we are delivering today.
When considering today's day rates three factors must come into play which are different than prior cycles.
First of all precision as cost to operate a rig with labor and supply.
<unk> has risen more than $4000 per day, but in addition to the inflationary factors, we have cost inflation driven by increased maintenance due to the accelerated wear on equipment and higher pace of drilling today.
The second factor is a substantial increase in capital equipment scope, such as additional mud pumps generators and that's.
One cleaning equipment rig walking systems other upgrades or the risks. These upgrades have involved significant investments by precision, but also increased operating costs for the rig as the equipment's more complex requires more maintenance.
These requirements also impact the potential newbuild or replacement cost per rig.
2000, Fourteens $25 million rig with today's super spec equipment scope and steel inflation would likely cost over $35 million to build and that's only if the components are available in the supply chain, which is highly unlikely.
The third factor to consider is the efficiency gains these upgraded rigs deliver and the value we create through that efficiency.
If you look back at the prior peak for day rates, which would have been 2014. The compare overall rig efficiency then to today the results are startling.
In the U S across precision as fleet, we are drilling wells, 55% faster today as compared to 2014.
In Canada drilling productivity has more than doubled when compared to 2014.
Now these are efficiency gains have been driven by those capital upgrades, we've talked about liquidity pad walking systems increased mud pump capacity generating capacity.
Pipe racking capabilities drilling automation drilling digital optimization and improved improved crew capabilities the equipment the crew and the digital capabilities have driven a massive step change in drilling performance.
So it's fair to conclude that well day rates are well up from the lows of 2020, the value and cost of our rigs the crews and technology has been substantially increased and the value. We provide our customers has never been better.
And that pricing note I've been saying for several quarters that our sales team was tasked with pressing rates upwards to aid in precision has returned to profitability. So I need to give a shout out to our Canadian and U S sales teams with taking on that challenge. Thanks team.
Yet we still have work to do we.
We need to continue to improve our results and strive to achieve a reasonable rate of return on our investment and we're on that path, making good progress, but we still have a ways to go in short great work team. Please keep it up.
Regarding our strategic priorities all three are on track I mentioned, our digital evergreen market growth earlier.
We've reaffirmed our debt reduction plan that we will achieve our goal.
And precision is improving operating margins also reflect our strict cost controls and serve to demonstrate our operational leverage.
So to wrap up I'd like to thank our shareholders and our customers for their continued support.
And during my early prepared notes I gave a shout out to a few of our PD groups for the rest of the PD team was sincerely. Thank all of you for your hard work your focus on the great results, we're producing this year.
I'll now turn the call back to the operator for questions.
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone, we will pause for a moment, while we compile our Q&A roster.
Our first question comes from Aaron Macneil with TD Securities. Your line is open.
Hey, good morning, all.
Thanks for taking my questions.
Based on your Q2 and Q3 disclosures it looks like there is.
<unk> 10 incremental rig upgrades.
It's going from 20 to 30 rig upgrades in 2022, so I'm just thinking about this in the context of incremental activity.
And your outlook there how many of those rigs are already work working post upgrade.
We are already working in <unk>.
Just doing an add on upgrade to it kind of already active rig and I guess, what I'm really driving at is of those 30 rig upgrades.
How many of those would be incremental to your current rig count today.
I said.
Actually a very complex question.
Erin.
I don't have the details a rig by rig I can tell you that a number of these upgrades were.
Third pump fourth generator additions on rigs that were working another stepping into much higher day rates with that addition.
So.
Of the additional the additional upgrades without it I think probably.
Something like two thirds of those would be.
Just stepping up the capability of the rig and are reaching out to a much higher day rate class that upgrade and I'd think that about a third of those probably three or four will be rig additions between now and into Q1.
Okay, that's perfect and then.
Then maybe.
But gary and follow up.
Maintenance capital is obviously dependent on activity assumptions, but can you give us a glimpse of what.
Preliminary growth or upgrade capital spend might look like in 2023, and how many rigs rig upgrades that might contemplate.
I know, what youre going to say that it depends on getting the right contract and everything but just trying to get your pulse. There. Yes. So upgrade capital is completely separate from for maintenance. So I can tell you a few things about maintenance it has gotten a bit more expensive per day were trending closer to $2000 a day.
<unk> kind of the $15 $600 a day that we historically of Trinidad.
That's a function of inflation largely.
The only thing I would tell you is that long lead items are we're having to plan a lot earlier.
Purchases so we have.
For the past year, we've been doing events drill pipe purchases and the lead time items.
Those items might be six to nine months.
So we are doing more of those bulk purchases and the other item I'll point out is just the weaker Canadian dollar and the majority of our capital expenditures, whether it's maintenance or upgrade they are purchased in U S dollars and when you can purchase Canadian that makes that number go a bit higher.
So with that all being said maintenance will still trend.
Along with activity so I think if.
Your expectations for activity increases next year or certain percentage say, 20% higher than this year than the baseline would be maintenance capital.
20% higher than what we had in for what we anticipate in 2022.
Okay.
And on the upgrade side.
On the upgrade side I think we would we'll continue to see the same type of upgrades as we did this year. So increased capacity of the rig, adding automation that adding evergreen solutions to the rig.
But that will run out at some point.
And the level of upgrades, we have beyond those kind of $1 3 million upgrades that we've been pursuing will be related to the demand for an SCR to AC conversion, which we've said historically.
It's going to be about $12 million to complete that upgrade so because we want cash on cash payback within the term contract.
We're likely going to need to see a two year contract and a day rate approaching $40000 before we undertake that upgraded so when the super spec rigs are sold out in the industry and customers start looking for those types of upgrades.
We'll be ready to pursue it but we're not quite there yet.
Okay, perfect and maybe I'll just sneak one more in if I could.
CMP business had a very strong quarter, which sort of quickly proves out the rationale for the IR deck acquisition.
Kevin does this sort of embolden you to pursue more.
Acquisitions like this for CMP and even if you wanted to do you think you could transact it.
Similar.
So Aaron I think this is an important deal for us.
And the team has really proven that they can integrate.
Our fleet quickly and efficiently and achieve the synergies we thought we could achieve so there's a lot of a proof of concept going on right now.
The market still looks quite strong.
We're seeing work that was kind of delayed for several years and a backlog of work now looking forward that looks like it's several years long. So this the wall service business has legs to it right now.
I think the market is still two fractured so if there's an opportunity for us to do further consolidation.
We'd be interested.
But you know, we're not going to overpay and.
The seller expectations, which I will do a deal.
Understood.
Thanks, guys. That's all for me ill turn it over.
Thank you Erinn, thanks, Sir and one moment for our next question.
Our next question comes from Waqar Syed with ATB capital markets. Your line is open.
Okay.
And thank you for taking my question.
Kevin in the press release, you mentioned that at least eight rigs could be active.
In the middle East by the Middle of next year.
Could you maybe provide some more color on.
Additional rigs be and what the other tenders you're looking at.
Sure. So the eight rigs we referenced with the ones that are contracted right now.
Uh huh.
And we have five more idle rigs the region.
I would say the most relevant idle rig would be the rig that we have in Kuwait, which is a 1500 horsepower.
AC Super spec rigs is configured for well servicing.
That rig could be easily converted to a drilling rigs. So I think that's the most likely candidate for early activation probably somewhere in that same side of the Arabian Gulf, Saudi Arabia Kuwait.
So we're like that.
We have the one rig in Saudi two more rigs in Kurdistan, one rig in Georgia that we continue to bid into opportunities in the region.
I would.
I don't think we'll have all of those rigs active by the end of the year, but he has a good chance that.
We will see opportunities that allow us to bid competitively on two or three of those.
We do have active bids right now on.
In multiple locations for those rigs so.
The first one that's gone from bid to.
The first tender we've evolved and it's actually gone to award was the Kuwaiti tender all of the tenders are still kind of hanging open.
Okay.
And between now and.
Maybe middle of next year, when these rigs would be up and running in Kuwait is that what the tender stipulates that because of the time that you require to activate the rig.
What's the reason for that delay of like six to nine months.
Exactly according to their schedule for activation. They had this multi rig project that you put out for tender and they had a schedule of operations that we bid into their schedules. So we're following their schedule there will be some recertification requirements will do those rigs early next year there'll be some capital tied to that the we'll circle up on that later once we have that all determined but.
Sure.
Yes.
We bid into their schedule will have the rigs ready for their schedule will be up there is no early start bonus they seem to be quite high to their scheduling.
Okay.
Then in the U S. You may have additional 1200 horsepower rigs.
Yeah.
Is it demand to move additional rigs.
Five rigs from the U S into Canada.
Great question the market is short rigs in Canada.
For Q1.
We don't know how that's going to play out for the year because not all of our 200 horsepower rigs are under firm take or pay contracts. We still have a few of these rigs up there that are on the typical Canadian pricing agreements that were in.
<unk>, our customers that they want to retain those rigs need to lock them up with term contracts.
That's good for everybody. It's good for the rig crew. It's good for the customer you have a very stable high performance rig.
If we're successful.
Contract kept the majority of those rigs and we can get a contract to move another rig up.
That's the right economics.
And Waqar just add that the utilization on our remaining 200 AC rigs are approaching 80% right now. So so there is a very strong market in the U S for those rigs as well.
Okay and.
And Kerry.
What was the cost of mobilization.
Yeah.
Embedded in that $4 million number and would you be amortizing debt.
That reimbursement.
Over the Delta contract.
Alright, so it was roughly $1 million to move the rig and we took the hit in the third quarter. So those are in our Canadian operating cost.
And then we're going to.
The cost of that rig through the day rate increase that we're charging the customer overlap of the contract.
Okay.
Okay. Good.
<unk>.
Okay. That's all I had thank you very much thanks, Thanks Waqar.
One moment for our next question.
Our next question comes from copper with Stifel. Your line is open.
Hi afternoon all.
To start can you just remind us where leading edge rates would have maxed out in the 2014 period.
Call in Canada, we saw rates got close to $30000 a day, but.
But most rates were in the high Twenty's.
In Canada and the U S.
Kind of the same numbers in U S dollars.
Got it and as well can you just refresh us on how many super spec rigs you have in your U S fleet, how many more are readily available and how many rigs would be the SCR to AC upgrade candidates.
Sure. So our U S fleet was comprised of 67.
The Super spec rigs right now and 56 of those are running.
Seven two separate are running and.
We see a pretty good line of sight to get most of those working as I said earlier by mid mid next year or sooner.
We have another 15 rigs in the U S that our DC SCR rigs they are very good upgrade candidates for that.
12 billion dollar U S price range.
In Canada.
We currently have a carry 28.
Super spec rigs running 49 Super spec rigs currently either they are fully booked up for the winter.
Some of those contracted out for multiple periods.
Okay, Great. That's helpful. Thanks, and some of your peers are talking about that they are leading edge rigs are generating 50% gross margins are you seeing any of that in your U S fleet, yet and I mean is there conceptually a line of sight that that could occur on a blended slash reported basis for your U S business over the next few quarters.
Hey call. So I think Kevin did a good job covering the equipment difference between 2022, and 2014 and how there is a lot more value being provided by the with the rigs delivering there is an operating cost difference. So our operating costs back in 2014 was probably 13 five.
And today, it's about 17 five in both markets, it's about a $4000 a day difference. So the old 30000 needs to be 40000, just to get the same cash margin.
On a percentage basis, we now need to get.
Day rates into the upper <unk>, and we are seeing that at the leading edge.
I think Kevin cover that as well so I think that we are seeing a handful of rigs that are in that 50% field.
Fuel margin range.
And in terms of getting the entire fleet to that range, we'll see how long the.
Fundamentals of this industry stay strong, but we have given guidance for Q4 Q1 that shows pretty significant margin increases for both Canada and the U S. So I think we can.
<unk>.
Commodity prices hold together, we can expect continued increases in day rates and margins in both markets.
I think we sort of guided the past it usually takes about three quarters for libbey as rates too.
Flow through into the fleet average or so.
That would push us into sort of late Q2 Q3 next year.
And the fundamentals certainly look.
For that period.
Okay got it thanks, and just one more quick one from me how should we be thinking about working capital in Q4.
We should have kind of a flat working capital, maybe a little bit of working capital relief depending on.
The winter slowdown happens at the very end of the year, but we did have a.
We've had quite a big increase so far this year, it's been about $80 million and that's just reflective of higher revenues higher activity.
Got it that's all for me Thanks, I'll turn it back thanks, Paul and one moment for our next question.
Our next question comes from Keith Mackey with RBC. Your line is open.
Hi, good afternoon, and thanks for taking my question.
Just wanted to start out with.
What youre seeing on the customer inquiry front, maybe in Canada and the U S. Can you just talk about.
The level of inquiries, you're seeing versus the amount of Super spec rigs you have available and I think importantly are these inquiries from customers, who are looking to pick up rigs or potentially high grade from existing rigs. They may be running that are either current mechanical our SCR rigs that are running now that they'd look to to replace with a super.
Greg.
Yes, so first of all in Canada, we give guidance I thought our rig count will get into the high <unk>, maybe hit 80, maybe get a bit above 80% in Q1, which would be about 15% higher than last year for activity, that's based on customer conversations and indications and for bookings that we have.
On the Super spec front in Canada, I think the market is probably short.
Probably short four or five rigs in Q1.
It means that customers May then look to push some more work into Q2, which should give us a stronger push into Q2. So we're encouraged by that.
Also supports work further into Q2 and even into Q3.
And if that if we see a strong contracting pick up by our customers to lock in rigs.
Meaning that we have room to bring one more rig up we'll see so that's how Canada kind of plays out in the U S.
The rig count in the U S is.
Flattening out a little bit moves up a little bit was flat up a little bit industry wide, we seem to be coupon right.
Adding rigs so a few of our peers are adding rigs. They are clearly is still this trend to increase the capability of rigs in the field with Super spec.
If a rig.
Rig operating today only has two mud pumps, you'll either get replaced by rig that has three mud pumps or theyre going to upgrade will happen and the rate moves up with it. So it's a good a good trade and the capital gets recovered but.
We've replaced a few.
Decent rigs out Super spec decent rigs had two pumps with some rigs now they have three pumps going out.
<unk>.
I'd say that there is still a strong narrative of capital discipline, which is broadly healthy by the operators, but it does feel like when we get into a new budget cycle in 2022 debt.
And with fresh capital in the new year.
Strong commodity prices I think we could see a move up in rig count.
I think you could see rigs being added in January probably not much before them.
Yeah, and Keith I'll, just add one other point to answer your question. When we talk about customers looking to increase the capabilities of the rigs and improved performance. We are not seeing customers switch from mechanical and SCR rigs too.
Precision AC rig, we're seeing competitors' AC rigs running for the customers and the customer decided to make a switch to improve performance by taking on a precision rig.
Got it thanks for that.
Kevin maybe just a follow up on your question about are on your comment rather about Canada being short for a five rig super spec rigs in Q1, and then maybe some of that gets pushed into Q2 and beyond.
It seems like we have seen more of a flattening.
A little bit more of a flattened seasonality structure in Canada with a little bit more of that happening are always going to have breakout.
We're always going to have times of the year when it's more when it's more amenable to getting equipment in and out of the field, but but do you see that becoming a more of a trend where the industry looks to supply may be more of an average basis year over year during.
During the year, rather than the peak demand as much.
Which ultimately.
Bode well for overall margins and activity levels or is it just more of a circumstance that we have seen it.
The curve shape up that way.
Keith I would say that there's always been a desire in healthier times by E&P companies to try to level load that.
It was round in the mid two thousands when gas activity was going strong level loading. It was round in 2010 2012, we had strong commodity prices.
What's changed and made it probably more.
More likely now is this broad abundance of super spec pad walking rigs.
We can load the pad up with enough casing and mud, maybe bring some fuel and across road bans, but you can keep that rig running deep into breakup and if it's a dry spring you can get kind of back fired up keeping us going without losing any time at all so I would say that.
Development style drilling with large pad rigs really plays into that level loaded when you've got a healthy commodity price environment, which is what we see today.
Perfect well, thanks, very much for the comments I'll turn it back.
Thank you.
Again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your Touchtone telephone.
One moment for our next question.
Our next question comes from John Daniel Daniel Entry Partners. Your line is open.
Hey, guys. Thanks for squeezing me in.
Kevin not a numbers question for you or carry but.
If you go back the last several quarters.
The whole labor.
Topic was the Big company discussion point, just across the industry challenges and so forth.
And during.
During that same timeframe ESG was also a big question talking point from the buys from sell side buy side I'm just curious.
Speak to us on both of those what you see today.
I'd say that virtually every buy side investor meeting we have the labor question comes up.
And because it's still it's still a huge issue for the industry and I've used that term industry. John in my comments number of times the industry.
Is challenged the drilling contractors and general and precision for sure I think you'd be able to manage that a little better, particularly with contracted rigs where there you can attract crews because they know they've got stable work for a long period of time and it is structured.
Not callout style work so for that for us for most of the drilling contractors labor has been.
A challenge, but easier than a lot of the other oil services had to deal with even our well service group struggles because of the we call it nature of the business on labor.
But I'd say duck question still remains a big question of the buy side.
We haven't seen a limit our business or limit our business has been able to move forward because we have been able to stop rigs and where most of our peers have done the same.
Yes.
The other question about ESG.
I would say that.
If it's if it is raised by a investor investors also now thinking about energy securities to some degree so again more balances coming into the discussion.
And it's being raised by a lot fewer investors of late.
Yes, and John I would just add it seems like the.
The larger institutional investors are still interested in ESG.
Have us communicate things that we're doing that touch ESG.
But we're seeing very few investors, who tell us they are not able to invest in our securities because of ESG right.
And real quick going back to the re branding.
Guys have done a great job.
Accordingly.
Demand was shown up.
But when we hear comments from companies about labor could be a HUD rental activity growth.
And again, I'm, making an industry question youre, not all precision, but it really.
It doesn't seem that obvious question.
Would you characterize that as a headwind.
Growth.
Next year at all.
Trying to make sure I understand that.
I think from the drilling side actually know and Kenny hears only theory.
Drilling rig operates a bit you've heard the term factory drilling or industrialized drilling is pretty common once you set up a rig and get running you really don't want to stop it because of the huge stop start cost is a huge switching cost.
David with rigs so our customers tend to plan the drilling operations, which is why they left their ducks buildup at times, if they can't get the rest of the services.
Customers are incentivized to keep the rig running kind of independent of whether they can complete the rest of the well or not.
Okay.
Curious thanks I appreciate you guys, let me ask questions great. Thanks, John .
Bye bye.
Yeah.
And I'm not showing any further questions at this time I would like to turn the call back over to Levonne for any closing remarks.
Thank you and I'd like to thank everyone for your interest in precision and joining us today that wraps up our third quarter conference call have a great day.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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