Q4 2023 Trican Well Service Ltd Earnings Call
Operator: Good morning, ladies and gentlemen. Welcome to the Trican Well Service fourth quarter 2023 earnings results conference call and webcast. As a reminder, this conference call is being recorded. I would now like to turn the meeting over to Mr. Brad Fedora, President and Chief Executive Officer of Trican Well Service Ltd. Please go ahead, Mr. Fedora.
Good morning, ladies and gentlemen, welcome to the truck and rail service fourth quarter 2023 earnings results conference call and webcast.
As a reminder, this conference call is being recorded I would now like to turn the meeting over to Mr. Brad Fedora, President and Chief Executive Officer of crack and well service limited. Please go ahead Mr for Dara.
Brad Fedora: Thank you very much and good morning, everyone. Thank you for attending the Trican fourth quarter results conference call. First of all, Scott Mattson, our Chief Financial Officer, will give an overview of the quarterly results. I will then provide some comments with respect to the quarter and the current operating conditions and our outlook for the near future. And then we'll open the call for questions. As usual, several members of our executive team are in the room today and are available to answer any questions anyone may have. I'd now like to turn the call over to Scott to start things off.
Thank you very much and good morning, everyone. Thank you for attending the <unk> fourth quarter results Conference call.
First of all Scot Mattson, our Chief Financial Officer will give an overview of the quarter quarterly results. I will then provide some comments with respect to the quarter and the current operating conditions and our outlook for the near future and then we will open the call for questions as usual several members of our executive team are in the room today and are available.
To answer any questions anyone may have.
I would now like to turn the call over Scarborough to start things off thanks, Brad and good morning, everyone. Before we begin I'd like to remind everyone that this conference call may contain forward looking statements and other information based on current expectations or results for the company certain material factors or assumptions that were applied in drawing conclusions or making projections.
Scott Mattson: Thanks Brad, and good morning everyone. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements and other information based on current expectations or results for the company. Certain material factors or assumptions that were applied in drawing conclusions or making projections are reflected in the forward-looking information section of our MD&A for Q4 2023. However, a number of business risks and uncertainties could cause actual results to differ materially from these forward-looking statements and our financial outlook. Please refer to our 2023 Annual Information Form for the year ended December 31, 2023 for a more complete description of business risks and uncertainties facing Trican. This document is available on our website and on CDAR.
Are reflected in the forward looking information section of our MD&A for Q4 2023.
<unk> of business risks and uncertainties could cause actual results to differ materially from these forward looking statements and our financial outlook. Please refer to our 2023 annual information form for the year ended December 31, 2023 for a more complete description of business risks and uncertainties facing truck in this document is available on our website and on Cedar.
Sure.
Scott Mattson: During this call, we will refer to several common industry terms and use certain non-GAAP measures, which are more fully described in our Q4 2023 MD&A. Our quarterly results were released after the close of market last night and are available both on CDAR and our website. So with that, let's move on to our results for the quarter. Most of my comments will draw comparisons to the fourth quarter of last year, and I'll provide a few comments about our quarterly activity and expectations going forward. Trican's results for Q4 were as anticipated, essentially in line with last year's Q4, with slightly more activity, muted a bit by inflationary pressure and impacted by the standard Christmas break, which lasted pretty much through the end of the year. Revenue for the quarter was $254.9 million, an increase of about 8% compared to Q4 of 2022.
During this call we will refer to several common industry terms and use certain non-GAAP measures, which are more fully described in our Q4 2023 MD&A.
Our quarterly results were released after close of market last night and are available both on SEDAR and our website.
So with that let's move onto our results for the quarter. Most of my comments will draw comparisons to the fourth quarter of last year and I'll provide a few comments about our quarterly activity and expectations going forward.
<unk> results for Q4 were as anticipated essentially in line with last year's Q4 was slightly more activity muted a bit by inflationary pressure and impacted by the standard Christmas break which lasted pretty much through the end of the year.
Revenue for the quarter was $254 9 million, an increase of about 8% compared to Q4 of 2022 and adjusted EBITDA came in at $56 4 million or 22% of revenues down slightly from the $59 4 million or 25% of revenues we generated in Q4 of 2022.
Scott Mattson: Adjusted EBITDA came in at $56.4 million, or 22% of revenues, down slightly from the $59.4 million, or 25% of revenues we generated in Q4 of 2022. This was mainly attributable to our job mix in the quarter based on the specific well designs and customer programs that we executed during the quarter. Adjusted EBITDA for the quarter came in at $58.8 million, or 23% of revenues, again essentially in line with the $60.1 million or 25% of revenues we printed last year.
This was mainly attributable to our job mix in the quarter based on the specific well designs and customer programs that we executed during the quarter.
Adjusted Ebitdas for the quarter came in at $58 8 million or 23% of revenues again essentially in line with the $60 1 million or 25% of revenues, we printed last year to arrive at EBITDA, we add back the effects of cash settled share based compensation recognized in the quarter to more clearly show the results of our operations and remove some of the final.
Scott Mattson: To arrive at EBITDA, we add back the effects of cash settled share-based compensation recognized in the quarter to more clearly show the results of our operations and remove some of the financial noise associated with changes in our share price as we mark to market these items. On a consolidated basis, we continued to generate positive earnings, printing $28.8 million in the quarter, which translates to about $0.14 per share basic and $0.13 per share on a fully diluted basis. We generated free cash flow of $38.7 million during the quarter as compared to $47.1 million in Q4 of 2022. Our definition of free cash flow is essentially EBITDAS less non-discretionary cash expenditures, which includes maintenance capital, interest, cash taxes, and cash settled stock-based compensation.
Noise associated with changes in our share price as we mark to market. These items.
On a consolidated basis, we continued to generate positive earnings printing and $28 8 million in the quarter, which translates to about <unk> 14 per share basic and <unk> 13 per cent per share on a fully diluted basis.
We generated free cash flow of $38 7 million during the quarter as compared to $47 1 million in Q4 of 2022.
Our definition of free cash flow is essentially EBITDA less non discretionary cash expenditures, which includes maintenance capital interest cash taxes and cash settled stock based compensation.
Scott Mattson: As we've previously noted, we moved into a net taxable position in 2023, which is the primary driver of the year-over-year difference. You can see more details on this in the non-gap measures section of our MD&A. Capital expenditures of the quarter totaled $18.3 million, split between maintenance capital of about $8.8 million and upgrade capital of $9.5 million.
As we've previously noted we moved into a net taxable position in 2023, which is the primary driver of the year over year difference you can see more details on this in the non-GAAP measures section of our MD&A.
Capital expenditures for the quarter totaled $18 3 million split between maintenance capital of about $8 8 million and upgrade capital of $9 5 million. The upgrade capital was dedicated mainly to our ongoing tier four capital refurbishment program and the electrification of ancillary track equipment, which Brian will touch on later.
Scott Mattson: The upgrade capital is dedicated mainly to our ongoing Tier 4 capital refurbishment program and the electrification of ancillary rack equipment, which Brad will touch on later. Updates to our fifth-generation Tier 4 fleet were largely completed in the fourth quarter, with final commissioning occurring early in Q1, and that equipment is now deployed and operating. The balance sheet remains in excellent shape.
Updates to our fifth tier four fleet were largely completed in the fourth quarter with final commissioning occurring early in Q1 and that equipment is now deployed in operating.
Our balance sheet remains in excellent shape, we exited the quarter with positive working capital of approximately $153 2 million, including cash of $88 8 million.
Scott Mattson: We exited the quarter with positive working capital of approximately $153.2 million, including cash of $88.8 million. And I would note that a portion of that cash balance will be used to satisfy our 2023 tax obligations and will flow out in Q1 of 2024. Finally, with respect to our return of capital strategy, we repurchased and cancelled 2.6 million shares under our NCIB program in Q4 of 2023. On an annualized basis, in 2023, we repurchased and cancelled a total of 22.7 million shares at an average price of about $3.46 per share, representing approximately 10% of the shares outstanding at the beginning of last year. We've repurchased and cancelled about 2.6 million shares since year-end, and we continue to be active and opportunistic with our buyback program.
And I would note that a portion of that cash balance will be used to satisfy our 2023 tax obligations and will flow out in Q1 of 2024.
Finally, with respect to our return of capital strategy, we repurchased and canceled two 6 million shares under our NCI program in Q4 of 2023 on an annualized basis in 2023, we repurchased and canceled a total of $22 7 million shares at an average price of about $3 46 per share representing.
Only 10% of the shares outstanding at the beginning of last year.
We've repurchased and canceled about two 6 million shares since year end and we continue to be active and opportunistic with our buyback program.
As noted in our press release, our board of directors approved a dividend of four and a half cents per share for the quarter, representing an increase of 12, 5% from our previous quarterly dividend.
This essentially offsets the reduction in share count as a result of the company's ongoing N CIB program and we'll keep our annual expected dividend payout in the $34 million to $36 million range.
Scott Mattson: As noted in our press release, our Board of Directors approved a dividend of $0.045 per share for the quarter, representing an increase of 12.5% from our previous quarterly dividend. This essentially offsets the reduction in share counts as a result of the company's ongoing NCIB program and will keep our annual expected dividend payout in the $34-$36 million range. The distribution is scheduled to be made on March 29th, 2024 to shareholders of record as of the close of business on March 15th, and I would note that the dividends are designated as eligible dividends for Canadian income tax purposes. So with that, I'll turn things back over to Brad. Okay, thanks.
The distribution is scheduled to be made on March 29, 2024 to shareholders of record as of the close of business on March 15th and I would note that the dividends are designated as eligible dividends for Canadian income tax purposes.
So with that I'll turn things back over to Brad.
Okay. Thanks, My comments will include.
What happened in Q4, what's happening happening currently and what probably most people are interested in what we expect for the next few quarters, particularly in the summer.
So on the.
Q4 recap overall like Scott was saying it went pretty much as expected. We now expect Q4 to be slower than Q1 and Q3 as.
As the year winds to a close more work has shifted.
To Q2 in these last few years and we expect that that'll that'll continue on which is actually great. It keeps our staff busy throughout Q2, and then it gives everybody a better Christmas break which is appreciated by them.
Brad Fedora: My comments will include what happened in Q4, what's happening currently, and what most people are interested in, what we expect for the next few quarters, particularly the summer. So on the Q4 recap, overall, like Scott was saying, it went pretty much as expected. We now expect Q4 to be slower than Q1 and Q3. You know, as the year winds to a close, more work has shifted to Q2 in these last few years, and we expect that that'll continue, which is actually great. You know, it keeps our staff busy throughout Q2 and then gives everybody a better Christmas break, which is appreciated by the staff in this industry. All of the pricing in each business line did, we did feel a little bit of pressure.
By the staff in this industry.
All of the pricing.
And each business line did did you know we did feel a little bit of pressure, we're continuing to feel that pressure as people sort of get antsy with gas prices and in particularly in Q4. There was some some real aggressive pricing as people positioned themselves the winter.
When that's happening we typically withdraw from those situations and we will continue to do that going forward.
We believe in the value that we have to offer them, we'll make sure that it's priced accordingly were still in the fracturing division, we're still running with seven Frac crews. We don't think the activity is there yet to justify an eighth or ninth crew.
Brad Fedora: We're continuing to feel that pressure as people sort of get antsy with gas prices, and particularly in Q4, you know, there was some real aggressive pricing as people positioned themselves for winter. When that's happening, we typically withdraw from those situations, and we will continue to do that going forward. You know, we believe in the value that we have to offer, and we'll make sure that it's priced accordingly. We're still in the fracturing division. We're still running with seven frack crews. We don't think the activity is there yet to justify an eighth or ninth crew. One of the highlights from Q4 is that we did our first pad for Petronas, which is one of the LNG Canada partners. It went very well. The equipment and the people performed extremely well.
One of the highlights from Q4 is that we did our first pad for Petronas, which is one of the LNG, Canada partners went very well.
The equipment and the people performed extremely well the customer was happy. So we expect that work to continue in 2024 on the cementing side. The results from our cementing division continued to prove our expertise and leading market position in this service line.
We ran our cementing division at our outer absolute active capacity, which means all the equipment that we can staff, we still hold about a 35% market share and the overall basin and just over 50% in the Montney Duvernay and deep basin, which is an indication of the customers looking to us for <unk>.
Brad Fedora: The customer was happy, so we expect that work to continue in 2024. On the cementing side, the results from our cementing division continue to prove our expertise in leading Mark positions in the service line. We ran our cementing division at our absolute active capacity, which means all the equipment that we can staff. We still hold about a 35% market share in the overall basin and just over 50% in the Montigny, Duvernay, and Deep Basin, which is an indication of the customers looking to us for anything that's technically tricky or critical; they turn to us for that service line. Of course, we're really happy with this division.
So it was technically trickier or critical they turned to us for those for that service line and of course, we were really happy with this division as a technical leader, we have a great customer list and we expect that this division will continue to perform really well in the next few years.
On the coil side maybe.
We made I think we've made we're making good progress there as I've mentioned in previous calls our coil division is one of those that we were not that happy with just because of the scale.
It's a very profitable at the field level, but certainly the scale of that operation needs to increase in order for it to generate a reasonable return on invested capital.
We want to run sort of more in the line of 10 coil crews as opposed to seven that we're operating today and we've added key sales person from one of our competitors, who is already having a significant impact.
Brad Fedora: As a technical year, we have a great customer list, and we expect that this division will continue to perform really well in the next few years. On the coil side, I think we're making good progress there, as I've mentioned in previous calls. Our coil division is one of those that we're not that happy with just because of the scale.
Our activity going forward.
And we will just continue to focus on that and slowly slowly build that division.
So what's our outlook for the rest of the year and for Q1 of this year. We expect Q1 of this year will be slightly lower than last year nothing major.
Brad Fedora: It's very profitable at the field level, but certainly, the scale of that operation needs to increase in order for it to generate a reasonable return on invested capital. We want to run more in the line of 10 coil crews as opposed to 7 that we're operating today. We've had a key salesperson from one of our competitors who's already having a significant impact on our activity going forward. And we'll just continue to focus on that and slowly, slowly build that division. So what's our outlook for the rest of the year? And for Q1 of this year, we expect Q1 of this year to be slightly lower than last year, nothing major. You know, there's a few less rigs running, you know, low gas prices, so we have had some margin compression; it'll still be a really good quarter, just, you know, probably won't match up to last year.
A few less rigs running.
Low gas prices. So we have had some margin compression.
It will still be a really good quarter just.
Probably won't match up to last year.
We haven't really slow start in January it seemed like the Christmas break seem to extend past few years and then just as we are ready to start we were hit with certain brutally cold weather, which lasted for about a week and so we really didn't get started until the second half of January which is slow normally it starts much before that and then it first.
February and March were completely completely booked very very busy limited only by weather. So.
We expect to have a good quarter just due to the slow start in January will probably slightly behind last year.
Brad Fedora: You know, we had a really slow start in January; it seemed like the Christmas break seemed to extend past New Year's. And then just as we were ready to start, we were hit with some brutally cold weather, which lasted for about a week. And so we really didn't get started until the second half of January, which is slow, you know; normally it starts much earlier than that.
And where do we see 2024 again I think it's going to be a good year, but it probably won't measure up to last year, just due to the fact that we've had some disappointing disappointment in the natural gas prices over the last two months.
And what does that mean, we've we've had some work move out of Q1 and pushed into the summer as people are looking for better gas prices and lower water heating costs and we've had very little in the way of outright cancellations.
Brad Fedora: For February and March, you know, we're completely, completely booked, very, very busy, you know, limited only by weather. So we expect to have a good quarter, just, due to the slow start in January, we're probably slightly behind last year. And, you know, where do we see 2024 again? I think it's going to be a good year, but it probably won't measure up to last year just due to the fact that, you know, we've had some disappointment in the natural gas prices over the last two months. And what does that mean?
But we do expect drought conditions that are present and much of western Canada to cause some water restrictions this summer.
We will have to turn more to produce water recycled water and as we've talked about in the past we have an extensive portfolio of chemicals to deal with this exact scenario. So we're kind of excited to put our sort of our technical chemistry to work this year about 70% of our Frac chemistry.
<unk> supports.
Non potable water, which is Jason.
Brad Fedora: You know, we've had some work move out of Q1 and pushed into the summer as people are looking for better gas prices and lower water heating costs. We've had very little in the way of outright cancellations, but we do expect the drought conditions that are, you know, present in much of Western Canada to cause some water restrictions this summer. You know, we will have to turn more to produced water or recycled water, and as we've talked about in the past, we have an extensive portfolio of chemicals to deal with this exact scenario. So you know, we're kind of excited to put our sort of technical chemistry to work this year. About 70% of our frack chemistry supports non-potable water, which basically means something like produced or effluent or recycled water.
Basically means like produced or affluent or or recycled water and about 60% of our customers make use of non potable water in their fracturing operations.
We would say overall on an annual basis about 40% of the water. We pump is non portable so even though we do expect restrictions.
We think we're going to fare very well through our data and our chemical offering.
I think we'll we'll prove to our customers.
It's well worth it is well worth looking into.
So we are expecting some choppiness. This summer just due to gas prices on the strip for gases is good in the winter, but it's fairly soft in the summer and anytime there's sort of any <unk> in the market. You would you do expect some margin compression that's that's normal.
We still think that Montney will be the focal point of activity. The Duvernay is building momentum very very frac intensive and it's sort of oil and liquids space. So that won't be affected by gas pricing, we think that our equipment fleet.
Brad Fedora: And about 60% of our customers make use of non-potable water in their fracturing operations. And, you know, we would say, overall, on an annual basis, about 40% of the water we pump is non-potable. So even though we do expect restrictions, you know, we think we're going to fare very well throughout that. And our chemical offering, I think, will prove to our customers that, you know, it's well worth looking into. So we are expecting some choppiness this summer just due to gas prices. You know, the strip for gas is good in the winter, but it's fairly soft in the summer, and anytime there's sort of any unease in the market, you do expect some margin compression. That's normal. We still think that Montigny will be the focal point of activity; the Duvernay is building momentum, very, very frack-intensive, and it You know, we think that our equipment fleet is very well suited for the Duvernay; our fifth fleet that just came out was built specifically with the Duvernay in mind, heavy duty, high horsepower pumps, you know, built to pump at high pressures for long periods of time.
<unk> is very well suited for the Duvernay our fifth fleet that just came out was built specifically with the Duvernay in mine it's.
Heavy duty high horsepower pumps built to pump at high pressures for long periods of time, and so we will actively market that equipment fleet with our with the duvernay customers as its now ready and operating in the field.
We are expanding expanding our cementing services into the Clearwater into the heavy oil some of the ground that we gave up just due to the staffing shortage in 'twenty 2020 in 2021, but I think we'll build that market back up.
In general I would say the supply chain is operating still at capacity, we're still very careful to manage especially things like third party trucking and sand supplies into northwest, Alberta, and northeast B C.
Those that that supply chain has been playing catch up for the last few years.
And so we will actively manage that going forward.
On the strategy side.
Even though we expect we could have a choppy summer we still think Canada is a great place to do business. We love we love this space and going forward, we expect it to be sort of a growth a growth Avenue for us.
Just in the Montney alone No LNG Act LNG drilling activity has been very active.
Brad Fedora: And so we will actively market that equipment fleet with our DuVernay customers, as it's now ready and operating in the field. We are expanding our cementing services into clear water and heavy oil. That's some of the ground that we gave up just due to the staffing shortage in 2020 and 2021, but I think we'll build that market back up. In general, I would say the supply chain is still operating at capacity. We're still very careful to manage things like third-party trucking and sand supplies into northwest Alberta and northeast BC. You know, that sort of supply chain has been playing catch-up for the last few years, and so we'll actively manage that going forward. On the strategy side, even though we expect we could have a choppy summer, we still think Canada is a great place to do business. We love, we love this basin going forward.
Facility is expected to come on stream early next year.
So all of the players they are active making sure that they have the production required.
<unk> has the balance sheet to allow us to continue executing our strategy going forward, we actually look forward to times of volatility. We're uniquely set up to take advantage of any any pauses or choppiness in the market and we're certainly not concerned about anything.
From a gas price perspective, as we expect this is going to be short lift and we actually looking forward to taking advantage of any opportunities that may come up.
Frac intensity on a per well basis is still increasing large sand volumes lots of stages, we expect over 8 million tons of sand to be pumped in Canada. This year and that's in comparison to just over $6 million in 2021. So sand is something that were still actively managing we've talked about.
Sort of our logistics.
Perspectives on how we're going to deal with these increased volumes going into northeast B C and so we're still looking at investing in that side of the business and that's another way that we think will differentiate ourselves and as we said before.
Brad Fedora: We expect it to be sort of a growth avenue for us. Just in Montigny alone, you know, LNG drilling activity has been very active. That facility is expected to come on stream early next year. So all the players there are active making sure that they have the production required.
<unk> modernization is a key to our strategy, we have state of the art equipment or upgrading our systems, we have indigenous partnerships in northeast BC, all of which makes for a very profitable and sustainable business.
Brad Fedora: Trican has the balance sheet to allow us to continue executing our strategy going forward. You know, we actually look forward to times of volatility. You know, we're uniquely set up to take advantage of any pauses or choppiness in the market. And we're certainly not, you know, concerned about anything from a gas price perspective, as we expect it's going to be short lived. And we are actually looking forward to taking advantage of any opportunities that may come up. Frack intensity on a per well basis is still increasing, large sand volumes, lots of stages. We expect over 8 million tons of sand to be pumped in Canada this year, and that's in comparison to just over 6 million tons in 2021.
We still have the most efficient fracturing fleet in Canada, I think up until recently, we've displaced over 50 million liters of diesel with our tier four equipment.
So that's something that's been very well received by our customers and we expect that will be the standard technology in the montney going forward.
We run five of the nine tier four fracturing fleets that are active in Canada. Today. So we're very fortunate to have had a sort of a two year head start in that technology.
And recently.
Another one of our differentiation strategies has been with the electric.
Ciliary equipment, where the only pumping company in Canada that has electric frac equipment and when you combine this with the tier four technology, we get over 90% <unk>, 90% diesel displacement with natural gas. So it's very well received by the customers. It's actually something that we continue to focus on this year and.
Brad Fedora: So sand is something that we're still actively managing. We've talked about our logistics perspective on how we're going to deal with these increased volumes going into northeast B.C. And so we're still looking at investing in that side of the business, and that's another way that we think we'll differentiate ourselves. And as we've said before, you know, differentiation and modernization are the key to our strategy. You know, we have state-of-the-art equipment. We're upgrading our systems. We have indigenous partnerships in northeast B.C., all of which makes for a very profitable and sustainable business.
We expect to build build out our capacity on the electric side over the next few years is operationally very efficient uses less people, we expect less R&M with the equipment and its something that would be we definitely intend to focus on.
Excuse me on the shareholder return of capital side.
Our priority is still to build a resilient sustainable differentiated company going forward, it's gone very well over the last few years.
We will look for any blips in the mark to take advantage of any M&A opportunities that.
Present themselves and other than that we'll just continue to focus on our strategy and deploy our equipment, particularly into northwest, Alberta and northeast B C.
Brad Fedora: We still have the most efficient fracturing fleet in Canada; I think up until recently, we've displaced over 50 million liters of diesel with our Tier 4 equipment. So that's something that's been very well received by our customers, and we expect that'll be the standard technology in the Montagne going forward. We run five of the nine tier four fracturing fleets that are active in Canada today. So we're very fortunate to have had a sort of a two-year head start on that technology, and recently, another one of our differentiation strategies has been with electric ancillary equipment. We're the only pumping company in Canada that has electric track equipment, and when you combine this with Tier 4 technology, we get over 90% diesel displacement with natural gas.
We're still very active in our CIB like we purchased just under 23 million shares last year, we've continued to be arguably everyday in the market in 2024 year to date and we will continue to go forward with that.
On the dividend side as Scott mentioned, we've had a small increase which just offsets the the.
Share reduction due to the CIB and the record date is March 15th payable at the end of the quarter.
I think I'll stop there and we'll go to questions.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear Joan acknowledging your request.
Using a speakerphone please pick up your handset before pressing any Keith to withdraw your question. Please press Star then two.
First question comes from Aaron Macneil with TD Cowen. Please go ahead.
Hey, good morning, Thanks for taking my questions.
It's been pretty warm lately, but also pretty clear height I haven't seen anything in terms of road bans on the.
Brad Fedora: So it's very well received by customers. It's actually something that we can continue to focus on this year, and we expect to build out our capacity on the electric side in the next few years. It's operationally very efficient, uses fewer people, we expect less R&M with the equipment, and it's something that we definitely intend to focus on, on the shareholder return of capital side. Our priority is still to build a resilient, sustainable, differentiated company going forward. It's gone very well over the last few years.
Alberta website, but how do you think.
Road bans might impact Q1, and Q2 this year.
You mentioned that the drought conditions.
Will that impact the pace of activity.
Maybe just an update sort of on external factors.
Our positive or negative.
Yes, excuse me.
This time of the year Theres always road ban concerns and certainly yes, it's been a warm Q1. There is there is very little snow up north.
Brad Fedora: You know, we'll look for any blips in the mark to take advantage of any M&A opportunities that present themselves. And other than that, we'll just continue to focus on our strategy and deploy our equipment, particularly into northwest Alberta and northeast B.C. We're still very active in our NCIB, like we purchased just under 23 million shares last year. We continue to be active every day in the market in 2024 year-to-date, and we'll continue to go forward with that. On the dividend side, as Scott mentioned, we've had a small increase, which just offsets the share reduction due to the NCIB, and the record date is March 15th, payable at the end of the quarter.
And so.
Yes, you can have sort of 10% to 10 bands on but that's quite typical for this time of year.
Certainly a lot of work booked for the rest of February and into March and so in the Q2 work.
As always dealing with road bans and bonding roads and staging sand and water in advance I would say the difference now that you haven't that we're seeing this year that we haven't seen in prior years is that youre seeing customers actually start to really think about how they are going to be managing water months in advance.
And so this happened and had to worry about that before.
So you're starting to see that.
Rentals of on site C range sort of the big swing pools on location that all of that that market is extremely active so it's nothing new.
Operator: I think I'll stop there and we'll go to questions. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad.
I think the industry is getting continues to get better at sort of long term planning and I think what this this drought that we've had for the last couple of years people will just think about water sort of three four months in advance instead of three or four weeks in advance.
Brad Fedora: You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. The first question comes from Aaron McNeil with TD Cohen. Please go ahead. Hey morning. Thanks for taking my questions. It's been pretty warm lately, but also pretty dry. You know, I haven't seen anything in terms of road bans on the Alberta website, but what do you think? You know, road bans might impact Q1 and Q2 this year. You mentioned the drought conditions. Will that impact the pace of activity? Maybe just an update sort of on external factors that are positive or negative. Yeah, excuse me.
And.
It's really important to note that the activity in northeast BC, as mostly produced and recycled water and there's not a ton of freshwater use up there so it.
It's not just because there is water restrictions doesn't mean that the.
Completions activity.
Severely impacted.
There's lots of ways to work around this problem and of course.
If we get a bunch of rain in May and June like we usually do that will alleviate a lot of these concerns.
You mentioned the aggressive pricing in Q4 is that continued into Q1 then.
I know youre not going to.
Brad Fedora: This time of year, there's always road ban concerns, and certainly, yeah, it's been a warm Q1. There's very little snow up north, and so yeah you can have sort of 10 to 10 bands on but that's quite typical for this time of year you know there's certainly a lot of work booked for the rest of February and into March and so and the Q2 work you know is always dealing with road bands and bonding roads and staging sand and water in advance I would say the difference now that you haven't that we're seeing this year that we haven't seen in prior years is that you're seeing customers actually start to really think about how they're going to be managing water months in advance. And so, you know, they just haven't had to worry about that before.
Participate in competitive bids, but is that starting to impact your utilization is.
Get undercut pricing like how should we think about that.
While utilization has remained really high with the exception of the first half of January.
Every time the market Flinches, there seems to be.
Some nervousness that goes around but we're one of the few companies that has a long term customer list.
Our costs were.
We're fortunate right.
28 year old company.
Many of our customers for 10 plus years now.
So we're not looking for a new customer list every quarter like some of our competitors are at and so we tend to be somewhat insulated by by that activity, but.
Yeah like we don't we don't feel the need to chase. It we don't have covenants to meet.
We've we're well well ahead of the refurbishment of our equipment into the tier four technology. So.
Brad Fedora: And so you're starting to see, you know, the rentals of on-site C-rings or the, you know, the big swimming pools on location that, you know, all of that, that market is extremely active. So it's nothing new, I think the industry is getting, and continues to get better at sort of long-term planning, and you know, I think with this drought that we've had for the last couple of years, people will just think about water sort of 3-4 months in advance instead of 3 or 4 weeks in advance. And it's really important to note that the activity in northeast BC is mostly sort of produced and recycled water. There's not a ton of fresh water used up there, so just because there are water restrictions doesn't mean that, you know, completions activity is severely impacted. You know, there are lots of ways to work around this problem, and, of course...
We're in a really fortunate position, we're able to sort of sit back and sort of look at how we're going to take advantage of this of these kind of times in the market.
And at the quarterly results are down a little bit there'll be great. We are.
We run this business for the long term not the not the short term.
Fortunately we're not.
Sort of impacted by short term sort of financial volatility.
Makes sense I'll turn it back thanks.
Thanks Sam.
The next question comes from Keith Mackey with RBC. Please go ahead.
Hi, good morning.
Had you mentioned youre going to stick with seven active fleets.
And <unk>.
Still got five potential fleets in the yard that you've talked about historically.
How do you think about this excess capacity given you see the market to be relatively stable in Canada for the next few years are a sentiment we would certainly certainly agree with just how do you think about that excess capacity is there any opportunity to rationalize in and use that to improve margins over time or do you think you.
Brad Fedora: If we get a bunch of rain in May and June like we usually do, that will alleviate a lot of these concerns. Thank you for watching. Please like, comment, and subscribe. See you next time.
Brad Fedora: You mentioned the aggressive pricing in Q4, but has that continued into Q1? I know you're not going to participate in competitive bids, but is that starting to impact your utilization? You get undercut on pricing. Like, how should we think about that? No, our utilization has remained really high with the exception of the first half of January. Yeah, this, you know, every time the market flinches, there seems to be, you know, some nervousness that goes around. But, you know, we're one of the few companies that has a long-term customer list. And so, you know, we're fortunate, right? It's a 28-year-old company.
Potentially still need that capacity or or or just how are you thinking about it in light of the market of today.
Yes, it's both.
We have been rationalizing our equipment fleet and that that's just the really old equipment that was was left that was left we're sort of fortunate a lot of the really old outdated equipment was taken care of a few years ago now.
Prior to the prior to me joining and so we were in a great position from a from a selling selling.
Brad Fedora: We've had many of our customers for 10 plus years now, so we're not looking for a new customer list every quarter like some of our competitors are, and so you know we can tend to be somewhat insulated from that activity, but yeah, like we don't feel the need to chase it. We don't have covenants to meet.
Selling equipment perspective so.
So, yes, we've rationalized a little bit of equipment, and we will always continue to do that but.
We do generally believe that a good majority of that spare capacity will come online and so we're happy to have it.
Brad Fedora: You know, we're well, well ahead of the refurbishment of our equipment into tier four technology. So, you know, we're in a really fortunate position. We're able to sort of sit back and sort of look at how we're going to take advantage of these kinds of times in the market. And, and if the quarterly results are down a little bit, so be it. Right, we run this business for the long term, not the short term. And we're, fortunately, we're not, sort of impacted by short-term, you know, sort of financial volatility. Makes sense? I'll turn it back. Thanks. Thanks, Sam. The next question comes from Keith Mackey with RBC; please go ahead. Hi, good morning.
Sit there until we're ready to bring it out.
And maybe add one other thought keep that as we went through our tier four refurbishment program over the last few years, we effectively took gear off the fence upgraded that gear.
In the field and displace the existing operating stuff. So the stuff that we've actually got parked.
Our spare capacity is actually quite fresh and ready to go.
So as we look forward a few years as industry activity will likely pick up it will be one of them will be able to easily respond to that incremental demand. When it comes so that capacity is still in pretty good shape and doesn't require capex to spend to get it going again.
Keith Mackey: So, Brad, you mentioned you're going to stick with seven active fleets and you've still got five potential fleets in the yards that you've talked about historically. How do you think about this excess capacity, given you see the market in Canada to be relatively stable for the next few years, a sentiment we would certainly agree with? How do you think about that excess capacity? Is there any opportunity to rationalize and use that to improve margins over time, or do you think you'll potentially still need that capacity, or just how are you thinking about it in light of the market today? Yeah, it's it's both.
Yes fair enough.
And just secondly, we've seen a few budget cuts from Canadian producers recently.
What impact do you see direct or indirect on your outlook for market fundamentals for your services as.
As a result of some of these cuts.
Certainly it might change if we continue to see more but overall things look to be relatively stable or up a little bit from last year in terms of the total capex spending perspective, but we have seen some of those cuts recently so.
Brad Fedora: We have been rationalizing our equipment fleet, and that's just the really old equipment that was left. We're sort of fortunate a lot of the really old outdated equipment was taken care of a few years ago now, prior to prior to me joining.
Scott Mattson: And so we were in a great position from a selling perspective. So yeah, we've rationalized a little bit of equipment, and we will always continue to do that. But, you know, we do generally believe that a good majority of that spare capacity will come online, and so we're happy to have it sit there until we're ready to bring it out. And maybe add one other thought, Keith, that, you know, as we went through our Tier 4 refurbishment program over the last few years, we effectively took gear off the fence, upgraded that gear, put it in the field, and dispensed with the existing operating So as we look forward a few years, as industry activity will likely pick up, we'll be able to easily respond to that incremental demand when it comes. So that capacity is still in pretty good shape and doesn't require CapEx to spend to get it going again. Yeah, fair enough.
How how significant of a risk do you see this as GTR business in terms of.
In terms of financial results differing materially year over year or or just generally the tightness in the market.
Well just like I think we said in the comments.
We probably chamber, we've we've changed our perspective.
On the last call I would have said we would have expected an increase in activity in 2024, and now I would say, we would expect a decrease in activity compared to 2023.
How significantly.
I don't think that significantly, but I think it's a little early to tell in the in the budget cycle for 2024.
<unk>.
<unk>.
Pardon me.
Says this anytime there is a downturn.
Keith Mackey: And, secondly, we've seen a few budget cuts from Canadian producers recently. You know, what impact do you see, direct or indirect, on your outlook for market fundamentals for your services as a result of some of these cuts? And that certainly might change if we continue to see more, but overall, things look to be relatively stable or up a little bit from last year in terms of a total CapEx spending perspective, but we have seen some of those cuts recently. So how, how, how significant of a risk do you see this as, you know, to your business in terms of, you know, financial results differing materially year over year, or, or just generally the tightness in the market? It was just like I think we said in the comments we We've probably changed, or we've we've changed our perspective.
Great time to increase your investments so.
How will it impact us no I mean, it could prove to be could prove to be some great investment opportunities.
We've run the balanced we've run the company.
Not not just sort of whether these situations, but to take advantage of them right. So.
We have no sort of concerns about <unk>.
Anything other than making sure we don't Miss any really good opportunities out there that may come this summer.
Okay. Thanks, very much I'll leave it there.
Once again, if you have a question. Please press Star then one the next question comes from Colby <unk> with Stifel. Please go ahead.
Hi morning, all so thinking about the 2024 outlook is it fair to say that you think maybe margins degrading year over year more of a factor than activity and you talked about a slow January but are you able to talk about how activity has been year over year, maybe excluding that is.
Brad Fedora: You know, on the last call, I would have said we would have expected an increase in activity in 2024. Now I would say we would expect a decrease in activity compared to 2023. You know, how significantly I don't think that significantly, but I think it's a little early to tell in the budget cycle for 2024. Pardon me, says this, you know, anytime there's a downturn, it's the perfect time to increase your investment. So, you know, how will it impact us? No, I mean, it could prove to be some great investment opportunities.
Does that assume any capex reductions will be more of a second half of 'twenty four event kind of similar with what Keith said.
Yes.
Europe anytime you have an activity downturn, even if it's three 5% it always impacts margins.
Because a lot of our competitors have very different balance sheets than we do.
And so they get antsy.
Brad Fedora: You know, we've run the balance, we've run the company, to, you know, not just sort of weather these situations but to take advantage of them, right? So we have no sort of concerns about anything other than making sure we don't miss any really good opportunities out there that may come this summer. Okay, thanks very much. We'll leave it there.
So definitely there will be a margin impact going forward.
I think to your point.
That might be more than the overall activity change.
I would say activity in the quarter, excluding January pretty much consistent with last year.
So I'm glad to have Brian February February March of this year would be would be very similar to last year.
Operator: Once again, if you have a question, please press star and then 1. The next question comes from Cole Pereira with STIFO. Please go ahead. Hi, morning all.
Got you and then any updates you can provide on how you're kind of thinking about your frac sand logistics strategy.
No no updates other than I think we will have sort of investment in the ground and working this year.
Cole Pereira: So thinking about the 2024 outlook. Is it fair to say that maybe margins degrading year-over-year are more of a factor than activity, and you talked about a slow January, but are you able to talk about how activity has been year-over-year, maybe excluding that, as I'd assume any CapEx reductions will be more of a second half of 24 event, kind of similar to what Keith said. Yeah, anytime you have an activity downturn, even if it's 3-5%, it always impacts margins because a lot of our competitors have very different balance sheets than we do, and so they get antsy. So definitely, there will be a margin impact going forward, and I think, to your point, that might be more than the overall activity change. I would say activity in the quarter excluding January is pretty much consistent with last; February, and March of this year would be very similar to last year.
Got it thanks, and you're obviously, you're still active with the buyback, but the pace.
That seems to be slowing a bit compared to last year, despite having a bunch of cash and significant free cash flow generation shares pulling back a little bit how you. How you guys kind of thinking about the buyback you know relative to how active you were last year.
Well.
You can't compare this year with last year without comparing the stock price.
And the multiples associated.
Associated with those stock prices and so.
So we're very.
Opportunistic in the market so any any any.
Anytime like last year, where we had a total disconnect of market price from from.
Brad Fedora: Gotcha, and then any updates you can provide on how you're kind of thinking about your FRACS and logistics strategy? No, no updates other than, you know, I think we will have sort of investment on the ground and working this year, got it, thanks, and obviously, you're still active with the buyback, but the pace seems to be slowing a bit compared to last year, despite having a bunch of cash and significant free cash flow generation, shares falling back a little bit. How are you guys kind of thinking about the buyback relative to how active you were last year? Where are they?
From a cash flow generation will get very aggressive.
Got it. Thanks, that's all for me I'll turn it back.
The next question comes from Joseph Schechter with Schachter Energy Research. Please go ahead.
Super Thanks, very much and thanks for taking my questions. Brad you mentioned that you wanted to grow your coiled tubing fleet from seven to 10.
We had a technology changes going on.
Like we saw in the Frac fleet.
Building new equipment.
All of the latest technologies will be better than buying.
Brad Fedora: You can't compare this year with last year without comparing the stock price and the multiples associated with those stock prices, and so. So we're, we're, we're very opportunistic in the market. So any any any, You know, anytime like last year, where we had a total disconnect of market price from Cash Flow Generation, we will get very aggressive. Got it, thanks. That's all for me; I'll turn it back. The next question comes from Joseph Schachter with Schachter Energy Research. Please go ahead.
Equipment, that's out there that's working now from our competitors and it's not a strong balance sheet as yourselves I'm just wondering if there's a upgrade cycle in coiled tubing like we saw in the Frac fleet.
Good question.
Any coil that we added will come from our existing <unk>.
Idle fleet, so we won't be purchasing any new equipment.
Theres not so much technology on the coil side, but theres lots of technical knowledge on the tool side.
Joseph Schachter: Super. Thanks very much, and thanks for taking my questions. Brad, you mentioned that you wanted to grow your coil tubing fleet from seven to 10. Are there any technological changes going on?
And so those go hand in hand, and so were were.
Quite.
Were quite diligent and making sure that we're participating in any new technologies that would happen.
Brad Fedora: Like we saw in the frack fleet, building new equipment with all the latest technologies would be better than buying equipment that's out there that's working now from a competitor that's not as strong a balance sheet as yourselves. Just wondering if there's an upgrade cycle in coil tubing like we saw in the frack fleet. Yeah, good question.
Corresponding effect on our coil unit utilization.
And just the overall frac.
The changes in Frac with more stages and more more overall sand drives coil utilization as well so.
There is no real shift changes like we've seen.
Brad Fedora: You know, any coil that we add will come from our existing idle fleet, so we won't be purchasing any new equipment. There's not so much technology on the coil side, but there's lots of technology on the tool side. And so, you know, those go hand in hand. And so we're quite diligent in making sure that we're participating in any new technologies that would have a corresponding effect on our coil unit utilization. You know, just the overall frac, I mean the changes in frac with more stages and more overall sand drive coil utilization as well.
With tier four natural gas engines, but we're certainly looking at applying that same technology to coil as well.
No reason or.
No reason why we eventually we can't I mean, there's there's natural gas tractors that are in the market today.
Yes.
He is looking for ways to reduce diesel consumption and increased natural gas consumption on location, whether it's with fracking cement air or coil.
Second question for me.
When you are having your customer discussions related to later this year in 2025 once LNG Canada comes on are you finding that theyre thinking of waiting until they see a $2 53 to $3 kind of handle on heiko or is it just that they know theres two bcf more it's got to be more.
Brad Fedora: You know, there are no real shift changes like we've seen with Tier 4 natural gas engines, but we're certainly looking at applying that same technology to coal as well. There's no reason why we can't eventually do it. There are natural gas tractors that are in the market today. We're always looking for ways to reduce diesel consumption and increase natural gas consumption on location, whether it's with fracking, cementing, or coil. Second question for me, when you're having your customer discussions related to later this year and 2025, once LNG Canada comes on, are you finding that they're thinking of waiting until they see a $2.50, $3.50, $3.00 kind of handle on ACO, or is it just that they know there's two BCF more? There's got to be more. If you don't have gas, you have got to drill it up.
If you don't have the gas you kind of drill it up.
What's your thinking in kind of conversations you're having.
What's your thought process isn't price sensitive or is it a volume sensitive.
Okay.
I think the answer to all of those questions is both.
We've got the LNG, Canada partners.
That would have some production requirements that need to be filled but of course.
Other parties as well.
They are selling into that or not.
Brad Fedora: What's your thinking in the kind of conversations you're having, and what's your thought process? Is it price sensitive, or is it volume sensitive? I think the answer to all of those questions is both. We've got the LNG Canada partners that would have some production requirements that need to be filled, but, of course... Other parties that whether they're selling into that or not, you know, we're looking at gas prices, and you know, you've got a real differentiated. We've got a summer strip that's consistent with today's prices, followed up by a winter strip And so I think most of the people, most of the customers that we talk to, you know, expect much better, a much better market in 2025. And certainly the LNG Canada partners, you know, and I in no way speak for them, but I would, I would expect they're trying to design sort of just-in-time inventory as much as they possibly can.
Looking at gas prices and you've got a real differentiated.
We've got a summer strip, that's consistent with today's prices followed up by a winter strip, that's significantly higher and so I think most of the people most of the customers that we talk to.
Expect much better a much better market in 2025.
And certainly the LNG, Canada partners.
In Norway speak for them, but I would I would expect there they're trying to design sort of just in time inventory as much as they possibly can.
Tony Thanks very much.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Mr. Fidel for any closing remarks. Please go ahead.
Okay. Thanks to everyone. Thank you for your time and attention to to our company.
Brad Fedora: Thank you very much. Thank you. This concludes the question and answer session. I would like to turn the conference back over to Mr. Fedora for any closing remarks. Please go ahead.
Management team will be.
Available today to answer any questions that you need to follow on with so thank you very much.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Brad Fedora: Okay, thanks everyone. Thank you for your time and attention to our company. The management team will be available today to answer any questions that you need to follow along with. So, thank you very much. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. Thanks for watching!
Okay.
Okay.
Yes.
Yeah.
Okay.
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Okay.
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