Q1 2023 Precision Drilling Corporation Earnings Call
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Okay.
Good day, and thank you for standing by walking through the precision drilling Corporation 2023 first quarter results conference call I would like to hand, the cops overall levonne because you don't have <unk> director of Investor Relations. Please go ahead.
Thank you operator, welcome everyone to precision Drilling's first quarter earnings conference call and webcast today I'm joined by Kevin <unk>, Our President and CEO and Carey Ford our CFO earlier today precision reported strong first quarter results. Terry will review. These results with you followed by an operational update.
And outlook commentary from Cabot.
Once we have finished our prepared comments, we will open the call to questions.
Please note that some of our comments today will refer to non Ifr S financial measures and will include forward looking statements, which are subject to a number of risks and uncertainties for more information on financial measures forward looking statements and risk factors. Please refer to our news release and other regulatory filings.
As a reminder, we expressed our financial results in Canadian dollars, unless otherwise indicated with that I'll turn it over to Kerry.
Thanks, a lot of.
Precision Q1 financial results exceeded our expectations for revenue adjusted EBITDA earnings and cash flow.
EBITDA of $203 million was driven by strong drilling activity improved pricing and strict cost control. Our Q1 adjusted EBITDA included a share based compensation recovery of $12 million, which reflects our stock price declined during the quarter.
Without this recovery adjusted EBITDA would have been 101 hundred $91 million, which compares to $84 million in Q1 2022, an increase of 127%.
Revenue for the quarter was $559 million, an increase of 59% from Q1 2022.
Margins in both the U S and Canada were higher than guidance, resulting from stronger than expected pricing higher ancillary service revenue and.
And improved cost performance I commend, our marketing and operations teams for achieving these results.
In the U S drilling activity for precision averaged 60 rigs in Q1, consistent with our activity in the previous quarter.
Daily operating margins in Q1, excluding the impacts of turnkey and IPC were 14179 U S dollars and increase of 2000 and 330 U S dollars from Q4.
For Q2, we expect normalized margins to be relatively flat with Q1.
In Canada drilling activity for precision averaged 69 rigs an increase of six rigs or 9% from Q1 2022 daily.
Daily operating margins for the quarter were $13558 an increase.
$1210 from Q4 2022.
For Q2, our daily operating margins are expected to be approximately $10000 down from Q1 due to normal seasonality and lower fixed cost absorption.
Internationally drilling activity for precision in the current quarter average five rigs.
International average day rates were 51753 U S dollars, an increase of 3% from the prior year.
And our CMP segment.
Adjusted EBITDA this quarter was $17 4 million.
166% compared to the prior year quarter adjust.
Adjusted EBITDA was positively impacted by 53% increase in well service hours.
And improved pricing, reflecting improved industry activity and higher demand for our services.
Well abandonment work represented approximately 30% of well serving well servicing operating hours in the quarter.
In addition to strong performance firewall servicing operations, our rentals and camps divisions approximately doubled the EBITDA contribution from Q1 last year.
Capital expenditures for the quarter were $51 million and included $16 million for upgrade and expansion and $35 million for maintenance or full year 2023 capital plan has decreased by $40 million and the new $195 million plan is comprised of $146 million for sustaining and infrastructure.
And $49 million for upgrade and expansion.
The decrease in planned capital spending reflects our focus on capital discipline and cost control.
<unk> your expected rig upgrades.
Long lead maintenance deferrals and lower inflation estimates.
Moving to the balance sheet, our Q1 results reflect the seasonal working capital build within our business and onetime payments highlighted in our press release.
During the quarter, we drew approximately $80 million on our revolver and built our cash balance by $20 million.
The cash used during the quarter with less than expected due to strong in the quarter collections and completed asset sales.
As we have lower seasonal activity in Canada during the second quarter and no semi semi annual interest payment cash.
Cash is coming in the door and we expect to pay down the $80 million revolver draw by the end of the second quarter and will concentrate our annual debt reduction in the second half of the year similar to last year.
As of March 31, our long term debt position net of cash was approximately $1 1 billion and our total liquidity position was $540 million excluding letters of credit.
Our net debt to trailing 12 month EBITDA ratio is approximately two four times down from six seven times last year.
And our average cost of debt of 7%.
We expect our net debt to adjusted EBITDA before share based compensation expense to be approximately $1 two five times.
So one five times by year end during the quarter, we utilized $5 million to repurchase shares.
We remain committed to reducing debt by over $500 million between 2022, and 2025 and achieving a normalized leverage.
One times or below.
Our net debt reduction target for 2023 is $150 million and we plan to allocate 10% to 20% of free cash flow before principal payments directly to shareholders.
Moving onto guidance for 2023.
Depreciation is the same at $285 million in SG&A remains the same at 90 $90 million before share based compensation expense, we expect cash interest expense to be approximately $80 million for the year and cash taxes to remain low with an effective tax rate of approximately 25%.
Also for 2023, we expect share based compensation expense to range between $20 million and $40 million for the share price range between $60 and $100.
The annual share based compensation accrual could increase or decrease another $15 million based on relative share price performance and our multiple between zero and two times with that I'll now turn the call over to Kevin.
Thank you Carey, we're very pleased with the strong start to 2023 the momentum we established last year's continuing well into this year.
Our long term outlook remains unchanged.
Our market positioning with our fleet of Super series rigs, coupled with our Elfa automation technology.
Evergreen solutions combined with a remarkably strong long term energy fundamentals and precision broad geographic exposure. It gives us confidence that our plans for this year for the long term.
This geographic exposure is key as we just one region can be mitigated by strength at others.
And with that I'll begin with our international operations in Kuwait and Saudi Arabia.
As you know, we recently re contracted seven rigs in the region on five year contracts. This includes reactivating two previously idle rigs.
We guided to some rig downtime as we worked through the recertification process on four of those rigs prior to commencing the new terms.
The first of those rigs was back up in operation early April about a month earlier than planned as our team was able to SaaS attracted recertification process.
We further expect the remaining three rigs to be at a similar fast track with reactivation spread evenly over the next 12 to 15 weeks in the third quarter will have eight rigs operating up from five today and six last year.
We see continued good opportunities and have already bid our one remaining idle rig in Kuwait and expect that rig could be active late this year or early next year.
Leave us with one idle rig in Saudi Arabia, and three other idle rigs in the region and we will continue to market those rigs throughout the Gulf region.
Several countries beginning to seek increasing drilling activity.
Now I'll turn into Canada. This region seems to garner less capital market's attention to the U S land industry, but for Canada precision for precision Canada remains firmly in our crosshairs.
Said another way please pay attention this is going to be very important.
We're experiencing sustained strong customer demand underpinned by the imminent completions of the Trans mountain oil pipeline expansion and the coastal gasoline pipeline for LNG, Canada customer.
Customer demand has been further enhanced by the recent British Columbia settlement with the Blueberry first nation, facilitating oil and gas licensing approvals and driving incremental demand for already sold out fleet of Super Triple rigs.
In Canada during the first quarter, we averaged 69 active rigs with a peak of 79 rigs, which was 9% higher than last year, but for most of the first quarter. We saw customer interest for an incremental five to seven super triples over and above the 29 currently in our fleet.
This incremental demand accelerated following the first nation settlement I mentioned earlier.
These strong customer signals remain intact today with our team addressing multiple super Triple rig inquiries for post breakup.
Out into 2024 drilling programs.
Looking to 2024 and beyond with LNG, Canada prospectively, starting up in 2025, we expect Super Triple demand to continue to grow and it seems our customers due to.
We have several customers who are contemplating multiyear take or pay U S style contracts to lock in Super Triple rigs for multi year drilling programs.
This is a contract structure, which in Canada was traditionally only linked to newbuild rigs previously.
We see this as a strong signal that our customers have concerns about rig availability for later this year and for the foreseeable future.
Now we have the capability to mobilize additional S. T 1200 rigs from the U S to Canada, However will require customers to cover the full mobilization costs. It would need a day rate consistent with what we'll see in the U S, which would position those day rates in the upper 30 as compared to our fleet average rates today in the low threes.
And for precision, Canada is really a tale of two rig classes. Besides our super Triple the precision Super single rigs experiencing the highest demand since 2014.
During the winter season, we operated 43 Super singles that even today through the trough of spring break up all of our pad equipped super singles or active drilling for conventional heavy oil.
This resurgence of heavy oil drilling as a function of the substantially narrow WCS discount.
The strong U S dollar incentivizing, our customers to return to the drill bit.
I'll also remind you that the precision Super single rigs was the first high efficiency pad type rig introduced by precision in the 19 nineties. These rigs are low operating cost highly efficient highly mobile rigs, but still garner the leading market share in all Canadian heavy oil drilling applications, including <unk> conventional heavy oil oil sands.
Course of Clearwater play.
As we meet with customers to set the plans for summer and fall drilling programs. We see continued strong demand for Super singles for the balance of 2023, and we have some customers now winding up for the winter of 2024 to lock in access to those risks.
With the additional oil takeaway capacity of the soon to be commissioned Trans mountain oil pipeline, we have confidence that this rig demand should be sustained over the long term.
As I mentioned earlier, our sales team is the middle of booking rigs for summer activity negotiating long term rig contracts in the montney and booking rigs for next winter.
These are all critical conversations and I understand it can relate to our customers concerns regarding service cost inflation and the price increases we seek.
It is very important to note that our rigs today are drilling wells in Canada significantly safer and more than twice as fast as during the last cycle in 2014.
And to sustain our high performance and deliver these high levels of safety the drilling pace of operational excellence, we need to achieve and sustained financial returns above our cost of capital we are not there yet.
But we'll continue to do our part to control our cost manner.
Manage all of our costs, but we must also seek to improvement in day rates and this requires close collaboration with our customers open and effective communications and most importantly, a shared view of the success of the industry as a whole.
Today, we're running 38 rigs, which is about 15% higher than the same time last year and is consistent with first quarter activity increases from last year and it appears this trend will continue through 2023 for precision in Canada.
While we are in Canada, I'll also touch on our well service business.
As Carey mentioned that performed business performed very well during the first quarter with strong utilization and improved pricing.
As with our jewelry business I appreciate that our customers are very sensitive to rate increases and service cost inflation.
This is an area where I highlight precision is intense focus on safety and the excellent safety results, our well service team continues to deliver.
I also highlight the huge challenge of recruiting training and retaining cruise, particularly with the <unk> nature of the well service business.
All of this requires highly skilled experienced and capable management teams supported by comprehensive recruiting training and safety programs.
Also have to absorb the significant increase in rig maintenance repair injuries certification costs.
None of this comes cheap in 2023.
But you can see the scale effect and precision that's been demonstrated by the flawless integration of the higher Tech acquisition for the past few months.
Coming out of spring breakup, we expect strong customer demand to continue through the end of this year and into 2020, Florida well service business.
Now turning to lower 48, the leading edge rates, we mentioned last quarter continue to influence contract renewals and industry peer pricing discipline remains a key market feature even as we see natural gas activity softening with the weaker natural gas prices.
With firm oil prices, we do expect oil directed drilling to pick up some of the slack from guests, but this may take some time.
Longer term later this year and into next year as LNG exports begin to ramp up we expect a substantially improved demand across both oil and gas directed drilling our long term outlook remains positive.
Today, we are running 57 rigs in the U S down only a small handful from our peak in Q1, and while we have experienced a fair amount of rig churn with re contracting well dwell renewables and rigs moving to new operators and very pleased with the results our team have delivered to date.
Interestingly.
Barnett rig activity in the Haynesville and Marcellus is actually up one rig earlier. This year, we believe that speaks to our customers seeking the best performing rigs and particularly their desire for precision super triple rigs to be able to automation.
While our sales team has done an excellent job to this point I don't expect this activity level to hold firm during the first during the second quarter.
And while it's hard to guide and exit level for precision Q2 activity I believe will have sustained activity levels and at least the low fifty's.
As I mentioned earlier oil directed demand remains firm, we have several contracted rigs for oil based projects with startup dates scheduled in the second half and those projects are proceeding as planned.
Bidding activity is remarkably strong with 58 discrete rig bids in just the past 30 days and 109 outstanding bids for Super Triple rigs all the potential start dates ranging from July through the first quarter of 2024.
These bid and customer inquiry volumes are consistent with data points I've mentioned in the past and continue to be a very good indicator of consistent strong customer interest in high spec rigs.
We will continue to monitor the U S market dynamics closely and while we fully expect near term pressure on rig activity will remain highly disciplined with our rig pricing expectations, while focusing on maximizing cash flow from operations.
Turning to our evergreen solutions product line at our Alpha automation service offerings.
I'll begin by highlighting the equity investment we made in clean design, our battery energy storage vendor partner.
And we see our best systems as battery energy storage systems is a key strategy to reduce rig emissions, we view the equity investment and our partners are critical as critical support both the growth of clean design as an opportunity for precision to participate the value accretion associated with the broader adoption of clean design solutions, both inside and outside the oil and gas industry.
Yes.
Our press release also mentioned that we continue to see strong customer support for the <unk>.
Also automation.
Creation by improving drilling efficiency and the value of that evergreen provides by reducing rig emissions lowering fuel costs. These product lines underpinned key elements of our high performance high value competitive strategy and provide an avenue for growth while dealing with the risks from emissions.
To wrap up I've got a few comments regarding our business model.
Precision drilling was built and refined in the Canadian market, where seasonal volatility and persistent natural gas uncertainty where normal market conditions for most of our history our.
Our business model was a new structure to tightly control, what we can control such as safety rig performance variable and fixed costs capital spending managing staffing all while delivering consistent free.
Cash flow utilizing our highly variable cost operating model.
Short term industry cyclicality is not distract us from our business model or annual priorities. We have repeatedly demonstrated our ability to deliver on our priorities independent of the business cycle. This includes our cash flow and debt reduction targets, which we have consistently met or exceeded the particularly during the pandemic industry collapse of 2020 in 2021.
Can assure you that we will confidently deliver on our priorities for 2023, despite weaker natural gas outlook that was expected at the beginning of the year.
So on that note I want to thank the people of precision for their efforts and the results. They continue to achieve controlling those elements of the business. Each of you impacts. Thank you.
I also want to thank our investors for their patients and their support.
I'll now turn the call back to our 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 telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Our first question comes from Waqar Syed with ATB. Your line is open.
Thank you for taking my question.
Kevin could you maybe talk a little bit more about.
The rate environment.
So.
Any what are you seeing from a regularly noticed perspective.
One of your competitors said that the rig release notices kind of.
Although at a very high level in early March and then Dave started to slow down a lot are you seeing something similar.
Good questions.
It's really hard to glean out any trend from rig releases I will tell you that we have seen repeatedly over the last few quarters that our customers will tend to make decisions near our quarter ended before reporting period. So that they can report that they've already completed whatever work. They wanted to do so it's common that at the end of the quarter or.
Early in the next quarter before the earnings call that if they plan to lay rigs down or to do it before the earnings call. So they can see the work is already done so there's usually a little bit of increased activity around quarter end beginning with this quarter that's not uncommon.
We've seen a bit of that this quarter, but we also saw previous quarters.
Just speaking to day rates and what we see for rate activity. It depends a little bit on just how competitive environment as if we're in an area, where we're kind of the only rig around and mobilization costs for other rigs tends to be higher than were much closer to those <unk> rates were better quoted even back on our Q4 conference call for an area, where there tends to be maybe three or four rigs competing for.
The same job linear rate's going to be a little softer.
We're expecting to see rates go to pullback a little bit from those peaks of Q1, let's.
And I'd say in that range of three to four to $5000.
Okay. So leading edge is in the gas basis could be in that low 30.
As to mid Thirty's kind of level is that fair.
I think thats reasonable.
<unk> been kind of lucky so far and that we've been activating rigs and customers have been seeking out our alpha automation. So.
So far so good but going forward I do expect it to give you a little bumpier than.
We could see competition in that mid <unk> or low <unk> range I think thats possible.
Okay.
And then on the costs. The Opex side is that kind of calling some are what trends are you seeing there.
So we've had a little bit of a labor increase in the fourth quarter that was highlighted in our press release, but other than that.
Our firm, we're not really seeing any inflationary impacts on a sequential basis and we could actually see some inflationary relief here in the coming quarters.
Okay.
Yes.
Canadian side.
As you are negotiating your contracts now do you see.
Rates have been higher for HQ.
Or is it mostly going to be.
First quarter next year, when you see the new new rates.
Look are you kind of have a two cycles and pricing in Canada. There's one cycle that starts begins at Q3 and the second cycle that begins in Q1 of kind of the following year. So I do expect there'll be some.
Opportunity for prices to move up in Q3.
Those negotiations are ongoing right now.
Kind of give a lot of detail on my prepared comments around both the cost pressures, we have and the need we have to achieve.
Return on capital above our cost of capital. So I know those conversations are going out into our customers are really sensitive to price right now, but the fact is to sustain this level of performance, we need to have higher rates.
So we're going to keep that pressure on the market and we're going to back that up by having rigs that deliver excellent results for our customers and safety.
Safety performance and.
And predictability.
Okay.
Thank you very much that's all for me for now thanks.
Thanks, a lot weaker.
Remember for our next question.
Our next question comes from coal per hour with Stifel. Your line is open.
Good morning, all.
The U S rigs that were dropped.
Was this a function of customers just laying down rigs or was it maybe a little bit of you, losing the rigs because you wanted to stay firm on price as well.
The simple answer to that question is yes, we've had a bit above.
And as I've said in previous calls call. The best signal, we can sell our send our customers about discipline by rejecting prices that are below our threshold.
And.
Further docomo was saying I think it's fair to say that a few customers out there.
Looking at this period right now has a chance to grab a premium rig and maybe get a discount price.
We're not going to let that happen.
Got it thanks.
Talked about.
Our rig count in the low <unk> in the U S should we be thinking that your rig count stabilizes at that level for the rest of the year.
Kevin maybe climb or fall further in the second half potentially.
Yes.
Ultimately depend on commodity prices I think we've seen the gas price bottom out here around $2.
The oil prices firm up we think a lot of those rigs that are getting laid down the gas basins will get picked up in the oil basins. So I think we've got good visibility here for the next few months and then beyond that it's going to be largely a function of where commodity prices are.
Got it.
And I know, obviously you don't give.
Typically give margin guidance beyond one quarter, but I mean with the U S rig count in the low fifties kind of reasonable to think that the drilling margins should stay at similar levels, although it would probably move around a bit.
Adequate with stable activity, we should be able to maintain similar margins.
Got it and in Canada, I mean, you talked a little bit about.
Pricing and so on and so forth can you kind of talk about <unk>.
Your visibility right now for Q3 Q4 activity relative to Q1 from what you see today.
Yeah sure can last couple of years, we've been able to actually exceed Q1 activity peaks in the third or fourth quarter I don't think that happens this year, but a couple of notable features about Q1 that I think to speak to the rest of the year.
I think we said our peak was 79 rigs our average was 69 rigs.
To have a 69 rig average at earliest 79 rig peak over the entire quarter is quite remarkable spring breakup came quite late activity stayed quite long as customers kept rigs working as long as they could and there is there is a definite focus to level load.
So I do expect that our super triples, once they've fired back up again once all fired up they stay active for the rest of the year, whether the fire up on May 15th or April 29th or June 5th actively stays flat for the rest of the year, probably similar situation with our Super singles I think the variability will be on our tele doubles.
So I think we'll see.
Good loading levels that start early and get to levels in that.
60, plus rig range in July and then hold there for the rest of the year very stable loading our customers are focused on further minimize variability in this market, it's real industrial based work with now.
And that plays well into our model.
Got it thanks.
Carey on the credit facility side. Once you repay the Q1 draw you don't have much of a balance there to get through.
Once you get through that I mean is the plan sort of to two eventually call.
Next tranche of bonds, and maybe put all or a portion of those on the credit facility.
So you are correct. We've got about 60% will have about $60 million Canadian left on our credit facility based on our guidance for what we're going to do in Q2, so to hit $150 million target. It will require us to pay down that balance on the credit facility and then about another $90 million.
The high yield bonds those 'twenty six notes are callable at the end of the year.
So we'll look to likely use that for some of our debt reduction.
And then if we look at where interest rates are right now there's not a whole lot of difference between the coupon on those 'twenty six notes or the 29 notes and what we're paying on our revolver. So theres not theres not a big benefit to calling those bonds and putting them on the revolver right now.
Got it okay. That's all from me, Thanks, I'll turn it back.
One moment for our next question.
Our next question comes from Luke Lemoine with Piper Sandler Your line is open.
Hey, good afternoon.
Afternoon women Hi.
Hi, Kevin you talked about some possible oil project startups in the second half could you maybe comment.
The quarter magnitude that you're expecting there.
We have contracts to be signed early in the year for rig Activations in Q3, and Q4 and those are proceeding or we've worked with our customers on that and Theres been no change in their sentiment and those are the better rates that were negotiated back in early Q1.
Okay.
And then on the Capex you gave us the dollar amount of how much upgrade capex is coming down but could you talk about maybe how many ratio we're planning to upgrade.
And what those upgrade plants or that you pulled out.
Sure we can.
It was a it was an amount of money that would be targeting.
Some additional technology upgrades, which we may slow down on depending on market demand.
<unk> rigs with targeting some third pump with generator packages that.
If the rig count doesn't get above.
62, or 63, we probably don't need those upgrades, but if we get back to 62 or 63 rigs, we could bring that capital back into play.
It depends heavily on but curious it earlier.
Commodity prices and market conditions.
There were no major upgrades contemplated in that budget.
Okay got it.
I appreciate it would be fair to say Loopnet monopoly was put together, we were kind of targeting activity increase across the boards of industry wide 50 rigs.
And as.
As we've taken about 50 rigs out of the mix.
Our piece of that or which might have been four or five or six rigs would have digital upgrades minor upgrades.
Capital.
Okay, alright, thanks, a bunch.
One moment for our next question.
Our next question comes from Keith Mackey with RBC. Your line is open.
Hey, Thanks for taking my questions.
Maybe just if we could start in Canada, just wanted to ask about what youre seeing in heavy oil, particularly the clearwater as far as the <unk>.
Demand for rigs back has that changed at all in the last call. It one to two quarters given some changes in how operators in Clearwater or are drilling wells or has have things and have demand remained relatively stable for for the type of rig that is most desired in the Clearwater.
Really truly a great question. The Clearwater is still early days as development deal really really a couple of years into it right now in this sort of experimenting with the length of the laterals and the number of laterals up each wellbore. So it's a great question. The wellbore configurations are evolving with time, and we're keeping pace with that.
Nothing right now that's changing and it's impacting our rig capability I do expect the torque requirements to go up and we may need to boost the torque in some of our Super singles Thats, a pretty minor upgrade.
Okay got it thanks for.
For that.
Maybe just on the.
In the U S as far as the low <unk> rig count four for Q2.
What really I guess, Kevin is driving that is that you you have line of sight to cause.
Contracts ending that you have.
<unk> gotten new rigs are new new contracts for yet or or is there in general an increased amount of time between.
No.
Between contracts.
As rig churn.
Sort of amplify as well.
I'll be clear, we have visibility of one or two rigs coming down right now so we know that but we do.
That the industry rig counts going to be dropping in the Wil will tick.
A piece of that will be bearing a piece of that.
So I would say that.
There's a lot of moving pieces.
Gave you the data on the big bids we have out there right now and remain.
Pleasantly surprised by the volume of rig inquiries we have.
There might be some timing issues, where rig comes down and maybe late June but gets reactivated in July or August .
It's really kind of hard to see how it plays out with visibility right now is one or two not.
By region.
Yeah got it and just on the rig bids you have outstanding now can you give us a bit of an indication of how those breakdown by by customer type by region et cetera.
No.
In the past I've, just kind of quoted the bidding activity more as an indicator of interest I think I've said in the past usually about a third to a quarter of those turn into actual.
Actual rig orders for us or somebody else that we went a portion of those.
You were thinking going forward that something like that a third or a quarter turn to real rigs over time.
We win our share of that.
Got it thanks for the color I would tell you I will tell you it's biased towards oil, though no question about that.
Yes fair enough.
Okay. Thank you.
Thank you one moment for our next question.
Our next question comes from Kurt <unk> with the Benchmark Company. Your line is open.
Hey, good afternoon guys.
Hi, Kurt.
Interesting interesting dynamic at play with the prospects of putting some rigs from the U S back up into Canada, it's been a while since we've seen that kind of dynamic play out so kind of curious about that Kevin and I know you mentioned a lot of positive dynamics underway in Canada with the pipelines and the.
Agreement there in D C.
So I don't know how many.
Is it just kind of a a near term event or is this something where you could potentially see some additional demand pull north of the border even in 2024.
So crude oil I'll be surprised if we don't move a couple of rigs from the U S up to Canada or more so I think it's going to happen I don't think it happens inside this calendar year, but it may happen in 2024, So thats just a prognostication is not a forecast but.
Here's what's going on so we did move two rigs up last year.
And both of those are paid moves by the customer really healthy contracts.
And we also saw utilization of that same class of rig increase in the U S. D. J basin global busier and the competition for those assets increased so right now today I think we have two or three that aren't working in the U S.
But but we have customers looking at those rigs for the U S for DJ basin drilling so.
There'll be a little bit of competition between Canada, and the U S to see where those rigs best end up.
There's no question that we are we have a market in Canada that was five or six triple short a 1.7 triple short in Q1.
We're pretty certain of our customers in some cases, but have used a lesser performing rig to do the work.
<unk> got delayed.
We have.
Excess demand for Q3 that were trying to decide right now how to manage.
The clearing price to bring more of those rigs to the U S is probably.
Five or $6000 above leading edge rates in Canada right now so it's still a little bit away, which is why I'm leaning towards 2024, no doubt that when LNG, Canada gets fired up and they're filling the pipe the coastal gas link pipeline I think rig demand in Canada goes up by by 5% to seven Super triples.
Interesting Okay. We don't play we don't wanted to build we don't blend ability.
Yes, I got you.
Alright.
One other data point there we did we did get one contract.
Earlier, we mentioned on our Q4 call to do a significant upgrade taking a DC SCR rig and <unk> to Super.
Super Spec AC 15 horsepower rig you mentioned, a 44 45000 lower day rate and a four year contract.
So we did do that earlier this year that rig will get fired up in January 2024, and.
And that's because we simply didn't have the ability to move with 15 horsepower rig up to Canada. So.
So if we have more opportunities for those kind of upgrades in Canada, we'd be.
Interested in doing it.
Okay great.
So it seems like.
Yes.
The outlooks are kind of taken shape now for the rest of the year in your commentary sounded very similar too.
One of your U S peers from from yesterday.
On.
So basically some weakness in natural gas basins on pricing in some.
I'd say stability or or whatever on pricing in oil basins now.
However, we all know right in UK, there are always going to try to.
And use that against.
The body in the oilfield service industry. So is there anything in the context beyond typical friction around pricing going on in the U S. That's discernible to you.
I think.
The fungibility of rigs kind of confuses the equity markets.
Cost money to move a rig.
And for rigs going to move from the Haynesville to the Permian, that's a $700000 rig move and it takes a bit of time.
So there is financial friction in the Fungibility of rigs.
Capital markets kind of ignore some times.
It does mean that.
If there are no, let's just pick a number of procedures 10 rigs loose in the Haynesville that doesn't mean, those 10 rigs compete with Permian, leading edge rates or drive rates down because you've got to factor in the cost to bring the rig over.
Whether the drilling contractors subsidize the move or whether the E&P is paying for the move that cost is in the system creates friction.
So I think Thats one factor that.
The equity investors need to think about a little bit.
<unk> the space.
The other thing that is clearly different is the demand by investors for all of us to be disciplined and deliver strong results.
I think the willingness to buy market share that might've been around in previous cycles is just gone away.
I think most of US rather show that are that we are disciplined in our pricing.
Then letting the market drive down our rates because once once the rate goes down it gets applied it can be applied across the fleet. That's always the fear if we remain disciplined and project work.
That supports pricing and we need the price that we did.
<unk> able to earn our cost of capital keep sustaining the productivity, we're delivering whether its in the montney in Canada, or the haynesville or the Permian basin.
Awesome I appreciate the color thanks, Kevin.
Thank you.
And I'm not showing any further questions at this time I'd like to turn the call back over to Ron for any closing remarks.
That concludes our conference call for today. Thank you everyone for joining and have a great day.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
[music].
Okay.
Yes.