Q4 2022 Precision Drilling Corp Earnings Call
Speaker 2: Good day and thank you for standing by. Welcome to the Precision Drilling Corporation 2022 fourth quarter of the year end results conference call. I would now like to hand the conference over to Levon Zdunick, Director of Investor Relations. Please go ahead.
Speaker 3: Thank you operator. Welcome everyone to Precisions Drilling's fourth quarter and year-end earnings conference call and webcast. Today I am joined by Kevin Neveu our president and CEO and Carrie Ford our CFO .
Speaker 4: Earlier this morning, Precision Report is strong fourth quarter results capping off a very successful year. Kerry 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 5: 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 6: For more information on financial measures, forward-looking statements and risk factors, please refer to our news releases and other regulatory filings.
Speaker 7: As a reminder, we express our financial results in Canadian dollars unless otherwise indicated. With that, I'll turn it over to Keri.
Speaker 8: Take the van and get out of here.
Speaker 9: The decisions annual financial results show significant improvement from 2021 to reflect the focus of the 2022 strategic priorities.
Speaker 10: The cabin will review in his commentary. A few of those highlights include Revenue of 1.6 billion, a 64% annual increase.
Speaker 11: Adjusting VADA of $312 million, increasing 62%.
Speaker 12: Funds from operations of 283 million increase in 86%. Cash from operations of 237 million increase in 70%.
Speaker 13: Debt reduction of $106 million exceeding our $75 million debt reduction target, and $10 million in share repurchases.
Speaker 14: Through the no-no-our-fourth quarter results.
Speaker 15: 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 darede.
Speaker 16: 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 17: More on the share-based conversation of cruel in a moment.
Speaker 18: 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 19: as a percentage of revenue of 33% compared to 24% in Q4 2021.
Speaker 20: As we focus on revenue efficiency in 2023, growing these margins further will be a priority.
Speaker 21: In the US, the drilling activity for precision averaged 60 rates in Q4, an increase of 3 rates from Q3. Daily operating margins in the quarter have the impacts of turnkey and IBC were $11,849.
Speaker 22: An increase of $2,187 US dollars from Q3 and exceeding our previous guidance.
Speaker 23: For Q1, we expect normalized margins to increase another $2000 US dollars per day for Q4 levels.
Speaker 24: In Canada, drilling activity per precision averaged 66 rigs and increased 14 rigs or 27% from Q4 2021.
Speaker 25: Daily operating margins in the quarter were $12,348, an increase of $2,314 from Q3 2022 and ahead of our prior guidance.
Speaker 26: For Q1, we expect margins to be relatively flat due to a higher percentage of shallower rigs active, lower expected boiler revenue at the end of the quarter in seasonal timing of pricing renewals.
Speaker 27: Internationally, currently active for precision in the quarter, average six rigs, and average day rates for 49,918 USD down approximately 4% from the prior year due to active rig
Speaker 28: We expect to add two additional rigs and Kuwait when the new contracts begin this summer.
Speaker 29: Because certain of these rigs will be offline and undergrowing 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 30: 2024 activities should increase by 30 plus percent cover 2023.
Speaker 31: In our CMP segment, it's up to Deepa Davis quarter, which is $12 million, up over 91% compared to the prior year quarter.
Speaker 32: Adjust the Vada 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 rates and activity and full realization of our transaction synergies.
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 anticipated 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 million dollars of capital from precision.
Kevin will discuss this project in more detail later in the call.
of the 163 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-5 deliveries.
Our capital spending plan is generally flat year over year before adding the capital for four multi-year contract in Kuwait and the one multi-year contract in Canada.
As of February 8th, we had an average of 58 contracts in hand for the first quarter and 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 starts.
Moving to the ballot sheet, we continue to reduce both absolute and net debt levels primarily through free cash flow generation and succeed in reducing debt by 169 to 2022. As December 31, our long-term debt position, NetUp 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.
Our net debt to 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.
go to CapEx, working capital build, our semi-on annual interest payment, 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% of free cash flow before debt principal payments to share reprisons.
Now, I would like to cover some details on the share-based compensation plan Precision has 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 have 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 and 2025.
Our long-term incentive awards are granted at the beginning of each year to motivate executives and key employees over a three-year-besting period.
and to align precision long-term goals in shared-holder's interest.
Our share-based portion of compensation have averaged approximately $25 million at the grant day 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 grants, 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 amounts.
Total shareholder return requirements with long-term strategic initiatives over the three-year period.
precision 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.
and failed to achieve a leverage ratio target which accrued a multiplier of 0 times.
The multiplier change impacted the accrual for a portion of share-based compensation to be paid out in Q1 2023.
So now we're moving on to the share price. In addition to Precision's exceptionally strong share price performance in the quarter, we could
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 is 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 $208, $5 million cash interest expense of approximately $80 million cash taxes to remain low and are effective tax rates to be approximately 25% as we continue to return to profitability.
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 to call every kept.
Thank you, Terry. I'm very pleased to perform with our business during the fourth quarter, it's been a full year, 2022. And as Kerry mentioned, we achieved success on all last year's strategic objectives. And this position is a very well for the one-ing start of the 2023.
Revenue growth is strong, margin growth is stronger, and capital distilling remains a key element of our financial strategy.
VOS quarter we achieved and are sustaining the 100% or so about utilization with our super triple rates in the Canadian market.
We reactivated and are sustaining approximately 90 percent utilization on our US Super Triple District.
The lead contractor took the national rates for a five year period with over $800 million of contractor's international backlog.
Alpha automation is now viewed as an industry standard for rig automation and is the customer desired add-on to virtually all of our operating-place super triple rigs.
During 2022, the leverage are successful out of business model to introduce the ever-during product line. So we've seen that first year market penetration expectations with this exciting new GHD reduction initiative.
There's no question there are successes from the epiths. The energy and the intense focus that the citizen's team apply to our strategy and then delivering strong results.
Looking back not too long ago, there was a period in 2020, early in the pandemic, and many questions the survivability of our industry and precision.
The pandemic collapse came just after we launched the commercial organization of our Alpha automation platform.
Despite those challenging times, all people take focus. We double down the reference on our strategy or technology, if we cash well, in the late course of high-pormous culture.
The momentum we created during that period has started to say as well as the industry you founded in 2021, 2022, and the three-bound continues in 2023.
For 2023, precision strategic objectives are one, elevating or high-performance high-value strategy which encompasses safety, rig efficiency, alpha and evergreen, and most importantly, our value proposition to our customers.
2. Maximize free cash flow, including driving field margins towards 50% of the North American 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 to 20% of free cash flow for short, free purchases.
Capital gentleman Cyrito want compensation we have boarded to the Scotland for a good capital business once.
Now finish your operations, I'll start the lower 48.
Natural gas price weakness likely will have some influence on customer planning, despite the strong gas head positions across the gas producers.
Since the beginning of this year, we've actually reconstructed 12 gas leaks for the same lines and three other gas leaks of the recode track that's in new clients.
?6. Minute lecture over so far.
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 any looseness in that gas-comfort demand will likely be taken out by customers looking closely at Precision's Super Triple Rigs, especially with our alpha correlation capabilities.
Stay with your main firm, the CDS rates in the 4K range.
We expect to continue reproaching our currently contracted rates, which gives us a price environment as our contracts will be over the course of 2023.
The teams of many, if not most EMP capital spending programs were based on conservative price decks and then covered with hedges to mitigate the risk through the bulk health monitoring process.
We did not see rate demand boom like in prior cycles in response to the high commodity prices of early last year, and we expect comfort demand to remain moderate in discipline. And some of this related to the commodity volatility we experienced recently.
Of course, we understand the potential risks of the global recession or meaningful slowdown and the potential impact on commodity prices, the cost of the market.
So, you may have 61 years running, expect to be this range, plus or minus, for the first fourth.
Let's take your every inclusions or gain water, customer pay a face to the lower 48 during 2023, as the Catalonia Chronicles, the visual bio-carriers. For some regions, the G&C reductions we've got us offered make good sense for our customers.
Kary realised that Krayikh ? quisib or Koolbase kord only reduced E
Notably, the recent agreement reached between certain impersonations groups and the province of British Columbia has clarified the licensing process for early-day affectivity in impeachment to the country.
We see several operators looking to deploy capital for drilling programs which are likely targeting future LNG exports, and we have already experienced multiple inbound inquiries seeking additional super triple risks.
Several current customers are now requiring about long-term, taker-paid contracts to lock in bids for multi-year programs, breaking away from the traditional Canadian new obligation The Fight forX
Currently, we are 100% utilized with 28 superchipals running, but this is the first time this is happening for precision in any rate class or history.
In response to this demand, we have previously announced one additional certificate for the public, and expected to go to work in March. This rate was 3 to 0.3 last year.
Additionally, the official starting contract for substantial operating to create another city-to-cipple cross-rate which will be deployed in January of 2024. The third concept rate is backed by a three-year term contract and a mid-$40,000 day rate for the base rate.
By early next year, I should clarify, and then 40s, $1,000 a day right in the base rig.
By early next year, we will have 32 triple-exhibition market.
We have a couple more redeployment candidates for the US and several other possible up-to-date candidates. So we're meeting how do you support it, how we proceed, ensuring we need our expected returns and sustained market supply tension.
Now moving to the Clearwater place for a moment, I thought it would be beneficial to spend a little time explaining this place to our guest guests.
First of all, the clear water formation is a high permeability conventional heavy oil plane, but doesn't require speed, it doesn't require high-dioxidulation.
These are relatively inexpensive and low cost curve oil wells, typically costing 1.2 to 1.7
The archbaders are reporting that these wells are one half cycle bridge even, at a world U.S. 20 North for barrel of the former. So from that basis, these are lowest cost oil wells in Europe and America.
The clear weather wells are actually fairly complex.
The vertical legs are 6 to 900 meters and the horizontal section is a multilateral with a working 2 to 8 separate horizontal legs built from one vertical wellboard.
The horizontal length can be from 1,000 to 2,500 meters or longer. For ketone well bored horizontal sections of 10,000 meters or more.
perfect
From the drilling perspective, the clear water play has legs. It will metaphorically and physically.
These welds are no more attached and the path sizes range until they are well stuck out. And V7 prior calls that's growing is ideally suited to precision super single-style width. With this way, typically they're always complex multilateral welds, because of 14 days each.
Precision enjoys a 45% market share in the third water, and we have similar market shares for all heavy oil and KDD drilling in Canada. Today we have 43 super singles running with about 85% utilization, again the highest since 2014.
While putting 78 weeks total in Canada expect the peak of 79 or 80, maybe this month with spring break-up, late to weather, not customer budgets.
Customer demand looks strong for the balance of 2023 and beyond.
The second quarter of breakup, cross activity level looks to be around 40 weeks compared to 19 last year. The higher level is given largely by sustained pad activity in the Monteneville-Clarer Water.
So, check your average activity to the quarter to be in the 45-46-year-old range. I'll talk about this in the 25th or so of last year.
It appears to be also business, as Harry mentioned, the integration of the high-artic business is effectively behind us and long-term action to achieve the expected strategies.
Activity and comfort demand remains strong. Industry service requirements and labor constraints continue to support strong price and tension.
Decisions well serviced to continues to manage strong customer demand, labour accruing challenges, cost inflation, all driving increasing margins and returns for investors.
Today we're operating 68 service rigs and we see additional comfort of add anywhere up to 10 rigs any given day.
Last year, we combined the management of an oil field red sauce business that are advocating business. We do this overhead and streamline the operation.
These changes along with the joint customer demand that approved the company's utilization and transformed into business segment, becoming a meaningful contributor to a completion of production services unit.
We mentioned earlier the previously announced contract awards in Kuwait and Saudi Arabia and remain on schedule to be running at least eight rigs in that region later this year. Currently we are bidding for multiple opportunities to activate several of our idle rigs also in the region. We are also looking at other Arabian Gulf regional opportunities.
for both our SuperSingles and RCTOFs. Intergares from the band, which you'll be in the rise, is the tender to contract to the re-activation cycle, which usually measured in months and quarters. We have to have more news on this financial report we're going to see.
I'll now turn the call back to the operator for questions, but before I do, I'd like to thank the employees at Precision Zoning for their hard work, dedication, and the results they helped us deliver last quarter and last year. Thank you, and I'll now go back to the operator for questions.
Ladies and gentlemen, if you have a question or comment at this time, please press star one one on your touchstone telephone. If your question has been answered, you wish to move yourself from the queue, please press star one. If you have a question or comment at this time, please press star one on your touchstone
or 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 to cut your tail.
Can you hear me?
Can you hear me? Hello?
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 testing. We have the VFX questions and prepared to hand many questions.
One moment.
There's nobody in the operator to.
If you would use your
and issue right now if the company is delighted.
We'll just comment that on the feed that we have right now, we can see that we have a week, seven questions from...
the error that we were trying to insert.
We are trying to ensure that
So waiting in the operating to join the call.
And this is the audio. I'm back. Can you hear me? Yes, you can hear me now. Thank you. Smart apologies.
Again, ladies and gentlemen, if you have a question or comment at this time, please press star 11 on your touchstone telephone. If your question has been answered, you should be resolved in the queue, please press star 11 again. One moment for our first question.
The first question comes from Akar Saeed 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 at which it was contracted?
Yeah thanks to the question and I understand there may have been some muffling on the call. So I'll clarify that. What I was saying was the day rate is in 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 to include our technology, of the technology, and we expect also the piece of memory products on top of that rate. So the all in rates of that rate could be...
We're seeking economics that meet our thresholds, hence the day rate being in the mid 40s for the base rig. But it's an ST1500 winterized with cold weather gear.
Otherwise, in person with the F-350 N-3 pump rig in West Texas.
Sure. And then I was not blocking it all the basic. It's not the way to expect on a So it's much easier.
15 hours of rest hour high-statement.
And what was the class of RIG before the upgrade?
It was actually a DCS ER 1500 for Star Trek.
Okay, great. In the past, we talked about the ducklings being 10 to 12 million, but this would be a Canadian style, you know, included heated boilers. So that's why the cost would be a little higher than...
$50.
Yeah, okay. Thank you. And then my second question relates to the Haynesville. 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 Haynesville Explorer?
Well, I can't, but what we can tell you is I just give a comment on it. I think it was 12 breaks of resource and we need to show you.
during the first month of the year and most of those are info wrecks.
Okay, wow, okay, that's wonderful. Thank you very much. Anything exact ever on that? I'll just repeat that.
Thank you. That's all I have for you. Thank you. One more for our next question.
Our next question comes from Keith Mackey with RBC. Your line is open. Your line is open.
Hi, thanks very much for taking my questions. Maybe just to start off, Kevin and you're 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 percent and then just what Time frame do you think there is there is on that do you see getting a 50% Cash gross margins in the US by the end of the end of this year or or if you just kind of help us frame that up that be that 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 in the direction of 50% over the longer term. I do think that if the ReCAM stays flat for the rest of the year, maybe a little more over ????? here.
But we have a number of rigs that are still rolling 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 additional services to the rig and additional analytics.
where we'll have good traction to move that direction.
I'd rather not give the doctor target for this year if I'm near customers, not be supportive of them.
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-minute or so weeks running in the country right now. And these are just going to be the deeper, longer reaching risks. I don't expect a wide scale migration, but I think that that must be good.
by maybe one or two more weeks over time. So I think this week going to work the next year, this particular customer, I don't think they'll do another regular size in the near future. And we've said in the past that we have around 10 to all the 14 DCSR rigs.
They're good candidates for upgrades. I think that fits into the Equation you still have a small handful of 1500 horsepower rigs in the US are available so there's a there's an economic mix between either redeploying a rig from West Texas winterizing it or Upgrading a DC SCR rig and AC rig
and between what the customer is looking for, the spec, the size, the timing, this works out best for both us and our customer.
Thanks for the color. I'll turn it back.
Take the exit. One moment for our next question.
The next question comes from Cole Pereira, which is deep in 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, Cole. This is Terry. 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 it's $235 million.
But that includes about 30 million to do re-certifications for the quake rig contracts. About 16 million or 17 million for the Canadian rig that we're discussing as an upgrade. To take out those two, it's pretty flat year over year, the capital spend.
If you're looking to go from 22 to 2023, and then the slight increase in 2022 was just a function of taking some early deliveries of capital.
Let me have a while, time to talk, may play near...
So we're not seeing a ramp up in maintenance capital spend per day.
Okay, got it. And 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, the SD contract already in the month of January . So this year to date, most of those were hands-on type of trucks
a couple of up in the, uh, or shall we, the 12 existing as we can interact with the same customers uh, 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 buybacks.
Yes, so we haven't disclosed the total cash share-based comp. We've accrued for it and we've accrued out of the $134 million. There's $60 million of that share-based comp is accrued for.
2024 and 2025 payments. The rest fits for Q1 and that can 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 period.
and the performance versus the peer group of being...
you know, second highest out of 16 companies, and then the strategic objectives of achieving long-term debt reduction.
We thought that it is aligned with shareholder interest and I think that's reflected in the share price performance.
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.
Hey, I think I just take my call. I just curious about the on the cost item in the US, the US take off, you know, bumped up a bit eventually. I saw in your discussion that it was attributed to extra crews and slightly higher.
R&D, but are we setting a new level here going forward? Should we be thinking about daily costs in the $18,000 plus range?
Yeah, so just clarifying, it would be R&M would be a repairman, so it would be a driver's license. But it's not a is total.
Just clarifying it would be R&M would be a repairman's review. Yeah, I'm just concerned with that. You know, 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 fluctuation of...
You know $500 maybe $750 plus or minus where we came out in Q4 going forward, but I do think that the baseline has moved up a bit
And I assume that you're very little difficulty passing of costs straight through on a new contract.
on labor, it's a pass through, so there's difficulty there. And then it's our job to keep getting higher dairies to protect our margins and grow our margins.
which is one of our goals for 2023.
Okay, thank you very much. And then so.
With respect to the gas rigs, 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 as we look down through the year here.
Kevin alluded to the idea that we might see even a flat rig count market, but let's just for argument's sake suggest that maybe we even draw a few rigs through the year, through 2023.
If somebody had that view, I appreciate that most of the rigs coming off would probably be the SCR even mechanical rig.
but I wonder if you could explain what sort of happens at the margin, or what you think would happen at the margin to leading edge rates and that set of circumstances.
And there's a little hard to predict. Certainly we've seen a unusual level of discipline among the US-going contractor.
industry, you know, and it's, you know, mainly five of us that are all public companies all focused on returns, all setting targets around margins and day rates, it's pretty constant pain. So we don't expect that discipline to dissolve in a flattish market or even a slightly softer market. Like, comment, post that comment below I wanted to know what else I could look into backs
This one will last 2 months.
even around limiting the number of potential risk for upgrades and setting high returning 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 in my comments, we're certainly aware of what happens if we get into a material slowdown. But I think in a modest slowdown, maybe the renewables aren't at 42,000, maybe they're at the...
I just didn't hear it. We didn't, but it's based in the, in the term contract, uh, role that's carried out. I commend revised contract Novelization Safety Officer and Director of the USCgot
Yes, those will be updated in the press release, but those those the contracts that Kevin referenced for anywhere from six months to two years. Yeah, yeah.
Okay, thank you. And then the last question from me, just related to the...
So the CapEx guidance carry you $30 million for Reciprocations. I think $17 million for the Canadian rig. You said $20 million per pipe. Is that all? That adds up to about 67. And is that all? Yes.
sort of the upgrade flash expansion.
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 recircifications and the drill pipe would go into maintenance.
Okay, but the way that international maintenance works is since we have fewer 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-5 purchase, the recertifications.
And then the Canadian upgrade is being –
contracted capital spend opportunities that were different from 2022. We take those out, it's pretty much flat here over here.
Okay. And sorry, I lied. I have one more question then. Of the expansion capital that we have outlined in the budget for 2023. What portion of that would be would be committed capital today?
I don't know if I can give you a percentage. It's a lot smaller dollar items. It's ELF automation systems.
Evergreen products, it could be your walking systems and mud pumps and those types of things. Some are committed, some are expected.
That would say probably...
Over half of it would be committed.
of it would be committed. Thank you very much. That's it for me. Thank you. Thank you very much.
Thank you. I want to move on to our next question.
One.
Our next question comes from Kurt Hilli, with the benchmark company. Your line is open. This questions come from Kurt Hilli, with the benchmark volto E! In the future, ??? delegates a portfolio to city people. The market's full services could be ONLY certified, and the market's full services could be ONLY certified, with the benchmark volto E!
Thanks. Good afternoon.
Hi, Kurt. Thank you. Hey, so Kevin, I'm kind of curious.
Looks like you got 19 rigs on contract as of
through September 14 as of December . So I guess simple math would suggest you got about 40 rigs in the US market that could reprice during the second half of the year. Is that about ballpark?
Yeah, sounds a little right. You're absolutely fascinating. I am right now, but yeah, that sounds reasonable.
Okay, and 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. That'd be a good assumption on our part.
That there a put of of people, that because you ag.
I think it's right. If we're to flat to slightly growing red count, then that's a little bit more fuel to the fire for pushing areas in margins.
Right, I think what we've been hearing so far is leading edge rates or kind of 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 than that fair. Yeah, we would agree. And that's reflected in our Q1 guidance.
All right, and then the second question, Kevin, you mentioned a pretty decent rate count for second quarter seasonality. What kind of visibility do you have on third quarter activity in Canada?
It looks pretty good. And, you know, just an identical candidate, it's quite similar to a lot of macro wishes. But certainly our AC triple count will get back to that 30 range at any rates of the injury to the backup and C3 for sure. And the activity that can have one up has just in that mid-top of 60s range.
early in July and there's a depend on how quickly our customers keep going when they move back into the 70's and off the key three will have to share that those.
Great. Thanks. That's just for me. Appreciate it.
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