Q3 2024 Precision Drilling Corp Earnings Call
Good day, and thank you for standing by walking through the precision drilling Corporation 2024 third quarter results Conference call I would now like to hand to come several laboratory doughnut Vice President of Investor Relations. Please go ahead.
Lavery Doughnut: Welcome to precision Drilling's third quarter earnings conference call and webcast today I'm joined by Kevin nephew, our President and CEO and carry forward. The CFO yesterday precision reported strong third quarter results, which carried well wherever you followed by outlook commentary and an operational update from Cabot.
Lavery Doughnut: Once we have finished our prepared comments, we will open the call to questions.
Lavery Doughnut: Some of our comments today will refer to non <unk> financial measures.
Lavery Doughnut: Well include forward looking statements, which are subject to a number of risks and uncertainties.
Please see our news release and other regulatory filings for more information on financial measures forward looking statements and risk factors as a reminder, we express our financial results in Canadian dollars unless.
Speaker Change: Otherwise indicated with that I will pass it over to Kerry.
Kerry: Thank you the born in the quarter precision delivered year over year growth in revenue adjusted EBITDA and net earnings the resilience of our high performance high value business model geographic diversification and organizational focus on cash flow and return on capital drove our financial results.
Kerry: We continue to strengthen our balance sheet with $49 million of debt reduction during the quarter and $152 million year to date, reaching the low end of our target range of $150 million to $200 million in 2024.
Kerry: Share repurchases were $17 million during the quarter at $50 million year to date tracking the target of 25% to 35% of free cash flow allocated to shareholders.
Kerry: We expect strong cash flow during the fourth quarter. It will continue to make progress with these targets.
Kerry: Longer term, we plan to reduce debt by $600 million between 2022 and 2026 over the next nine quarters with approximately $190 million remaining.
Kerry: Achieve a leverage level below one times net debt to EBITDA and increase our direct shareholder returns towards 50%.
Kerry: Precision is progress on balance sheet strength and shareholder returns.
Kerry: Positioned us to be able to capture opportunistic high value investments.
Kerry: We are increasing our 2024 capital spending plan for $195 million to $210 million to put multiple contracted rig upgrades.
Kerry: Take advantage of purchasing in demand drill pipe for 2025 drilling programs at a potential import tariffs.
Kerry: In the past.
Kerry: Sure, it's similar opportunistic investments while meeting our annual capital allocation goals. These included the high Arctic and TWC acquisitions as well as year end pull forward capital purchases at the end of 2023 and again. This year. These investments have all produced excellent returns for our shareholders.
Kerry: That is the third quarter as of the third quarter of this year. We believe the assets purchased in the high Arctic transaction had paid for themselves at approximately two years.
Kerry: Moving onto Q3 performance adjusted EBITDA.
Kerry: $142 million included a $200000 share based compensation recovery.
Kerry: Net earnings were $39 million or $2 77 per share.
Kerry: Representing the ninth consecutive quarter of positive earnings for precision.
Yeah.
Kerry: Funds provided by operations and cash provided by operations were $113 million and $80 million respectively.
Kerry: Margins for Canada were $12877 lower than guidance due to rig mix.
Kerry: We had increased demand for super single and double rig margins.
Kerry: Margins for Q4 are expected to be approximately $15000 a day.
Kerry: With increased winter seasonal ancillary revenue appropriate.
Kerry: In the U S drilling activity for precision averaged 35 rigs.
Kerry: Q3, a decrease of one rig for the previous quarter.
Kerry: Daily operating margins in Q3, excluding the impact of turnkey and I B C were 10888 U S dollars essentially flat from Q2 for.
Kerry: For Q4, we expect margins to decrease slightly to approximately 9500 U S dollars a day.
Kerry: Internationally drilling activity for precision in the current quarter averaged eight rigs international average day rates for 47223 USD.
Kerry: A decrease of 8% from the prior year due to incurring 44, non billable utilization days for a rig.
Kerry: Undergoing certification. This decrease was offset by a positive year over year rig mix.
Kerry: In our <unk> segment adjusted EBITDA This quarter was $20 million up 40% compared to the prior year quarter. Adjusted EBITDA was positively impacted by a 34% increase in well service hours the integration of the CWC acquisition and improved pricing.
Kerry: <unk> results were further supported by precision rental business, which is realizing increased demand and utilization for centrifuge equipment on super Triple rigs for customers in the Montney.
Our contracted rig fleet continues to support our outlook with average annual rigs under contract in 2024 to 18 in the U S 23 in Canada and eight internationally.
Kerry: Now moving to the balance sheet.
Kerry: September 30th our long term debt position net of cash was approximately $775 million and our total liquidity position was approximately $510 million excluding letters of credit.
Kerry: Our net debt to trailing 12 month adjusted EBITDA ratio was approximately one four times that our average cost of debt is approximately 7%.
Kerry: We expect our net debt to adjusted EBITDA ratio to be approximately one three times by year end.
Kerry: Moving on to guidance for 2024.
Kerry: We expect depreciation of approximately $300 million cash interest expense of approximately $70 million cash taxes to remain low and our effective tax rate to be approximately 25%.
We expect SG&A of approximately $100 million before share based compensation expense.
Kerry: And we expect share based compensation charges for the year to range between $40 million $60 million at a share price range at $80 to $120.
Kerry: And the charge may increase or decrease by up to $20 million based on the share price performance relative to precision peer group with that I will turn the call over to Kevin.
Kevin Nephew: Thank you Carrie I am pleased with our third quarter financial results, we remain confident with the outlook for the balance of the year as we continued to make progress towards achieving our stated objectives.
Confidence stems from the focus and discipline across the precision organization seeking to maximize free cash flow from every aspect of our business. This isn't granted our culture and underpins everything we do.
Kevin Nephew: I'm also very pleased that precision has increased international and Canadian rig activity has more than offset the constrained U S market.
For the third quarter precision is one of the few service companies reporting of a material increase in overall activity drilling 10% more drilling days compared to the same period last year.
And as I'll cover later in my prepared comments, we remain confident in the Canadian and international markets, while we expect a modest increase in the U S. S.
Kevin Nephew: We loaded budgets for 2025 kick in.
Looking forward to next year, our multi year journey to improve our balance sheet and reset our capital structure, while turned an important corner as our debt leverage drops below one times EBITDA.
Kevin Nephew: Well this may not be our final debt level objective.
Kerry: Company will enjoy substantial increased financial flexibility to further exploit opportunistic growth investments.
Kerry: To increase shareholder capital returns and execute further capital structure improvements.
A good example of this opportunistic investment strategy with a multimillion dollar advanced purchase of drill pipe Carey mentioned we.
Kerry: We took advantage of excess venger inventories and vendor discounts, while front running possible tariff increases procuring drill pipe well utilized during the upcoming year.
There should be no question that precision shareholders will be the prime beneficiaries of this resetting of the capital structure through increased capital returns and opportunistic growth investments, which would all enhance the enterprise value.
Speaker Change: So now turning to our operations update in lower 48, it's steady as she goes as a theme customer demand remains constrained by volatile oil prices soft natural gas prices.
Kerry: Customer consolidation and annual budget exhaustion.
Precision as U S rig activity continues to be relatively stable, albeit at levels well.
Kerry: Below a ride like.
Rig activity remained in the mid Thirty's over the past quarter, we expect to sustain this level in the fourth quarter.
Kerry: With 2025 budget reloads on the Horizon, we are seeing signs of a modest rebound in U S activity as we've added seven term contracts since the end of the second quarter with activation dates ranging from beginning late this year into the first few days of 2025.
Kerry: Good day rates on the F. T 1500 contracts will remain in the low $30000 per day range, while our S. T. 200 also not booking group are in the upper Twenty's range I.
I want to reiterate comments I've made the past that we're not looking to defend market share with aggressive pricing.
With driller subsidize rig moves or any other high value services combined or included the day rate. We believe it remains fundamental to our high performance high value strategy.
We pursue the appropriate financial returns to the exceptional value of our rigs provide our customers.
Kerry: Regarding these new contract conditions five of these contracts are with the consolidated majors and we believe this is a good indication that operator consolidation is transitioning to full integration and the precision is becoming a beneficiary of these majors high grading and rationalizing the drilling contractor mix.
Kerry: Also notable is that each of these contracts includes additional premiums for our alpha automation Alpha apps and several of our evergreen diesel production solutions.
Kerry: On that note 2024 has been a very strong year for evergreen product rollout.
Kerry: Approximately 50% of our active rigs across our fleet of at least one evergreen solution installed and are earning incremental revenue.
Precision evergreen strategy to deliver both economic value and diesel fuel reductions to our customers, while earning a premium return on investments in precision ensures that the full value produced by these solutions are shared equally between between precision and the operators.
Kerry: I expect this fleetwide rollout to continue for the next several years as we continue on our efforts to improve energy efficiency reduce diesel consumption and continued transition to low emission power solutions for our reps.
Now turning to Canada demand for our rigs targeting heavy oil condensate and LNG remains very high and consequently, the demand for our Super singles and Super triples remains very high.
The importance of the Trans mountain pipe, reducing the oil export bottlenecks has been a huge stimulus for oil heavy oil and condensate drilling activity.
So for those of you on the call who may be less familiar with the Canadian heavy oil drilling market, let me provide a brief overview.
Kerry: Heavy oil drilling and production in Alberta is very well understood by the operators and has been technically derisked for a vast geographic extent ranging from northwestern Alberta across to the western edge of Saskatchewan. These reserves are huge with decades of drilling inventories, including conventional heavy oil Sag D oil sands in Clearwater.
Kerry: The scale is a mess and while the technical and geological risk is low the producing zones are relatively shallow generally under 3500 feet vertical depth.
Kerry: He involved horizontal wells and in some cases lifestyle drilling.
Kerry: The well completion costs are relatively inexpensive is no fracturing, where stipulations needed. The drilling operation is the key cost driver and hence customers will pay a premium for safe high efficiency rigs, which can drill and move quickly and efficiently.
Specifically in the Clearwater, the operator operators utilize these complex multi well designs, where wellbore accuracy placement is critical these customers desire operational excellence and high efficiency will pay a premium for voltaren crews.
Kerry: <unk> rigs.
Kerry: Now since this heavy oil is sick or viscous and difficult to pump gas condensate liquid is blended with the heavy oil to improve or reduce the viscosity for easier pipeline transfer and oil shipping.
The Canadian market is short about 275000 barrels per day of condensate, which drives the condensate commodity price roughly in line with WTO prices and then stipulates drilling for this important resource.
Speaker Change: We've been pleasantly surprised by the near instantaneous customer response to these market drivers with a wide swath of our client base increasing activity almost immediately following the trans mountain pipeline entering service.
Kerry: Utilization for our Super single rigs drilling heavy oil and for our Super Triple.
Triple rigs drilling montney gas and gas condensate are both at historic highs with re classes.
Kerry: Today, we have 75 rigs operating in Canada and expect this pace to continue although in a short few days rock Christmas as some customers may give rig crews a break before getting fired up to what looks like a very busy 2000 22025.
We expect activity to ramp up fast and early this year beginning as soon as December 27th.
Activity hitting by 70% or low eighty's by the end of the first week of January.
Peak activity is what you should exceed last year for precision.
Kerry: Based on current customer plans the seasonal spring breakup will be weather driven not budget, driven and we expect a busy spring breakup period similar to last year with many rigs on large multi well pads operating through breakup.
Now I will remind the listeners that in the spring of 2020 for our seasonal activity declined only 33% from winter levels due to the high percentage of pad drilling rigs operating through breakup.
And we expect this reduced seasonality trend to be a permanent shift in the Canadian activity profile for precision.
Kerry: Now over the last several weeks, we received multiple customer inquiries for additional conversions of our super single rigs to four pads systems.
Kerry: These upgrades include increasing the torque the rigs can deliver increasingly handling capacity and capabilities for the rigs and adding pad equipment to the rig.
Kerry: The payback on these upgrades is less than two years meeting our capital return expectations.
Kerry: Now following the integration of CWC transaction from late last year precision is also now a meaningful participant in the price sensitive tele double market.
Kerry: Well not previously our focus for precision today, we are operating eight tele doubles and has been a 12 rigs of this class at times during the third quarter with substantially.
More than substantially more than the combined pre close total of six rigs and well above the two tele doubles precision operated separately last year.
Now for those of you less familiar with the Canadian rig market the rig I'm, referring to was a telescoping double or commonly called a tele double these are shallow to medium depth double stand rigs, while they like the overall high efficiency of our Super Triple rig he can compete on single well pads with some of the lower grade triples.
Now the industry Overbuilt. This rig class between 2005 and 2015 as these were primarily targeting shallow gas and the Cardium and Viking oil plays.
During that time precision largely focused on building out than our newly introduced Super triples for the Montney and expanding our fleet of well known Super singles for heavy oil.
Now the Canadian market remains oversupplied with these tele doubles the market rates for these rigs are still substantially lower than both our super triples are Pat equipped Super singles. However.
This is a market where precision scale based cost advantage, our operational leverage superior safety and crew capabilities enables precision to operate totally devils and still earn an accretive margin and deliver meaningful free cash flow and this rig class will not require any meaningful allocation of capital outside the normal maintenance spending.
Kerry: Okay.
So turning to our Canadian well service business the integration of the CWC assets is complete we have achieved our planned synergies as Carey mentioned earlier.
More importantly, we have Canadian basin wide coverage with meaningful exposure in every operating area in Alberta, British Columbia in Saskatchewan.
The winter season looks very busy likely with industry wide crew shortages keeping tension on the supply side of well servicing availability, we believe our scale and focus on crew safety and retention will give us a leg up on the competition those customers scrambled to get the service rigs they need.
Kerry: Now turning to our international business. It's also steady as she goes.
As Gary mentioned, we experienced a lull in revenue during the third quarter due to an extended recertification of one rig.
The rig was back up and operating a few days ago. We expect Q4 revenue for international group will trend closer to normal levels.
We're also expecting a tender package later this year or early next year in Kuwait, which may give us opportunity to activate our one remaining idle rig during 2025.
Kerry: We will keep you informed as this progresses.
Kerry: Essentially precision international activity in Saudi Arabia, and Kuwait, while significantly up from 2023 is a strong stable generator of free cash flow through precision.
So to conclude my comments I want to thank our customers and our investors for their strong support for precision.
The people at precision once again for a strong operational quarter with excellent excellent financial results.
Kerry: So I'll now turn the call back to the operator for questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered you assume with yourself from the queue. Please press star one again, we will pause for a month, while we compile the Q&A roster.
Kerry: Okay.
Our first question comes from Kurt <unk> with benchmark your line is open.
Hey, good afternoon, everybody or good morning, wherever you may be.
Speaker Change: Thanks, Rob good afternoon Kurt.
On the call and I think.
Kevin you referenced a much more.
Stable, a relatively stable kind of outlook for Canada going out into the into next year with the potential.
For the Canadian LNG.
Kerry: LNG.
Kerry: <unk>.
Kerry: Part a shortage.
Kerry: Separately separate tripled.
Speaker Change: Can you expand on that a little bit to what magnitude.
There is the rest of the shortage of what that magnitude would be.
Speaker Change: That's a great question and you'll notice my comments were a little brief on LNG in our prepared comments.
Speaker Change: First thing I'll say is we were.
Surprised by how quickly customers responded to takeaway capacity for the Trans mountain pipeline and I'd say the demand was probably.
Speaker Change: 10% to 15% higher than we expected, resulting from that pipeline expansion. So we're watching anxiously to see how the LNG, Canada fires up we know the pipe gas is going into the pipe now to get the facility commissioned.
We're still hearing, but first shipments are going to be happening.
At the end of the second quarter in 2025 for LNG, Canada, I think that.
Speaker Change: I think that we will see rig demand increase and.
Speaker Change: It might be two or three rigs there could be a little more maybe four or five rigs, but it feels like demand is in that kind of 2% to five rig range to balance out the needs for LNG, Canada.
Okay, great I appreciate that color.
Maybe maybe for Gary.
Kerry: References.
Kerry: Dynamics around some of the.
Speaker Change: Potential upgrades that you've got coming.
Yes for some of these super single rigs and so on how should we think about free cash flow conversion in 2025.
Yes, if you remember Kurt all of the rigs, whether it's a super single or Super Triple Triple as they are modular and the upgrades that we're doing are really bolt on upgrades statistically theyre going to kind of be in the $1 million to $3 million range. So an individual upgrade well upset a prescribed capital allocation plan, whether it's 2020 for 2025, so I would.
Before we announce our formal plan at the beginning of next year I would say that it will likely look pretty similar to this year.
Speaker Change: Allocations towards debt reduction and share repurchases.
And I'll just leave it there, yes, I think we will give a more clearer guidance on our plans in 2025.
Early in the year like we typically do.
Speaker Change: Okay, Great and one more thing just for clarity Kevin again in your press release you referenced.
Speaker Change: Seven contracts starting up at the end of the year.
For projects in 2025.
Is that going to be sufficient.
Speaker Change: Keep your.
Speaker Change: Your run rate in the mid <unk> or is that going to be.
Speaker Change: Are there certain rigs going to wind up being additive.
To that 35 rig count that you had in third quarter.
Speaker Change: Chris that's a.
Really great detailed question and I'll do the best I can to answer it there's still a fair amount of churn in the unconstructed rigs you've got a block of rigs that are on contract with a well to well and there has been churn and that churn is going to continue between now and the end of the year I would say that the range is kind of low to mid thirties to maybe as high as.
Low forty's early next year, but theres a range.
And I think increasing commodity volatility probably keeps it towards the low end of the range and more commodity price stability, probably moves us to the higher end of the range.
So and hate to give you such a wide range.
Speaker Change: Don't think it's.
Speaker Change: Going to impact our our capital of our free cash flow plans dramatically because I think were covering a lot of that with our international and our Canadian businesses.
Speaker Change: Got it. Thank you appreciate it.
Speaker Change: Great. Thank you.
Our next question comes from Waqar Syed with ATV capital markets. Your line is open.
Speaker Change: Thank you.
Speaker Change: Taking my question.
Speaker Change: Carey.
Kevin when do you expect U S drilling margins too Barton.
Speaker Change: So that's yes.
They may have already bottomed, but if there is if there is more weakness in the industry rig count maybe they haven't I think the resiliency. This year has been really impressive for us and for the industry.
Speaker Change: One dynamic of our margins that I think you probably would see comparing to some of our peers that have already reported.
Speaker Change: There are several thousand dollars a day lower and Theres a couple of reasons for that we had about 60% of our rigs that were working in the third quarter were super Triple <unk> hundreds. The rest were 12, hundreds or a few of the CWC rates that we acquired at the end of last year, when we strip out the non Super Triple 500 rigs.
Our day rates were right in line with.
Where our peers that have already reported reported day rates and our margins would have been a couple of thousand dollars day, lower which is a result of the lower fixed cost absorption that I've mentioned a couple of times on previous calls so I think the margins for precision.
Speaker Change: You are quite a bit better for our Super Triple 30 hunters that we're reporting on average.
And we would expect certainly to have some stability.
Stability in those margins in the coming quarters.
Speaker Change: Okay and.
I will have some seasonality in your activities in Q4, and Q1, primarily for some of those CWC rigs acquired in the.
In the Rockies area do you expect that seasonality this.
Speaker Change: This winter as Robert.
And if so what would be the impact like.
Speaker Change: Well Carl that seasonality is in the range of two to four rigs, which normally wouldnt trouble with too much but with the.
Speaker Change: With 35 rigs running two to four rigs starts to sound like a bigger number.
Speaker Change: I think there's a fair amount of churn and there's a pretty good chance, we can mitigate that but it's a it'll be a day to day.
We deal with our operations team and sales team.
And how many how many rigs are enacted.
Speaker Change: Look up as well, but how many things are working in the Rockies.
Right now for you.
Speaker Change: Yes, it's in the range of two to four rigs depending on what's happening on a day to day basis.
That would just be wildly yes, we've got it we have another six weeks or so working in Colorado.
Speaker Change: Okay and.
Speaker Change: Kevin You mentioned about these seven contracts that you won but.
Speaker Change: Majors and consolidators.
Speaker Change: Do you know if this is.
Speaker Change: Incremental demand or if you are you said that there were some high grading going on the high grading from some of these small drilling contractors are it's also happening with some of you are.
Dodge for peers as well.
It doesn't appear that we're.
<unk> market share away from our large peers, probably it looks like we're replacing lower grade rigs.
Sometimes it's hard to tell exactly.
Speaker Change: Sure.
Okay. That's all for me thank you very much.
Speaker Change: Great. Thanks Waqar.
Our next question comes from Shawn Michelle with Daniel <unk> Partners. Your line is open.
Hey, guys.
Thanks for taking the question.
Speaker Change: Couple.
Of thoughts we have heard some rumblings about the obviously a seasonal slowdown in Q4 in North America over the course of the last week or two but with gas prices on the strip showing some signs of life are you guys hearing anything from your customers on an increasing activity on the gas side.
Sean a great question I think there's probably a little bit more optimism on gas now there might've been a few weeks ago and certainly Steve.
Seeing seasonal prices improve and then LNG coming on this.
Speaker Change: The next 12 months I think there is a little more focus on gas and I think that youll see the gastro can't move up at least modestly.
Speaker Change: Got it and then maybe one follow up so let me let me let me qualify that every time I've made a rig count predictions of rig counts going up.
Speaker Change: A week after the conference call. So many changes that.
No that's fair.
Speaker Change: It's tricky.
It's tricky any maybe a follow up here can you share your thoughts about kind of growth in your current service lines and any additional service lines you might guide you guys might pursue in the world of M&A.
Speaker Change: Sean.
Speaker Change: <unk>.
We've worked hard to look at consolidating in the areas, where we currently have business last couple of transactions.
Speaker Change: In Canada have been consolidated and transactions it before that we exited coiled tubing and swapped into more well service rigs I think I think we've been a believer that this industry requires more consolidation.
We can see some of the benefits to the service industry in Canada, where the returns are.
Speaker Change: Approaching a more normalized industrial style return on the assets in Canada. So I think that as we look at consolidation less likely that we go to.
Sideways to other product lines and more focused on.
The things, we do well.
Speaker Change: Okay. That's helpful.
Alright, guys. Thanks for the color.
Speaker Change: Connor.
Our next question comes from John Gibson with BMO capital markets. Your line is open.
John Gibson: Good morning, and thanks for taking my question I just wanted some clarification on that margin guidance for Q4 did you say <unk>.
<unk> thousand and for Canada.
Speaker Change: Yes, approximately 15000 John.
Just wondering what is the delta from Q3 of that multi rig mix are you seeing some some pricing improvement.
So I think the pricing.
Speaker Change: It is stable to slightly up across rig classes. The rig mix will be pretty similar we have a couple of super triples, it'll be firing up in Q4, which will help and then there's ancillary winter revenue that will be supporting margins like it typically does in Q4.
Speaker Change: Got it.
On your capital return program, you've talked about a shift to 50% of free cash flow being allocated to shareholder returns is that still a 2025.
Story, and our buybacks the focus or could you look at maybe mixing a dividend in as early as next year.
Yes, I think we've never said that 2025 would be 50% allocation, we said we'd be continually moving towards that number. So I think thats fair to fair to assume we will be increasing our allocation towards shareholders and I think when we get to below one times net debt to EBITDA.
Much more likely that we'll be at that 50% level right now share buybacks have worked really well for us I think that's going to be the mechanism to return capital directly to shareholders.
Speaker Change: And next year, and we will be.
Talking about a dividend more frequently we talk about capital allocation with our board every quarter.
But I'm sure it'll become more prominent in the discussion.
Speaker Change: Okay, that's fair.
For me on the international bids apologies if I missed this but have you seen much improvement or movement, there sorry, either positive or negatively.
As you look out two potential signings moving forward.
John where you might not have heard or seen is that in Saudi Arabia.
<unk> co.
Speaker Change: <unk>.
Suspended some offshore rigs offshore jackups and some land rigs.
Some of the other contractor southern land rigs will be suspended for a period of time about a year maybe longer.
Speaker Change: We werent.
Under any of that our rigs are still running with no suspensions, but I think that tells you a bit about what's going on in the middle East right now.
As long as OPEC has production constraints in place.
Speaker Change: Need for additional rigs.
Speaker Change: Is quite lower muted.
Speaker Change: So in fact, Saudi Arabia is pulling down drilling a little bit I think that the.
Tender delays in Kuwait have been linked to production.
Speaker Change: Constraints.
I think as they start planning to release constraints over time, but those rig rates will go up.
Speaker Change: But of course, we have each other OPEC meeting here in a few days' time in December where they will talk about whether the delay or not really.
Speaker Change: We see more production.
I would tell you I've been really surprised at how disciplined OPEC has been and how important it is to the OPEC members too.
Speaker Change:
I'd say support investable prices as they call. It so I think theres going to be strong support to keep.
Narrow band and oil prices were slightly means that production.
Speaker Change: Constraints stabilize a little longer which probably means we don't need more rigs for a little longer.
Long answer to a pretty simple question I'm sorry.
Speaker Change: No I appreciate that.
It's all great good color yourself.
Thanks, again, and congrats on the strong quarter glad to see the reaction in the market today.
Yeah. Thank you.
Our next question comes from Keith Mackey with RBC capital markets. Your line is open.
Keith Mackey: Hi, Good morning, just wanted to start out on the rig market in Canada. So Kevin you gave some some helpful color on the three sort of different classes of rigs.
My question is if the tele double market is is overbuilt.
Speaker Change: As you alluded to.
Is there a risk or for a meaningful risk that you see.
Speaker Change: That that some of those rigs can compete either in your super single category or Triple category.
Speaker Change: And take away some of the pricing or market share or you're not seeing that and don't expect to see that yet.
Speaker Change: Keith those rigs.
Speaker Change: Rigs do compete with us in Super single category do compete with us and the Super Triple category.
The math of the day rates works, so that if a drilling pad is bigger than three wells per pad and is almost nothing I'd shallow double can do to compete with a super triple even at a very low price.
I mean, the value of Super Triple produces a medium to large pads you can't overcome that with the low rates unintelligible. So on one well pads two well pads, yes, there is head to head competition.
Virtually all of our work is on multi well pads right now I think 100% of our super triples, or a multi well pads.
On the Super single side, Yes, no question and <unk> can compete there's a meaningful difference in the cost to mobilize that tele double compared to a super single. So we can move a super single and about a third fewer truckloads. So in short duration wells trucking costs become material. So again.
It means that tele doubles can compete but the rate has to be substantially lower to balance out with our trucking costs. So as a result, we can achieve higher day rates, which I'll get to the Super single and then when Rebecca Super single a pad Super single well then that tells you about can compete.
Speaker Change: Further to that point.
If you look at our utilization on Super singles, this quarter and going into Q4, we're kind of in the 90% range on Super singles.
Our tele doubles, where they are right around 50%, we think that 50% is representative of where the tele doubles in the industry or are working right now and.
Super Singles, just really in a class a class of its own in terms of what it can do in the heavy oil markets and thats reflected in utilization.
Speaker Change: Yes understood.
And how would roughly that that.
Speaker Change: 15000 per day margin breakout between your different rig rig classes.
Speaker Change: If you had to.
To describe it that way.
Yes, I think the way I would describe it as the Super triples are on average higher than 50000 15000.
The Super singles are a bit lower than 15000, tele doubles or a bit lower than that.
Speaker Change: Got it.
Okay I'll leave it there thanks very much.
Thank you Keith.
Our next question comes from Alejandro <unk> with TD Cowen Your line is open.
Is that.
Speaker Change: Does that mean.
Speaker Change: Yes.
Aaron Macneil here, sorry about that.
Kevin maybe I'll ask <unk> question a bit differently.
As it relates to the seven new contracts are you reactivating.
Speaker Change: Idle rigs are these essentially.
Speaker Change: Already working.
Speaker Change: Alright.
Speaker Change: Essentially as extensions or finding new homes for Brexit or <unk>.
Contracts winding down.
Of the seven two would be contract renewals or extensions five would be.
New customers new contract.
Speaker Change: Awards.
Some of those rigs will have worked in the past.
Four or five months some of those rigs have network this year.
Got you that's Super helpful. And then any other color on what types of upgrades that are occurring.
I'm, particularly interested on the CWC related rig side, if that's applicable and also curious to know sure moving rigs to new basins.
Speaker Change: We're not moving any rigs.
In this current round nothing we've got scheduled to move in the near term.
Perhaps one rig move I'm, Brian there might be one rig moving up to the DJ basin actually.
Speaker Change: 15th <unk> rig moving to the DJ Basin, and that's I think that's in the mix.
And I'll move is paid for by the client not paid for by us be clear on that.
The upgrades are going to be things like racking capacity and pressure capacity on the rigs are going from 5000 to 7500, tsi, adding a third mud pump on one or two rigs.
Speaker Change: Yes.
Kevin said in his comments on the Tele double fleet, we don't foresee a whole lot of upgrade capital going forward is really maintenance capital to tell you that.
All of the upgrade capital that we will be spending.
In Q4 and going into the first part of next year will be on Super triples in the U S that Super singles in Canada, and maybe a little bit on Super Triple in the Canadian market.
Speaker Change: I was referring to the triples in the U S with CWC triples in the U S.
Speaker Change: Yes.
None of those triples are currently scheduled for an upgrade at this point.
Speaker Change: Got you. Okay. That's helpful. And then maybe one more for Kerry expanding on Johns question year to date.
The pace of the buyback would suggest youre shooting for that sort of the bottom end of the range.
Speaker Change: The debt targets have already been achieved before just thinking exclusively about Q4.
You should kick off a decent amount of free cash flow, what's sort of the capital allocation.
I already for the last two months of the year.
Speaker Change: Yes, so we really just we put forward.
On annual.
Speaker Change: Guidance for how we're going to allocate capital and we're going to continue to follow that annual guidance, but it's going to be a mix between debt reduction and share buybacks and cash build.
Fair enough I'll leave it there thanks guys.
And im not sure Im.
And I'm not showing any further questions at this time I'd like to turn the call back over to <unk> for any closing remarks.
I'd like to thank everyone for joining us today and if you have any follow up questions. You can give me a call later today, thanks to have great afternoon.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: Okay.
Speaker Change: [music].