Q4 2022 Precision Drilling Corp Earnings Call

Speaker 3: lower your hand during Q&A. You can dial star 11.

Speaker 4: Thank you for standing by. Welcome to the Precision Drilling Corporation 2022 4th quarter a year end results conference call. I would not like to end the conference over till Levant to do Nick, Director of Investor Relations. Please go ahead.

Speaker 5: Thank you, operator. Welcome everyone to Precision's Drillings 4th Quarter and Eurand Earnings Conference Call and Webcast. Today I am joined by Kevin Neville, our President of CEO and Carrie Ford RCFO.

Speaker 6: Earlier this morning, Precision reported strong fourth quarter results, capping off a very successful year. Kerri will review these results 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.

Speaker 7: Please note that some of our comments today will refer to non-IFRS financial measures and will include forward-looking statements, which are subject to a number of risks and uncertainties.

Speaker 8: For more information on financial measures, forward-looking statements, and risk factors, please refer to our news releases and other regulatory filings.

Speaker 9: As a reminder, we express our financial results in Canadian dollars unless otherwise indicated. With that, I'll turn it over to Carrie.

Speaker 10: Victor Vaan and Graffinayah.

Speaker 11: Precision's annual financial results show significant improvement from 2021 to reflect the focus of the 2022 strategic priorities.

Speaker 12: that Kevin will review in his commentary. A few of those highlights include revenue of 1.6 billion, a 64% annual increase.

Speaker 13: Adjust the diva of 312 million increase in 62%.

Speaker 14: Funds from operations of $283 million, increasing 86%. Cash from operations of $237 million, increasing 70%.

Speaker 15: Deproduction of 106 million exceeding our 75 million dollar deproduction targets and 10 million dollars in share every semester.

Speaker 16: Moving on to our fourth quarter results.

Speaker 17: A fourth quarter of Justin Bieber's 91 million increased 43% from the fourth quarter 2021 and was supported by higher North American activity and derit.

Speaker 18: Also included in the Justice Department in the quarter, the share-based compensation expense of $75 million, and after this accrual, the Justice Department would have been $166 million.

Speaker 19: More on the share-based compensation accrual in a moment.

Speaker 20: The margin performance of the business started to accelerate in the second half of 2020, with Q4 adjusted EBITDA before share-based compensation percentage.

Speaker 21: as a percentage of revenue of 33% compared to 24% in Q4 2021.

Speaker 22: As we focus on revenue efficiency in 2023, growing these margins further will be a priority.

Speaker 23: In the US, the drilling activity for precision averaged 60 rigs from Q4, an increase of 3 rigs from Q3. Daily operating margins in the quarter, haps and impacts of turnkey and IBC were $11,849 USD.

Speaker 24: an increase of $2,187 from Q3 and exceeding our previous guidance.

Speaker 25: For Q1, we expect normalized margins to increase another $2,000 per day from Q4 levels.

Speaker 26: In Canada, drilling activity per precision averaged 66 rigs, an increase of 14 rigs, 27% from Q4 2021.

Speaker 27: Daily operating margins in the quarter were $12,348 at hand crease of $2,314 in Q3, 2022, and ahead of our prior guidance.

Speaker 28: For Q1, we expect margins to be relatively flat due to a higher percentage of shallow rigs active, lower expected boiler revenue at the end of the quarter, and seasonal timing of pricing and renewals.

Speaker 29: Internationally, drilling activity for precision in the quarter averaged six rigs and average day rates were $49,918 USD down approximately 4% from the prior year due to active rig mix.

Speaker 30: We expect to add two additional rigs in Kuwait when the new contracts begin this summer.

Speaker 31: Because certain of these rigs will be offline and under-growing certification in the first half of the year, we expect 2023 activity to be only slightly higher than 2022 on an annual basis, despite having eight rigs running by the end of the summer.

Speaker 32: 2024 activities should increase by 30 plus percent over 2023.

In our CMP segment adjusted to the DAPA's quarter was $12 million, up over 91% compared to the prior quarter.

Adjusted to the bidda was positively impacted by a 49% increase in well service hours reflecting the impact of the high arctic acquisition and higher industry activity in the quarter. We expect results will further strengthen Q1.

with increased rate to activity and full realization of our transaction centers.

Capital expenditures for the quarter were $57 million and $184 million for the year. Our capital expenditures were slightly higher than our guidance of 165 million due to timing of equipment deliveries.

Our 2023 plan is $235 million and is comprised of $163 million for sustaining an infrastructure and $72 million for upgrading expansion.

The upgraded expansion portion relates to anticipating investments supporting alpha technologies evergreen environmental solutions and contracted customer upgrades, which includes a super triple conversion for the Canadian market on a three-year contract that requires approximately $17.9 of capital from precision.

Kevin will discuss this project in more detail later in the call.

of the 153 million in maintenance.

Approximately 30 million relates to the Kuwait rig certifications associated with four rigs contracted.

for a five-year term and approximately $20 million relates to international drill pipe deliveries.

Our capital spending plan is generally flat year over year before adding the capital for multi-year contracts in Kuwait and the one multi-year contract in Canada.

As of February 8th, we have an average of 58 contracts in hand for the first quarter. They are an average of 49 contracts for the full year 2023.

We now have 17 rigs on contract in Canada for 2023, reflecting an increasing number of customers seeking to lock up rigs ahead of LNG project start.

Moving to the balance sheet, we continue to reduce both absolute and net debt levels primarily through free cash flow generation and succeeded in reducing debt by $106 million in 2022. As of December 31st, our long-term debt position net of cash was approximately $1.1 billion.

And our total liquidity position was approximately $600 million, excluding letters of credit.

As a reminder, all our outstanding debt is denominated in US dollars and reported values within our financial statements will vary based on changes in the USD-$18.00 exchange rate.

For net depth, the trailing 12 month EBITDA ratio is approximately 3.4 times, and average cost of debt is 7.1%. With continued debt reduction and activity expectations, we believe we will end 2023 with a net debt to EBITDA ratio of between 1.25 and 1.5 times.

by front and loaded catbacks, working capital build, or semi-on annual interest payments, and year end payments.

Our year in target for debt production is at least $150 million and we will target our revolver balance in 2026 notes that are called both F-PAR and the fourth quarter.

Additionally, we plan to allocate 10 to 20 percent of free cash flow before debt principal payments to share reparations.

Now, I would like to cover some details on the share based compensation plan precision as in place.

Our plan is similar to other corporate plans, but the cash settled accounting creates quarter to quarter volatility in the accruals that can be challenging to follow.

We've brewed $75 million in share-based compensation charges for the quarter and $134 million for the year, where approximately $74 million relates to potential payments in Q1 2023, and $69 relates to potential payments in 2024 in 2025.

Our long-term incentive awards are granted at the beginning of each year to motivate executives and key employees over a three-year vesting period.

and to align precision long-term goals in shareholder's interest.

Our share base portion of compensation have averaged approximately $25 million at the grant date for each of the past five years.

The awards best over time and are impacted positively or negatively by changes in precision share price and a performance multiplier between zero and two times.

which is calculated based on relative shear performance.

and certain long-term strategic initiatives.

For the 2020 for the 2020 grant, which remained early in Q1 2020 before the impacts of COVID-19, and despite the uncertainty and challenging macroeconomic events caused by COVID-19, no adjustments were made to award a mouse, total shareholder return requirements,

or long-term strategic initiatives over the three-year period.

and the Pigeon Initiative over the three year period. Precision's business.

and share price performance have performed exceptionally well since the grant date.

At the end of 2022, the performance multiple change from one time to 1.49 times.

for the accrual.

This was based on precision three year total shareholder return performance of 181 86% the second highest within precision defined period of 16 companies and indices

which accrued a performance multiplier of one time.

Additionally, Precision nearly achieved a long-term debt reduction target, which accrued a multiplier of 0.49 times the debt reduction target.

and fail to achieve a leverage ratio target which accrued a multiplier of zero times.

The multiplier change impacted the accrual for a portion of share-based compensation to be paid out in Q1 2023.

Now we're moving on to the share price. In addition to provisions, exceptionally strong share price performance in the quarter,

which increased 48%

from the end of Q3.

The increase in share price required a change in accrual for the plans to be paid out in the first quarters of 2022, 2023, 2024, and 2025. This is a mark to market exercise that has performed every quarter.

I'll take a breath. Thank you for your patience with that explanation. Now let's move on to guidance for 2023, where we expect to have depreciation of approximately $285 million, cash interest expense of approximately $80 million, cash taxes to remain low, and our effective tax rate to be approximately 25% as we continue to return to profit.

share price in the $80 to $100 range.

For 2023, we expect the share-based compensation accrual to move approximately $600,000 per $1 change in share price in either direction within this general range.

I will now turn the call every kept.

Thank you, Terry. A very pleased of the performance of our business during the fourth quarter until the fourth year 2022. It is very mentioned the achieve success on all last year strategic objectives. The position is very well for the one-ing start of 2023.

Where we go to strong, large and large and stronger, and capital just going to lead to key elements of our financial strategy.

Last quarter, we achieved and are sustaining 100% sold-out utilization with our super triple span of go-to sold-out cultivation with Stadium Market.

So the reactorated area of sustained Syria's

We re-contracted Sycamore International Ridge for a five-year period with over $800 million of contracted international backlog.

Alpha Automation is now used as an industry standard for rig automation and is designed, customer desires add-on to virtually all of our operating and digital triple rigs.

During 2022, we leveraged our successful health of business model to introduce the Evergreen product line that exceeded our first year of market penetration expectations with this exciting new GHB reduction initiative.

There's no question there are successes from the efforts, the energy and the intense focus that the citizens team apply to our strategy and then delivering strong results.

Looking back, not too long ago, there was a period in 2020, clearly in the pandemic, and many questions the survivability of our industry and the precision.

The pandemic collapse came just that really launched the commercial organization or alpha automation platform.

Despite those challenging times, all people stay focused. We double down the reference on our strategy or technology, pre-cash flow, and the rate course of high-public sculpture.

The momentum we created during that period has started to stage well as the industry rebounded in 2021, 2022, and the rebound continues in 2023.

420-23, precision strategic objectives are one, elevating or high performance high value strategy, which encompasses safety, negativity, alpha and evergreen, and most importantly, a value proposition to our customers.

2. Maximize free cash flow, the quitting, sliding field margins towards 50% of the North American going business, among other internal financial targets.

And three, as Kerry covered earlier, accelerating our capital structure plans by increasing our short-term and long-term debt reduction target, tightening leverage target, and continuing to prioritize 10-20% of pre-cash flow will show these purchases.

Capital Disparence is critical conversation for Mitch olsun the successful

Now, according to our operations, I'll start with the lower 48.

Natural gas price weakness likely will have some influence on customer planning despite the strong gas test positions across the gas producers.

At the beginning of this year, we've actually reconstructed 12 gas leaks for the same clients, and three other gas leaks of the recode tractors to new clients.

If you used it in middle turn, it would be fine.

Currently we have 85% utilization of our super triple rigs, and those active or hot rigs remain highly desired by customers, whether in gas or oil. It's our expectation that a ruthless and not gas-coupled man would likely be taken up by customers looking closely at precision super triple rigs, especially with our alpha automation capabilities.

Stay with me for the 40k range.

We expect to continue re-pricing our currently contracted rigs with this re-price environment as our contracts renew over the course of 2043.

The teams have made it to the most ENP capital spending programs to face our consumer price and the cover of?gemment is inter-operations of equity from all firms.

We did not see Rick the man do what can acquire cycles, he was forced to the high quality process of living last year and we expect that the man should remain moderate and disciplined. And some of this was from the commodity volatility experience recently.

Of course, we understand the potential risks of the global recession or meaningful slowdown and the potential impact on commodity prices across the world.

So, in the x 61, the x 1, the x 3, the real is range, plus or minus, for the first root score.

We expect our every-inclusion will gain wider customer penetration in the lower 48 during 2023 as the compelling economics in the diesel fuel savings, and for some regions the GHG reductions these products offer make good sense for our customers.

can never find a which

Notably, the recent agreement reached between certain First Nations groups and the Province of British Columbia has clarified the licensing process for oil and gas activity in northeastern BC.

We see several operators looking to deploy capital for joint programs, which are likely targeting future LNG exports, and we've already experienced multiple inbound inquiries seeking additional super triple risks.

Several current customers in our aquarium about long-term take-up-a-pay contracts to walk in and wait for multiple year programs. We can wait for the traditional Canadian no-obligation prices during this no-contact of the past.

Currently, they are 100% utilized with 28 superchipals running, but this is the first time this has happened to the precision in any rate class or history.

In response to this command, we have previously announced one additional super triple rig that's got to go to work in March. This rig was really quite the universal last year.

Additionally, we have recently signed a contract for a substantial upgrade to create another Super Triple Class rig which will be deployed in January 2024. This new class upgrade is backed by a three-year term contract and mid $40,000 day rate for the base rig.

By early next year, and I should clarify, a mid-40s thousand dollar day rate for the big square are on average not even in severe weather for dose II.

By early next year we will have 30 Super Triple Exhibition Media Market.

We have a couple more redeployment candidates from the US and several other possible upgrades candidates, but we'll remain highly disappointed at how we proceed ensuring we meet our expected returns and sustained market supply tension.

Now maybe the pre-water place for moment, if I don't be beneficial to spend no time exploring this place your breakfast.

First of all, the Clearwater Formation is a high permeability conventional heavy oil play that doesn't require steam, it doesn't require hydrological relations.

These are relatively inexpensive and low cost curve oil wells typically costing $1.2 to $7 billion per well.

The archivist reporting to these wells are one half cycle big even at a rare US $20 per barrel of equivalent which on that basis these are lowest cost oil wells in Europe and America.

The Clearwater wells are actually fairly complex.

The vertical weights are 6,900 meters and the horizontal section is a multi lateral. If they were the two to eight separate horizontal weights, you'll come one vertical valve work.

The horizontal weights can be from 1,025 meters or longer. The kilo of well-boiled horizontal sections of 10,000 meters are more.

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From a drilling perspective, the Clearwater clay has legs, both metaphorically and physically.

These welds are no longer attached and the path size is range from 2 to 8 lb. As these seven-fire calls, this welding is ideally suited to decisions super-spangled style with. With this welding, typically, they're always complex multilateral welds, as we call Zoom? .

decision and joys of 45% market share in the third water and they have similar market shares for all heavy oil and daily jewelry in Canada. Today we have 43% of those running with our 85% utilization again the highest since 2014.

We're operating 78 rigs total in Canada and expect to peak at 79 or 80 later this month, with spring break-up late to weather, not customer budgets.

Customer again, but strong to the belt of 2023 and beyond.

The second quarter of breakup, trough activity level looks to be around 40 rigs compared to 19 last year. This higher level is driven largely by sustained pet activity in the Montney and Clearwater.

We'll check your average activities to the border to be in the 45-46-year-age range. That's approximately 35% last year.

Good afternoon, well service business. As Terry mentioned, integration of the higher ticket business is effectively behind us and long-tracks achieve the expected synergies.

Activity and Qatar demand will be strong, industry service requirements and labour constraints continues for strong price intention.

The decision is well-to-the-stead. He is today a strong customer demand, labor-approving challenges, cost inflation, all driving increasing margins of insurance for investors.

So we're operating 60 service rigs, and we see additional comfort of that. So we're anywhere up to 10 rigs any given day.

Last year, we combined the management of the oil field red zones business and our capital city business. We've used overhead and streamlined the operation.

These changes along with going up to the demand that approved the public utilization and transport justice to the Senate, becoming a meaningful contributor to a completion of the option services unit.

We previously announced contract awards in Kuwait and Saudi Arabia and remain on schedule to be running at least eight rigs for that region later this year. Currently we are bidding for multiple opportunities to activate several of our idle rigs also to reach it. We are also looking at other Arabian Gulf regional opportunities.

Protwick is two singles IRC models.

Inter-national demand is certainly on the rise, but the tender to contract to rig activation signal is usually measured in months and quarters. We hope to have more news on this in our French report later this year.

I'll now turn the call back to the upper level questions. But before I do, let's thank the employees for their hard work, dedication and the results. They helped us a little last quarter last year. Thank you. And now back to the upper level questions.

Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your touchstone telephone. If your question has been answered, you wish to move yourself from the queue. Please press star 11.

at the time, please press star 11 on your touchstone telephone. If your question has been answered you, we'll move yourself from the queue. Please press star 11 on your touchstone telephone.

Can you hear me?

Hello?

So while we're waiting on the operator.

I assume there's a technical issue with the feed right now. Can you hear me? That's the testing. We do expect questions and prepared to have any questions.

one moment.

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and issue a radio at the club that's provided.

We'll just comment that on the feed that we have right now, we can see that we have a least seven questions from there.

the outlook that we're trying to insert.

Let's.

We're still waiting on the operator to join the call.

And this is the, we're on back. Can you hear me? Yes, we can hear you. Thank you. My apologies.

Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your touchstone telephone. If your question has been answered, you should move yourself in the queue. Please press star 11 again. One moment for our first question.

The first question comes from Makar Said with ATV, your line is open.

Thank you for taking my question.

Kevin, I didn't hear you clearly for this rig upgrade, the Super Spec in Canada. Did you say the day rate was mid $40,000 a day? What was the day rate that Richard was contracted?

McCarrie, I think to the question and I understand there may have been some muckling on the call. So I'll clarify that. What I was saying was the day rate is the mid 40,000.

So take that to be in the range of $44,000, $46,000 today.

Wow, is this a new high or for that class of Reagan Canada?

Certainly it is. It's going to be a super triple ST 1500 rig with three mud pumps, four generators, and we expect to have additional add-ons above that rate, so we'll put our technology up the technology. And we expect also the beast memory products on top of that rate, so the all-in rate for that rate.

a wake-up rate, we're seeking economics that meet our thresholds, hence the day rate being the mid-40s for the base rate. But it's an ST-1500 winterized with cold weather gear.

Otherwise, it would be first of all, the FP1500 three pump rig in West Texas.

Sure. And then my... It's kind of a full time walking and all the basic equipment on the rig you'd expect on a..................................................................

15 hours of rest hour high-stack rate.

And what was the class of RIC before the upgrade?

It was actually a DC-SER 1500 horsepower rig.

Okay, great. In the past, we talked about the duct rate being 10 to 12 million, but this would be a Canadian style, you'll employ this, be this, boilers, so that's why the cost would be a little higher than any.

Canadian dollars. Thank you, Gary.

Yeah, okay. Thank you. And then my second question relates to the Hainesville. You have a number of rigs working for one particular private customer. Could you talk about the contract status there for that rig, for those rigs?

And maybe any color that you can provide for your hands would explore you. No, I can't but but what you can tell you is I just give a comment on it. I think it was 12 breaks of recreation. We leave. Sorry.

during that first month of the year. And most of those are hateful wrecks.

Okay, wow. Okay, that's wonderful. Thank you very much. We've got a number on that. Yeah.

Thank you, that's all I have. Okay, thank you. One moment for our next question.

Our next question comes from Keith Mackey with RBC, or line is open.

Hi, thanks very much for taking my questions. Maybe just to start off Kevin in your comment in the press release, you talk about moving margins to 50%. Can you just talk a little bit more about what's required to get there? Do you need to

increase the rig count from where it currently is or with the 60 rig number, can you actually get to the 50%? And then just what time frame do you think there is on that? Do you see getting to 50% cash gross margins in the US by the end of this year?

or if you just kind of help us frame that up, that'd be good. Sure, so we have an internal target which I'm not going to publish at this point, but I tell you we're trying to move the direction of 50% over the longer term. I do think that if the ReCAM stage...

Plot to the rest of the year, maybe on one more of the challenge. But we have a number of rigs that are still going over and re-pricing. We expect to see wider deployment of both Alpha and Evergreen on the rigs, which are both high margin product lines. So I think we've got a number of pieces in place between re-pricing existing contracts in the US.

and adding on additional services for the rig and additional analytics, where we'll have good traction to move that direction.

I got an F&D back to target for this year. It's from here, trustless. Not, you know, not be supportive of it.

Yeah, makes sense, makes sense.

Just on this Canadian 1500 horsepower conversion, what was the genesis or the reasoning, I guess, behind why this rig that was upgraded? The customer specifically won a 1500 horsepower rig for this.

this application in this play or was it a matter of it was the rig available in Canada and and it was the most expedient to convert just curious if we should expect to see more of that migration to the 1500 horsepower rig level in Canada or was this a unique situation?

So we actually have two other 15-hour follow-ups running in the country right now. And these are just going to be the deeper, longer-reaching ricks. I don't expect a wide scale migration, but I think that that market could grow.

by maybe one or two more weeks over time. So, I think this week going to work next year, this particular customer, I don't think they'll do another way to decide in the near future. And we've said in the past that we have around 10 to all the 14 DCSR rigs.

So just candidates for upgrades. I think that fits into the equation. We still have a small handful of 1500 which are originally after available. So there's that there's that kind of mix between either reapplying the rig and less taxes, moisturizing it or upgrading a DCSR rig and AC rig. And between the, what the company is looking for, the spec, the size, the timing.

your light is open.

Hi, afternoon everyone. I wanted to start on maintenance capex.

Q4 spending was well above the prior budget. 2023 is also fairly high. I mean, I assume activity expectations haven't changed that much, so did something else change from a cost perspective there.

Yeah, hey, call this scary. So we're not quite sure how clear the communication was on the front end of the conference call because there was a technical difficulty with the provider. But we did give some guidance on the 2023 capital plan. So 235 million.

but that includes about 30 million to do recertifications for the Kuwait rig contracts.

It also includes about $16 million or $17 million for the Canadian rig that we're discussing as an upgrade. And if you take out those two, it's pretty flat year over year, the capital spend. If you're looking for going from 22 to 23 and then the flight increase in 2022 was just a...

a function of taking some early deliveries of capital.

taking some early deliveries of capital. Maybe they go by that point. Late in the year.

So that we're not seeing a ramp up in maintenance capital spend per day

Okay, got it. I just wanted to come back to Kevin's comments. So did you say that you had 17 natural gas rigs recontracts so far this year? I think those were at higher rates and anything you can say on the term.

We had 12 EAC speed contracts already in the month of January , so this year to date. Most of those are hand-sealed type grades. There are a couple in the...

a couple of up in the Marshallis, the 12 existing ex-reconjector of the same customers into current rates.

Okay, got it. And on the share-based comp side, I mean, it can appreciate the plan is formulaic, but, you know, how do you kind of square the materiality for the perspective of shareholders? I mean, realize cash share-based comp was three-quarters of your total debt reduction and share bye-bye.

dollars of that survey's comp is accrued for 2024 and 2025 payments.

The rest fits for Q1 and that's going to be a mix of settlement and shares and settlement and cash.

When we look at the alignment of the plan with shareholders, particularly the absolute return of almost 200% over the three-year period.

and the performance versus the peer group of being

second highest out of 16 companies and then the strategic objectives of achieving long-term debt reduction.

We thought that it is aligned with Cheryl Rinter's, and I think that's reflected in the sure best for me.

Got it. That's all for me. Thanks. I'll turn it back.

One moment for our next question.

Our next question comes from Andrew Bradford with Raymond James. Your line is open.

Thanks, good afternoon guys.

I'm just curious about the cost item in the U.S. The U.S. day costs bumped up a bit sequentially. I saw in your discussion that it was attributed to extra crews and slightly higher So Brarial Cost definitely house that and it no longer corporation- machines that are C, ds Jon M, back for bars

R&Ds, but are we setting a new level here going forward? Should we be thinking about daily cost and rate in plus $1,000?

Yeah, so it's just clarifying it would be R&M would be a repairman's review of the driver's

in an outcome of the...

The driver of cost primarily, well over half of the cost increase over the past year has been wage increases in both Canada and the US. And so the cost bumped up a little bit more because of wage increases. And I do think that we might see fluctuations of $500, maybe $750, plus or minus where we came out in 2, 4 going forward.

the difficulties there. And then it's our job to keep getting higher there is to protect our margins and grow our margins, which is one of our goals for 2020.

Okay.

Okay, thank you very much, Dan.

With respect to the gas rigs rolling over, that's a good accomplishment year to date with the 12 rigs that were renewed within the context of the current market price. I'm just wondering if, as we look down through the year here, Kevin alluded to the idea that we might see even a flat rig count market, but...

variance, but I wonder if you could explain what sort of happens at the margin, what you think would happen at the margin to leading a random rate from the data. Professor Easton.

And a little hard to predict. Certainly we've seen an unusual level of discipline among the US drilling contractor

industry, and that's mainly five of us, they're all public companies, all focus film returns, all three in target surveillance margins and day rates. It's pretty constant pain. So we don't expect that discipline to dissolve in...

in a flattish market or even a slightly softer market. Don't expect it to resolve. Certainly there are, there's nobody in that group right now that is facing growing concern and risk or trying to pump themselves up for a transaction. So we'd expect to see, I'd say, pretty firm discipline. And we've seen really good discipline over the last few months.

We've been around limiting the number of potential risk for upgrades and setting high return thresholds So it just feels like that discipline is going to stay in place and you know, we're watching it closely and as I made my comments, we should be aware of what happens if we get into a material slow down. I think in a modest slow down

So maybe they maybe the renewals aren't that 42,000 maybe they're at 38,000

Right, perfect. Thank you. I appreciate that. And one of the prior questions related to the term that was on those contract rollovers. Did you say a number or did you give a range on that? That worked.

herent those faces in the urem of our record. Ro carry car outdated as curly.

Yes, those will be updated in the press release. But those contracts that Kevin referenced are anywhere from six months to two years. Yeah, thank you.

Okay, thank you. And then the last question for me, just related to the...

to the CAPEX guidance carry you $30 million for recirifications. I think $17 million for the Canadian rig. I think you said $20 million per pipe, is that all? That adds up to about 67, and is that all? Still not worth the $7,000 distribution.." Oh. Of range.

sort of the upgrade flash expansion.

No capital.

So the two buckets we have are maintenance.

And then we have upgraded expansion of the other bucket. The Canadian rig would go on the upgrade bucket.

And the rest of the capital that you identified, so the recertifications and the drill pipe would go into maintenance.

Okay, but the way that international maintenance works is since we have pure risk running, we will typically buy both drill pipe at the beginning of a contract when this contract is rolled over, we'll buy new drill pipe so it's really front and loaded.

And that's why on this explanation of the conference call, we separated out that international drill-five purchase the recertifications.

and then the Canadian upgrade is being...

Contracted capital spend opportunities that were different from 2022. It's pretty much flat year over year.

Okay. Sorry, I lied. I have one more question then.

Of the expansion capital outlined in the budget for 2023, what portion of that would be committed capital today?

I don't know if I can give you a percentage. It's a lot smaller items. It's out automation systems. It's. And.

You know, evergreen products, it could be walking systems and mud pumps and those such things. Some are committed, some are expected.

That would take probably...

Over half of it would be committed.

Thank you very much. That's it for me.

I think you want to move on for our next question.

Our next question comes from Kurt Hilleed with the benchmark company. Your line is open.

Hey, thanks. Thank you. That's the end.

Hi, Kurt. Hi, Kurt. Hey, so Kevin, I'm kind of curious.

Looks like you got 19 rigs on contract as of...

through September 14th as of December . So I think a simple math would suggest you got about 40 rags in the US market that could reprise during the second half of the year. Is that about Bob Mark?

Yeah, sounds a little right. You're absolutely touching. I am right now. Let's get up. That sounds reasonable.

So, Kerry, you mentioned that the incremental cash margin in the U.S. could increase by about $2,000 per day. So it seems like that could be a pretty good cadence for the rest of the year. Would that be a good assumption on our part?

Put all the ppers of great now.

If we're at a flat to slightly growing rig count, then that's a little bit more fuel to the fire for pushing day rates and margins.

Right, I think what we've been hearing so far is leading edge rates or I don't know, 35 to 40,000 a day. They're kind of average rates in the fourth quarter or around 32. So that leads a lot of headroom for this repricing without even raking out going higher. Is that fair? Yeah, we agree. Yeah, that's reflected in our Q1 gun.

Yeah, I got you. All right, and then second question. So Kevin, you mentioned a pretty decent read count for kind of second quarter seasonality. What kind of visibility do you have on third quarter activity in Canada?

It looks pretty good and you know just that I know that Canada seems to be quite sensitive to a lot of macro issues but certainly our AC triple count will get back to that 30 range if any rates are down during Q2 they'll be back up in Q3 for sure and the activity we seem to have lined up has us in that mid to upper 60s range.

very early in July and There's a depend to how quickly our customers Keep going whether it moves back into the 70s or not in Q3. We'll have to see how that goes.

Thanks, that's it for me. Appreciate it.

Now I'm not showing any further questions at this time, I'll turn the call back over to O'Levant for any closing remarks.

Thank you operator and thank you for everyone who participated on today's call. If you have any further questions you can reach out to the Investor Relations team. Thank you and have a good day.

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