Helmerich & Payne Inc. Q2 2023 Earnings Call
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Good day, everyone and welcome to today's homework and paint fiscal second quarter earnings call. At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing star one.
And you touched on phones. Please note. This call is being recorded and I will be extending that I should you need any assistance. It is now my pleasure to turn today's call over to Dave Wilson. Please go ahead.
Thank you Ashley and welcome everyone can have a convenience conference call and webcast for the second quarter of fiscal year 2023 with US today are John Lindsay President and CEO and Mark Smith, Senior Vice President and CFO .
John and Mark will be sharing some comments with us after which we'll open the call for questions.
Before we begin our prepared remarks, I'll remind everyone that this call will include forward looking statements as defined under the securities laws such statements are based on current information and management's expectations as they are not guarantees of future performance forward looking statements involve certain risks uncertainties and assumptions that are difficult to predict.
That's fair outcomes and results could differ materially.
You can learn more about these risks in our annual report on Form 10-K call reports on Form 10-Q, and our other SEC filings.
You should not place undue reliance on forward looking statements and we undertake no obligation to publicly update these forward looking statements.
We will also be making reference to certain non-GAAP financial measures such as segment operating income direct marketing and other operating statistics, you'll find the GAAP reconciliation comments and calculations in yesterday's press release.
I'll turn the call over to Jonathan.
Thank you Dave Good morning, everyone and thank you again for joining us today.
Ancient Pea delivered another outstanding quarter and executed on several strategic objectives.
On our Q2 earnings call last year, we announced a goal to achieve direct margins of 50% and our North America solutions segment.
As the pathway to generating an annualized return above our cost of capital.
I'm pleased to report that we have achieved that Mark and go with the second fiscal quarter results.
Reaching this milestone enabled us to realize annualized mid teens return on invested capital this fiscal year.
Which is the first time, we have achieved a double digit return since the 2014 up cycle.
Our focus now turns to maintaining this progress in a challenging market environment.
Our Super spec flex rig utilization remains high and we are committed to this level of financial returns to maintain economically sustainable operations.
Which is in the best interest of all our stakeholders.
Political and economic uncertainty has plagued the global crude oil market over the past few quarters in the U S. Natural gas market has been particularly weak due to excess supply following a relatively warm winter and offline LNG takeaway capacity.
Both of which should be short term transitory issues.
Phil volatility in both commodity markets seems to have fostered an atmosphere pessimism surrounding the industry.
Which we believe is a short term challenge and could reverse itself over the second half of 2023.
It is during times like these that it's good to remind ourselves how critical abundant cost effective and secure energy is to sustaining security and the broader global economy.
We remain optimistic about the long term energy fundamentals, which favor our growing global demand for natural gas as a more environmentally friendly energy source in the future.
And that will require more drilling to meet supply to supply needs.
Nevertheless, softness in natural gas pricing in the U S has had a dampening effect on current rig activity and is contributing to an increased level of contractual churn in the market.
Not only in terms of number of rigs, but also the increased idle time between contracts.
A portion of this softening activity can also be attributable to our customers' fiscal prudence with regard to budgets and their return focus they are pursuing.
These factors in combination with our focus on pricing in order to preserve a return profile that aligns with our cost of capital is partially responsible for the reduction in our active rig count exiting the March quarter.
Necessitates a lower resets the bar forward rig counts injections.
As we talked with some investors they voiced concerns about a pending downturn due to idle rig capacity and the historical results related to pricing.
My experience over the past two decades indicates that it isn't unusual to see rig count volatility, but in an up cycle.
I don't ever recall in that cycle that was straight up into the right.
Additionally, Super spec rig effective utilization is above 90%, which historically has created a favorable pricing environment for us.
To add some color to our activity decline.
A majority of it is stemming from the weakness in natural gas prices.
And it's important to remember that lowering our rates would not have kept those rigs working regardless.
Yes, there were a handful of rigs that were released over pricing, but those were in the minority minority and there were about the same number that were released in the normal churn as customers.
With the rig line, mostly related to budgetary reasons.
We expect this loan activity to be short term.
And should correct itself over time.
While much of the recent turbulence in rig activity has been related to natural gas. We also remain optimistic about the longer term fundamentals for crude oil and believe it will be a persistent driver for rig demand.
With nearly 80% of the U S land rigs directed towards crude oil drilling and with current prices above the $70 per barrel range.
Expectations as there should be strength in the oil drilling market.
With the current outlook for many of our customers, we expect an improving rig count in the second half of the calendar year.
And like the last three years, we expect the buying season in calendar Q4.
In addition to rig activity and pricing managing costs and achieving higher levels of drilling performance also impact our ultimate returns.
By investing in the flex rig fleet.
Technology people and processes.
We're able to consistently deliver the outcomes our customers desire.
We continue to develop new commercial model that not only remunerate us for the value we create but also expand collaborative efforts between <unk> and its customers.
This has not happened overnight as we began developing a new commercial model construct in 2019 and today.
45% of our rigs are using some form of a performance based contracts.
HP has spent the last 20 years investing in a flex rig fleet to drive improving well cycle performance and reliability for customers.
These investments over the last five years have focused on converting the fleet to super spec capacity.
<unk> is now at 231 rigs in the U S. In addition, we invested in multiple software technologies that are helping us to drive rig automation as well as more accurately placed and higher quality wellbore.
Let me provide some examples of the performance improvements and lateral length increases since 2014.
The average well that drilled by flex rigs has increased by 5000 feet to over 20000 feet with the average lateral doubling to over 10000 feet.
Simultaneously, while drilling longer laterals.
Working with our customers, we have also reduced well cycle times by roughly 25% from 22 days to an average of 16 days per well.
These well cycle time improvements mean rigs are working more efficiently, but it also means rigs are working harder.
And this translates into higher costs were expendables maintenance capital and labor.
Mark will discuss costs in greater detail during his remarks, but let me point out that our rig cost per day has increased from $12500 a day in 2014.
$18000 a day today.
And that is a driver for revenues needing to be in the mid $30000 a day range.
Maintaining our focus on our physical plan to ensure that we can achieve sustainable returns on invested capital.
Is what will enable agent Peter remain a viable partner to future success of our customers.
Now shifting to the international front hmp's potential for longer term growth prospects remains in focus.
During the quarter, we moved our first super spec such rig into our middle East hub and we have set another to Australia.
While initially small in terms of rig count. These two projects are important to our international strategy and we believe they will open doors to more opportunities.
Along those lines, we still plan to export additional super spec rigs to the middle East during the back half of the calendar year after undergoing conversions that fit the specific needs for operations in the region.
Operations in Argentina, and Colombia have remained relatively steady and providing solid financial contributions.
We have executed on our shareholder focused capital allocation strategy and since October of this fiscal year we.
We have returned approximately $250 million to date.
And capital be irregular and supplemental dividends and share buybacks.
Furthermore, we still have ample cash available to complete our announced dividend plans as well as conduct additional repurchases or take advantage of other investment opportunities.
In closing.
Over the past few months I've seen <unk> working more collaboratively with customers than any time in my career.
The outcomes. We are jointly pursuing is economic value added productivity using new commercial models, rather than just a focus on the day rate.
That is due in large part to our customers realizing the near and long term benefits of having A&P as theyre drilling solution partner.
All of this is possible by HP employees, utilizing a rig assets and technologies to consistently deliver desired outcomes for our customers.
And now I'll turn the call over to Mark.
Thanks, John Today, I will review our fiscal second quarter of 2023 operating results provide guidance for the third quarter.
Full fiscal year, 2023 guidance as appropriate and comment on our financial position let.
Let me start with highlights for the recently completed second quarter ended March 31 2023.
The company generated quarterly revenues of $769 million versus $720 million from the previous quarter as expected the quarterly increase in revenue was due primarily to focused efforts.
Move our North America fleet.
Pricing higher.
Total direct operating costs were $450 million for the second quarter versus 429 million for the previous quarter the.
The sequential increase is attributable to higher average active per rig costs in North America.
General and administrative expenses were approximately $53 million for the second quarter slightly higher than expected due to miscellaneous information technology and professional services costs.
During the second quarter, we recognized a gain of it.
Approximately $40 million, primarily related to the fair market value of our equity investments, which is reported as a part of gain on investment securities and our consolidated statement of operations.
Our Q2 effective tax rate was approximately 24%, which is within our previously guided range.
To summarize this quarter's results H M. P earned a profit of $1 55.
Per diluted share versus <unk> 91 times in the previous quarter as highlighted in our press release second quarter earnings per share were positively impacted by a net 29 gain per share of select items, consisting of the aforementioned gain on investment securities.
Absent the select items.
Diluted earnings per share were $1.26 in the second fiscal quarter versus an adjusted $1 11 during the first fiscal quarter.
Capital expenditures for the second quarter of fiscal 2023 were $85 million, which was $11 million less than the previous quarter Capex I will comment later on our revised fiscal 2023 capital expenditure guidance.
H N V generated approximately 141 million in operating cash flow during the second quarter of 2023, which is inclusive of the $114 million in the second quarter outflows for cash tax payments.
And is in line with our expectations.
I'll address the company's cash position later in my remarks.
Turning to our three segments, beginning with North America solutions segment.
We averaged 193 contracted rigs during the second quarter up from an average of 180 rigs in fiscal Q1, we exited the second fiscal quarter with 179 contracted rigs, which was less than our guidance expectations.
As mentioned earlier revenues increased sequentially by $49 million due to higher average pricing.
Segment direct margin was $296 million, which was at the higher end of our January guidance and sequentially higher than the previous quarter, which came in at $260 million.
<unk> contracts are up to about 43% of total contracted rigs in the second quarter.
In addition, reactivation cost of $5 2 million were incurred during Q2 compared to $8 6 million in the prior quarter.
This includes three walking rig conversions, which we're committed prior to entering the second quarter and completes the six walking rig conversion as we had planned for the U S market in fiscal 2023.
Total segment expenses, excluding re commissioning cost and excluding reimbursable increased to $18000 per day in the second quarter from 16800 per day in the first quarter looking back over the past two years are increases in cost from $16000 per day at the end of fiscal 2021.
One.
To $18000 today are primarily due to a few factors first as discussed on previous calls we increased field labor related rates in December 2021 in September 2022.
For a total of about $1300 per day.
As a reminder, our labor is approximately 70% to 75% of daily operating expenses and the forward outlook for labor rates is stable.
Second as John alluded to in his remarks, we are seeing an increase in consumption of materials and supplies inventory items.
Due to the increased operational intensity of our rigs.
Recent data that shows we have gone from drilling 800 feet per day per rig in 2017 to.
Two 250 feet today, which is driving our rigs to work harder than ever before that's consuming more materials and supplies.
Finally, that's performance contracting and technology revenues increase additional costs are incurred to achieve those added revenue streams.
Looking ahead to the third quarter of fiscal 2023 for North America solutions.
Although we exited fiscal Q2 with 179 rigs working we have since seen several April releases and as of today's call. We have 169 rigs contracted.
176 of which are super spec rigs and we projected that by the end of the third fiscal quarter, we will have between 155 and 168 contracted rigs.
Last quarter, we peaked at 185 working in Super spec rigs and with 18 recently idled, we were at approximately 98% utilization of the recently active fleet.
As John mentioned natural gas price declines as calendar year, coupled with macroeconomic uncertainties.
Resulted in current moderated rig demand different from previous cycles agent P is maintaining focus on pricing and idling rigs instead of reducing pricing and growing market share. This is necessary to maintain our recently achieved a double digit annualized return on invested capital.
Relative to our cost of capital of over 10%. Moreover.
Moreover, as rig costs typically are only approximately 15% or less of the total cost of the customer as well reducing pricing to keep a rig working well not likely guarantee that Rick continues to work beyond the immediate term.
Instead individual price reductions would put downward pressure on pricing for the remainder of our active fleet, which would be returned destructive to the company, particularly given the historical long elapsed timeline to boost pricing back up again.
In summary, we are willing to sacrifice some near term cash flow generation and related to activity drops versus risking larger cash flow degradation related to pricing.
Our current revenue backlog from our North America solutions sleep is roughly $1 1 billion for rigs under term contract as of today, approximately 60% of the U S active fleet as auditor contract.
Our average spot revenue per day is currently in the high $30000 level inclusive of performance bonus earned in technology utilization.
Married to the Q2 overall average revenue per day of approximately 36300.
In the North American solutions segment, we expect drag margins in fiscal Q3 to range between $265 million to $285 million.
Notwithstanding 2022 inflation now included in our average cost inventory on the balance sheet. We believe our current materials and supplies unit costs will be relatively stable for the remainder of fiscal 2023.
But as I mentioned previously we are experiencing higher inventory consumption rates, which we expect will continue in Q3, we currently expect.
Third quarter per day cost to remain flat at approximately $18000 per day.
However, as we all know more rigs in the third quarter, our overhead absorption rate will be spread over a smaller number of active rigs, which may push costs slightly higher per active rigs through the second half of fiscal 'twenty three.
As John mentioned, when we look beyond fiscal Q3 of the calendar year, and we believe more rigs will be put back to work reversing some of the near term effects of such overhead absorption on daily Kos.
Next to our International Solutions segment International solutions business activity ended the second fiscal quarter was 14 rigs drilling in the Super spec rig mobilizing to Australia.
We added a rig in Bahrain as expected, which brings our working rig count to two of the three in that country International results were in line with previous guidance.
As we look towards the third quarter of fiscal 'twenty three for international we anticipate idling one rig in Argentina as it completed its term contract and one in Colombia is that customer assesses the recently drilled wells and determine the next steps.
Our sales team is working on opportunities to put both of these idled rigs back to work in the near to mid term.
Expenses associated with setting up our middle East hub and preparing rigs demobilized abroad affected results in Q2 and are expected to continue in Q3.
In the third quarter, we expect to earn four to 7 million indirect margin aside from any foreign exchange impacts.
Finally to our offshore Gulf of Mexico segment, we had four of our seven offshore platform rigs contracted and we have active management contracts on three customer owned rigs two of which are inactive right.
The offshore segment generated a direct margin of $9 3 million during the quarter, which was in line with our estimate and flat sequentially as we look towards the third quarter of fiscal 'twenty three for the offshore Gulf of Mexico segment.
One of our platform rigs is beginning in mobilization as the customer has reached the end of its multi year drilling program. This rig will be on some form of demobilization rate until it arrives at the shipyard, which is anticipated to be in mid August we.
We expect offshore will generate between five five to $7 5 million of direct margin.
Now, let me look forward to update full fiscal year 2023 guidance as appropriate.
Capital expenditures for the full fiscal 'twenty three year are now expected to range between $400 million to $450 million decreasing the midpoint $25 million from prior guidance, although we expect the timing of our capex spend to vary from quarter to quarter supply chain delays have continued to push some maintenance capex out in our planning horizon.
Our expectation is for general and administrative expenses for the full fiscal year increased to $205 million. The additional cost are primarily due to increased professional services fees and information technology expenditures.
We are still estimating our annual effective tax rate to be in the range of 23% to 28% with the various above U S statutory rate of 21% attributed to permanent book to tax differences in state and foreign income taxes.
In Q2, we paid cash taxes of approximately $114 million, which is up from $4 million in Q1.
For the full fiscal year, we're not anticipating cash tax range of $175 million to $225 million. The midpoint of this revised range is $15 million lower than the prior quarter guidance midpoint.
Due to the previously mentioned and lower rig activity expectations.
Now looking at our financial position number campaign had cash and short term investments of approximately $245 million at March 31 versus an equivalent $348 million at December 31, 2022.
The sequential decrease cash balance is largely attributable to our fiscal Q2 share repurchases.
Regarding cash balances and taking into account the recent developments discussed today and the implications that has it had on forecasted activity cash taxes and Capex. We have updated our estimates for our fiscal 2023 year end cash balance at the beginning of this fiscal year, we've provided a range.
$430 million to $490 million, a revised cash range this fiscal.
Fiscal year end is now $340 million to $380 million, which largely reflects the overall impact of the share repurchases to date.
Including availability under our revolving credit facility, our liquidity remains relatively flat at approximately $1 billion.
Approximately two and a half million shares were repurchased in fiscal Q2 for approximately $107 million.
Fiscal 2023 repurchases have totaled about $3 4 million shares thus far for approximately $146 million.
These share repurchases augments, our longstanding base dividend.
In fiscal 2023 supplemental dividend each of these items stock repurchases in the base of supplemental dividends accomplish the new capital allocation and shareholder return model that we announced in October at the beginning of this fiscal year.
Pricing focus in North America, combined with our capital allocation execution underscores our focus to not only increase the financial returns of the company, but also the cash returns provided to shareholders.
That concludes our prepared comments for the second fiscal quarter, and let me now I'll turn the call over to Ashley for questions.
At this time I would like to ask a question. Please press star one on your Touchtone phone you may withdraw your question at any time by pressing the turnkey once again Thats star and one and we will take our first question from David Smith with Pickering Energy. Please go ahead.
Hey, good morning, Thank you for taking my questions.
Morning, Dave.
So congratulations on getting to that with a 2% margin talked about thickness at extra.
It's a license on.
So in the eye.
This is Glenn leadership could be gross margin.
I was kind of a two part question thinking about your your excellent rate Uh huh.
The lower 48 Count last December bursting is your projection for the June exit.
I I understand natural gas activity factors in there.
Why does that matter, if you could give us any color on maybe the customer mix of rigs being dropped and then secondly.
If you could give us an update on what portion of your fleet is on performance based contracts and if you see that mix changing from last December to Virginia.
Yeah.
Sure David Yeah the.
The mix on the releases.
Of the rigs we've had released thus far approximately 70% of our private companies.
And.
As we.
What was the second part of your question.
Oh, Yeah performance.
Yeah, we've we're at 45% of the current working fleet.
Has is under some sort of a performance contract or another.
And David This is mark we've seen those that fought that tick up a bit since the prior quarter were around 40%. So some grants and.
Gradual increase up to 45% as our sales force continues to work with customers for a.
For ways to get our revenue per day to it too.
What's acceptable level for our returns generations required.
So getting the customers they are the right kpis they needed to drive value on there.
Yeah.
I appreciate that color.
And a quick follow up if I may I don't Wanna be shortsighted, but thinking about capital allocation.
To the extent that international growth Capex could be discretionary.
How do you kind of see the opportunity to deploy capital for international growth compared to.
Going back your stock at these levels and maybe that's just that.
Good luck.
Okay.
On the authorization this year.
Yeah, that's right and I I would lean toward all of the above.
I think we've got the <unk>.
Got the balance sheet to do both obviously, we would love to do more.
Internationally.
You know as you've seen it theoretically it's a pretty slow growth, but we do think there's opportunities and again hopefully it will be.
Moving to some additional assets there in the back half of this year, but you know we've talked a lot about our share buybacks and looking at it from an opportunistic perspective.
There's obviously a lot of opportunity in the U N.
No.
Great. Thank you so much thank.
Thank you David.
And we'll take our next question from Eric <unk> with Barclays. Please go ahead.
Hey, guys good morning.
Going back to the rig decline, we exited aggregate about 20 to 25 rigs out do you know is that a is that industry rigs coming off.
Now, it's your rig count, but are some of those e&ps picking up lower price regular lower tier rates just wanted to know if that's an industry rig count drop as well what are you seeing some offsets with some adds for most E&P that you're you're dropping their rates right.
Yeah, Derrick I don't have a clear insight into all the comparisons, but I'm pretty certain that all the natural gas right.
Those rigs are not being replaced I mean, those rigs are being you know our rigs and I'm sure other <unk>.
Competitor rigs are being released as a result of low gas prices.
And so I don't think that's a I don't think that's a surprising.
I'm sure there are other instances where.
We are being replaced by a lower cost per day rig and I think that's really the key.
The thing to focus on there is that it's it may be a lower cost per day, but it's not a lower cost.
Of the overall project.
And Fortunately, we have been able to maintain a level of pricing through the performance contract construct.
Because you know in a traditional fashion all you really have to negotiate with the customer with.
Is the day rate if that's all you're you're pricing your value on so.
There's a great opportunity.
You know in working with customers to drive additional value and creating a win win through that are.
You know through that performance based contracts.
We're getting a lot of traction it's been it's been very positive. Obviously, we do still have a traditional day rate day rate contracts and we have a great performance with those customers as well, but it is a different way to approach the business.
All right understood and then one last question you said that 70% of his rig drops with private can you breakout the gas versus private because I know on last call you talked about I think 28 rigs being gas have little over half of those long term contracts I suspect those are safe.
So maybe just a little color on the mix between gas versus oil rig drops.
Derrick This is mark I mean, you know we can we can get back with you on details there, but suffice it to say that the predominance of the privates for US. We're also weighted towards those gas basins, but we can follow up with more detail.
Got it Okay, and then just sneak one more and.
Given that you've lowered.
Your activity that's much of the rest of the year does this free up some some of the equipment.
<unk> got one more to the middle east or even down in Australia, and maybe more than you thought.
Maybe not for this share about what maybe your fiscal 2024 have you started to have conversations around maybe increasing the rig that you send Delaware.
We really haven't at this point, Gary It's again, our belief is that the second half of the year, particularly Q4.
We expect them you know not not the same type of response, but a similar response, where it is it is that buying season the difference of course.
This go around here of the past three years, we've been reactivating rigs out of long term stack and so now we'll be reactivating rigs that had been idle for a very short period of time should be very low cost to reactivate those rigs and get those rigs back back working so.
It's it's a it's really hard to say at this point in time I mean, it does it does obviously take a lot of pressure out of the supply chain because there had been supply chain challenges.
But over time.
Clearly our goal would be to move more of our super spec capacity to international markets as those opportunities arise.
Alright, I appreciate the color I'll turn it back.
And we will take our next question from Rob <unk> with Bank of America. Please go ahead.
Yes.
Yeah.
Good morning.
So Ravi your line is open.
Yeah.
Well take our next question from.
Don Crist with Johnson. Please go ahead.
Good morning, gentlemen, thanks for letting me in.
I wanted to focus on your comments about.
The rig count kind of.
Coming back up or increasing in the back half of the year.
I wanted to kind of give a little bit more color around that.
That kind of leads me to believe that.
The guidance that you gave for.
End of the calendar year second quarter of 55 to 160 rigs in the U S kind of being a bottom.
Am I thinking about that correctly and is that the kind of conversations you're having with <unk>.
Customers that they're expected to pick up rigs in the third quarter and going into the fourth quarter calendar quarter.
I think that's a I think that's a good way to look at it that that's what our hope is that we are having conversations with some customers about soon.
June opportunities.
You probably heard me say before it's difficult to see out much past a quarter, but we but we are having some conversations and so that leads us to believe that we will start picking some rigs back up and again hopefully that is.
That is the that is the bottom at that point.
Okay, and just one final one from me the rigs that you're stacking out today are they moving around to other basins or UN stacking them in basin with hopes that this is only a transitory event.
I'm going to go back to work in those basins.
So as we progress through the year and going into 'twenty four.
Don This is mark when we.
We finished.
A rig working and it starts out allowed the customer pays for the mobilization and that goes to the yard and are in a district or region, where it is.
No when we get or idling those rigs today, those cluster or really.
As you know.
The minimum is I'd say compared to what we might have done to idle a rig for example, a comparatively in 2020.
Because then we were doing a lot of preservation work and preparing those for a long idle period today, we're putting them in the yard.
And having them just said ready to roll for when they may be able to go back to work in the next three to six months.
So that on the other end the reactivation cost is also minimal and it's in the basin are.
Where it was and you can go back to work quickly.
Yeah, and I'll, just add to that and we really are.
As you look at the basins that we're in and our position in the basins.
We like we like the position of the rigs.
We're the number one provider in the Permian the Eagle Ford the Haynesville, we've got a great positions in the other basins. So as Mark said there'll be there well positioned to.
Pick up.
Right, where they left off.
I appreciate you letting me in thank you.
Thank you Don.
And we will take our next question from Keith Mackey with RBC capital markets. Please go ahead.
Hi, good morning, and thanks for taking my questions. Just the first one on the performance based contracts I understand it's a 45 or 43% of the current fleet is there a way to quantify the benefit you get from the performance based contracts and you talked about the footage per day.
<unk>.
Is there a way to quantify exactly how have you been paid commensurately for that are you know for that progress relative to just what's happened in the market.
Yeah, we have we do have some.
Metrics around that I think one of the ways to think about it is.
You know as you think about just our base. If you will a base day rate and then being able to.
Look at a performance profile that a customer wants to hit not just drilling performance, but also wellbore placement wellbore quality.
As an example footage in the lateral theres a lot of different ways customers look at what it is they're trying to achieve.
And so there's there's definitely a premium but in some cases you know ultimately what we're doing is we're trying to get our our rates.
That mid thirties like I like I had mentioned that 50% gross margin, which is delivering that mid teens ROIC C. So that's ultimately.
The end goal.
And as I've said before.
Rather than only negotiating on a day rate basis, and the answer is either yes, or no you've got some optionality on the value proposition.
That we're looking into so it's a really it's a really valuable way to create this win win with us and our and our customer because let's face it at the end of the day, our our day rate.
Our total revenue.
On the course of drilling a well isn't a huge needle mover on the total cost of the well.
The real benefits are saving days on well and improving wellbore quality placement reliability quality all of those things are the drivers that we're spending a lot of time talking with our customers about.
Right.
Got it got it and if I could just follow up on <unk>.
On your comments about.
Getting the return on capital to exceed cost of capital and that being you know roughly around where things are now in terms of in terms of rates and pricing can you just maybe give us a bit of commentary on sort of where you think we are in the cycle given given that dynamic are leading rates materially above your cost of capital or are they.
I'm, just catching up to where you know where it should be.
And ultimately you know what you think your what will happen to your longer term cost of capital given the trajectory of the industry and what that ultimately means for the rates you need to make in the in the current environment in years ahead.
Yeah, that's that's a great great question, Keith we were.
You know we've been saying this now for a couple of quarters, we're really not focused on that leading edge price, but we're really focused on is getting to that that the all the rigs to the average that we've talked about.
And obviously, it's extremely important for us as an organization to be able to to have that that mid teens type of return again, we haven't been there since since 2014.
And we've made a lot of investments in the company and our people and our rigs and technologies.
We're doing that because we're doing.
Our dead level best to partner with our customers and try to deliver as much value as promptly as possible.
For them and with them and.
And so that's what's driving that and again, we've talked about the cost side of the equation you know what our costs are up over $5000 a day since 2014.
So that's that's really ultimately.
The driver.
For us.
And obviously, that's the space that we've got to have returns that are above our cost of capital we're not an investable capital.
So that's a big part of it.
The way we're looking at this.
We are you know again I've mentioned the comment that.
Occasionally we'll have an investor visit windows and say something along the lines of the current downturn like this is not a downturn. This is a very normal part.
Of the cycle and a longer term upcycle you can look back at different periods over the last 20 years and you can see that for yourself, there's a lot of volatility in rig and a rig activity. So.
So again, we feel good about the position, but that's our focus that's focus on that.
Returns over over market share.
Okay.
Okay. That's it for me thanks for the color. Thank.
Thank you.
And this concludes our Q&A session I will turn the call back over to John Lindsay for closing remarks.
Thank you Ashley and listen Thanks, again for joining us today I know, there's a lot of calls and it's a really busy day.
So thanks for joining us we remain optimistic about the future.
We're really pleased with the momentum that we that we have as an organization, we recognize the headwinds and the challenges, but I don't think anybody's better positioned than <unk> to perform through through this cycle.
As we've said multiple times today, we're focused on our returns creating returns over market share. We think we're really well positioned with great technology and people and solutions to really provide great outcomes for our customers. So thanks again and again for your time and have a great day.
Thank you and this does conclude today's program. Thank you for your participation you may disconnect at any time.
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