Earnings Call: Q2 2011

Aug 9, 2011

Summary

Adjusted Q2 earnings were DKK 4.5m, or DKK 0.09 per diluted share, as revenue held broadly flat and U.S. oilfield services strengthened. Management expected H2 activity and profitability to improve, supported by firmer pricing and new project awards.

Good morning. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Danske Bank second quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Guy Coquette, Director of Investor Relations. Please go ahead, sir. Thank you, Tracy, and good morning, everyone. I am here today with Bill Lingard, President and Chief Executive Officer, and Paul Bechler, Executive Vice President and Chief Financial Officer, who will talk about our second quarter interim financial and operating results. Bill will summarize the second quarter operating environment. Paul will then provide an overview of the second quarter financial results. There will be some closing comments from Bill about the outlook for the balance of 2011 and 2012, followed by the usual question and answer period. Approximately one hour after the call, a playback will be available by telephone or over the internet. For details on how to listen to the replay, please check our website at flintenergy.com. During the course of this conference call, we may provide forward-looking information concerning the company's projected operating results for 2011, anticipated capital expenditure trends, and activity levels in the oil and gas industry. Actual events or results may differ materially from those reflected in the company's forward-looking statements due to a number of risks, uncertainties, and other factors affecting the company's business, as well as the oil and gas industry in general. These risks are described under the heading Risk Factors in the company's annual information form for the year ended December 31, 2010, and other documents filed with the Canadian Provincial Securities Authorities. These are available to the public on the sedar.com website. Unless otherwise indicated, all financial information in this call is presented in Canadian dollars and in accordance with International Financial Reporting Standards. We released our second quarter results after markets closed yesterday, and we will comment on the quarter assuming that you have had an opportunity to look at those results. I will now turn the call over to Bill Lingard. Thank you, Guy, and good morning, everyone. I would describe Q2 as a recovery quarter with improved earnings over Q1. After one-time fees and some one-time gains, we earned $0.09 per share. We did have good contribution from each of our four business segments. We are pleased with the results from our oilfield services business segment, which saw a near doubling of revenues in what is typically a slow quarter for this division. Both rig moving and fluid hauling revenues in Canada and the U.S. contributed to this growth. Our strategy of expanding these businesses into the United States resource plays through both organic expansion and acquisition has occurred at the right time in the recovery of the energy cycle. This is our business segment most levered to early cycle activities. Flint's largest division, production services, is levered to midstream activity and saw revenues essentially flat with last year. While production services margins improved over Q1, results were impacted by Mother Nature throughout most of Q2. In particular, northern fires, southern flooding, and continued wet conditions delayed planned pipeline and field facilities projects in Canada during the quarter. Since mid-June, work has picked up, and we're seeing increased activity in both Canada and the United States. Flint's facility infrastructure segment, focused on construction of oil sands production facilities, was still slower than last year. Customers have focused on engineering over the last 18 months, and a few of the construction projects have been let to constructors such as Flint. Encouragingly, revenues were up sequentially from Q1. We secured additional contract work from Suncor's Firebag projects for the balance of this year, and we were awarded a contract from MEG Energy's Christina Lake project, which together added CAD 300 million to our backlog. We are still bidding on and negotiating other contract awards, which should be finalized before the end of the year. Our maintenance services division, which is levered to late cycle activities, performing maintenance work on upgrading and refining assets, had a decrease in Q2 revenues from Q2 last year, with fewer large turnarounds occurring in the first half of this year compared to 2010. On a positive note, Q2 revenues were up significantly over Q1. During the quarter, our maintenance joint venture, FT Services, was awarded a fifth multi-year oil sands maintenance contract. The contract is smaller in size, but is with a major customer, covers a large site, and has the ability to greatly expand in the future. We are excited about the opportunities that we're seeing in the second half of 2011, and I will speak later in more detail about the outlook for each segment. I'll now turn things over to Paul Bechler to discuss the second quarter financial results. Thank you, Bill. I will start by reminding everyone that our financial reporting since the beginning of 2011 is presently under International Financial Reporting Standards, and our Q2 and year-to-date financial presentation comparable periods in 2010 are in IFRS formats. 2011 is proving to be a very interesting year, with activity and revenue changing to an increasing curve throughout the year compared to a normal peak in the first quarter. Q2 revenues of CAD 339.1 million were essentially flat Q2 last year, and Q2 revenues were up CAD 12 million sequentially from Q1 of this year. What is of interest during Q2 is how each of the segments contributed to the revenues. As Bill noted, oilfield services revenue of CAD 65.5 million in Q2 was up CAD 30.6 million from last year's CAD 34.9 million. The addition of U.S. rig moving in Pennsylvania, Texas, Louisiana, and North Dakota provided the majority of the quarter-over-quarter increase in revenues in this segment. Sequentially, Q2 revenues for oilfield services decreased by only CAD 20 million from the CAD 85 million in Q1. Production services Q2 revenue of CAD 193.2 million was down CAD 2 million compared to last year and up CAD 7 million from Q1 2011. Canadian revenue in this segment was CAD 123.1 million, flat with Q1, and up CAD 3 million from Q2 last year. U.S. revenue of CAD 70.1 million was up CAD 6.5 million from Q1, but down CAD 4.8 million from Q2 last year. Both Canadian and U.S. revenues were lower than expected, with pipeline and field activity projects postponed or delayed due to weather. Facility infrastructure revenue was CAD 80.4 million, with all of Q2's work performed for Suncor. Q2 revenue was up CAD 26 million from Q1, but down CAD 29 million from Q2 last year, when Flint had three contracts underway. Under IFRS presentation, our maintenance services segment revenues are not included in Flint's consolidated revenues. Instead, we report our share of profits in equity accounted investees, net of taxes on the condensed consolidated interim statement of profit. This profit was CAD 5.3 million, compared to CAD 6 million in Q2 last year, as a result of lower activities in Q2 2011. We continue to provide both revenue and EBITDA disclosure for this segment in the MD&A. Revenues for our maintenance services segment were CAD 97.3 million for the quarter, up CAD 32 million from Q1, but still CAD 22 million below last year's record revenue when FT Services was managing two large plant shutdowns and turnarounds in addition to routine maintenance work. EBITDA for Q2 was CAD 23.6 million, compared to CAD 30.1 million in Q2 last year. Q2 EBITDA margins was 7%, down 1.9% compared to last year and up 2.4% from Q1 2011. Including the maintenance services, EBITDA was DKK 31.5 million for the quarter, compared to DKK 40.6 million in Q2 last year. By segment, the largest increase in contribution quarter-over-quarter came from oilfield services with DKK 9.7 million in EBITDA at 14.8% margins compared to a loss of DKK 200,000 in Q2 last year. EBITDA contributions in this segment came primarily from fluid hauling and U.S. rig moving. Due to the typical seasonal nature of the Canadian rig moving in Q2, Canadian rig moving EBITDA was break even. Maintenance services EBITDA was DKK 7.9 million, up DKK 2.6 million from Q1, but down DKK 2.7 million from Q2 last year. Q2 EBITDA was stronger than Q1 due to additional revenues from turnarounds and unscheduled events, but less than last year when turnaround revenues were much higher. General and administrative expenses were DKK 40.7 million or 12% of sales, compared to DKK 42.4 million or 12% of sales in Q1, and DKK 5.9 million higher than the comparable period last year. The increase in Q2 G&A was a result of higher bidding costs, DKK 1 million in severance and reorganization costs, and legal and related fees from the bond issue. The run rate for SG&A expenses for the balance of the year should be approximately DKK 40 million-DKK 42 million per quarter. Depreciation and amortization costs were DKK 16.9 million for the quarter, down from DKK 19.6 million in Q1 and DKK 18.6 million in Q2 last year. The run rate for the balance of 2011 should be approximately DKK 17 million-DKK 18 million per quarter. Financing costs were DKK 11.3 million for the quarter and included DKK 7.8 million in refinancing costs associated with the issue of the bonds and the repayment of the company's long-term debt. Net of these one-time costs, interest expense for the quarter was DKK 3.5 million, compared to DKK 4.5 million in Q1 and DKK 4.7 million in Q2 last year. The bond issue was for DKK 175 million non-secured, 7.5% notes with net proceeds of DKK 168.3 million. The bonds mature in 2019. An annual interest cost of DKK 13.1 million will be paid semi-annually. Interest costs should therefore be about DKK 3.3 million a quarter, excluding any additional interest costs on our revolver, if drawn. Together with existing cash balances, the proceeds from the bond issue were used to retire DKK 210 million in long-term debt and DKK 7.8 million in related issuing and refinancing costs. At the same time, we renewed and extended our revolving credit facility in the amount of DKK 175 million for an additional four years to 2015. Terms, conditions, and covenants are similar to our previous agreement. As at June 30th, the revolving credit facility was undrawn. Net profit before tax was DKK 600,000 compared to DKK 11.5 million in Q2 last year, and a loss of DKK 7.2 million in Q1 of 2011. Net of taxes of DKK 1.5 million for the quarter, the company reported a loss of DKK 900,000, or a loss of DKK 0.02 per fully diluted share, compared to an after-tax profit of DKK 8.8 million in Q2 last year and DKK 0.19 per fully diluted share. Flint had a number of non-operating events during Q2 that impacted earnings. Net of these one-time costs associated with the financing of debt of DKK 7.8 million, reorganization costs of DKK 1 million, and the DKK 2.2 million gain on the sale of N-Trak, the adjusted earnings for the quarter were DKK 4.5 million, or DKK 0.09 per fully diluted share. Cash generated by operations before change in non-cash balances was DKK 33.8 million for the quarter, compared to DKK 75.4 million in Q2 last year and DKK 15.9 million in Q1 2011. The company also received DKK 53.4 million in net proceeds during the quarter from the sale of assets. This included DKK 28.5 million in May from the sale of N-Trak's specialty hauling business. During the first six months of 2011, the company purchased DKK 28.6 million in equipment, the majority used for the replacement of equipment in production services and expanding our oilfield service activities in the U.S. This included costs associated with setting up a new rig moving office in Williston, North Dakota, to service the Bakken Shale play, setting up new oilfield hauling offices in Victoria and George West, Texas, and the purchase of fluid hauling equipment to service Eagle Ford Shale. At June 30, 2011, the company had DKK 65.5 million in cash and equivalents, compared to DKK 163.5 million at 2010 year-end. Current liabilities were down DKK 131 million to DKK 145 million as a result of the repayment of the current portion of long-term debt, and therefore, working capital increased by DKK 125 million. The current level of long-term debt and credit availability under our revolving credit agreement, together with our cash holdings, provides Flint with a strong financial position for the expected increase in activity in the second half of 2011 and our strategic growth plans. With that, I will turn it back over to Bill for a discussion of recent trends and outlook for the balance of 2011 and into 2012. Thanks, Paul. Second half of 2011 is poised to be very busy in all of Flint's operating segments as a result of strong drilling activity in the first half of the year and increased drilling activity in the second half of the year. This stronger drilling activity benefited our oilfield services division, particularly in the U.S. In Canada, the wet weather and muddy conditions in July allowed our Canadian fleet to get utilized as our customers scrambled to get rigs moved onto waiting locations. We are seeing increasing activity for the midstream production services business segment in the second half as well, as projects that were in backlog have finally started. Currently, the flood of bid requests are larger than we've seen for a couple of years, and pricing has firmed up. Oil sands capital project awards have been secured, providing Flint with good visibility for the second half revenues, and our maintenance services segment has seen a new contract award, as well as increasing base levels of maintenance revenues from existing contracts. As production grows with existing customers, the maintenance and turnaround activities increase proportionately. Canadian drilling activity in the first half was up 12% to 5,400 wells. In the second half, drilling is forecast to increase 17% to 8,800 wells, or a total of 14,200 for 2011. Drilling activity in the U.S. in the first half was up 36% over the first half of 2010, with an estimated 31,500 wells drilled. Land-based drilling activity averaged 1,750 rigs in the first half, and July had 1,850 active rigs. Forecasts for the second half call for the U.S. to drill a further 33,900 wells, up 18% over the second half of 2010. Oil sands capital spending for 2011 is expected to reach DKK 16 billion, up from an estimated DKK 11 billion in expenditures in 2010. A number of previously delayed projects have been awarded for construction in the first half of 2011, and there will be additional awards made in the second half of 2011. Oilfield services rig moving will see increased activities in both Canada and the U.S. through the balance of 2011 due to the increased drilling. Fluid hauling revenues will continue to benefit as a result of expanding crude oil production in both Canada and the U.S. The company was recently awarded a large rig moving contract with a major producer covering its Canadian and U.S. operations, with significant activity in northeastern B.C. Producers are starting to secure services in what will be a very busy second half. Margins should continue to improve as old pricing contracts have expired after the winter drilling season ended. Production services activities, which lag drilling activity, have improved in the second half, with increased well tie-ins, well completions, tubular inspection and repairs, and increased facility and pipeline projects, which typically occur in the second half. Right now, improving margins in this division is one of the company's highest priorities, and the current market conditions will allow this to happen quickly. Facility infrastructure contract backlog is approximately DKK 300 million and includes additional work releases on Suncor's Firebag projects and the recently awarded contract with MEG Energy for their Christina Lake project. We are also bidding on additional contract work with several oil sands producers and expect further announcements on contract awards during the second half of this year. We continue to have very positive meetings as we proceed through the award process. FT Services, our maintenance services operation, is performing very well, and the opportunities to expand are huge. The new multi-year maintenance contract with a major oil sands producer provides an opportunity to expand its scope with this customer over time. Flint's portion of the backlog remains in excess of $1 billion in this division. Our ongoing cost management and reallocation of assets to busier areas continues to be our focus. Improving margins is a priority in all divisions, particularly production services and oilfield services. We continue to review acquisition opportunities to fill in geographic reach of the company's existing business lines in both Canada and the U.S. Overall, the outlook for the balance of 2011 is very positive for all divisions, and early 2012 looks poised for continued growth in both Canada and the U.S. We expect improvements in our profitability in Q3 and Q4. That concludes our presentation today. With the assistance of Tracy, our operator, we will open the floor for your questions. At this time, I would like to remind everyone, in order to ask a question, please press star and the number one on your telephone keypad. We will pause for a moment to compile the Q&A roster. And again, if you would like to ask a question, please press star one on your telephone keypad. Your first question comes from Roy Maas from PI Financial. Your line is open. Hey, good morning, guys. Good morning, Roy. Hey, first question. On oilfield services, that is quite the improvement over last year, and you guys gave some good color. I am trying to just maybe get a little bit more granular. And I do not know if the best way to get to it is actually get a breakdown of U.S. versus Canada. Because I am trying to get a sense of, is that pickup entirely because of the Stallion contribution? Or can you give some additional color in terms of what are the other components that contributed to such a swing? Well, there's a couple of items, Roy. The first is, of course, is that we did do the reallocation of our assets. We moved assets from Canada to the Marcellus last fall, and then we continued to move some more down to the Bakken, to Williston this spring. The redeployment of assets to the U.S. also expanded our revenue stream in the U.S., in addition to the assets we bought from Stallion last December. The combination did two things. One is it reduced the surplus equipment we had in Canada, so it improved our utilization. Our Canadian operations, even in the second quarter, were at the break-even level, whereas last year they incurred a loss. And then the U.S. operations, of course, stayed busy in all of those basins, with Williston just beginning in June, so we still have some upside. That redeployment of assets also helped improve our results and expand our revenue stream. Oh, just to get a clarification on your comment regarding Canadian rig moving was at break-even for Q2. I assume that excludes your fluid hauling business. That's correct. Okay. And fluid hauling in Canada, you saw some improvement year-over-year as well? We did. We are not terribly much busier than last year, but we did have a bit of improvement in our margins and are currently working with our customers to continue to improve that part of it. Roy, for a little bit more granularity, I will give you the gross margins in Canada and the U.S. for the quarter for oilfield services. We did 28% gross margin in the U.S. and 13% gross margin in Canada for the quarter. Even though Rig Moving was break-even, Fluids was still very positive. That's all of Oilfield Services, Fluid and Rig Hauling, when you gave those margins. Combined. Combined. Okay. That's helpful, guys. The second question is probably a little bit more on a bigger picture. How do these results track where you expect to be in terms of each segment? Well, I think that for infrastructure services, of course, we are still in the rebuilding mode here as we head into some of these new projects and the additional backlog. So we've been hiring a lot of people. We're looking for a lot of positions to fill in that group. So we've been preparing for the work we see coming and all of the contracts we're bidding on. So those results, of course, are still a little bit low what we would like. Margin was lower than we normally would have as a run rate as we get a little busier. Production services, we still need to improve our margins. We're starting to see, I think, the hangover from some of the contract pricing in the last year where it was more competitive or less work starting to go away. We're getting better contracts from customers at time and material or pricing that's much more favorable. So we expect that that's one that there's still some room to grow. Production services was a little bit busier in the second quarter, so that's a good step forward, but we do need to improve those margins some more yet, and we see the opportunity for that. As you saw, oilfield service was doing very well on the curve, getting busier, and we continue to expect to see improvements in that group as well. Okay. Just to finish it off, maybe elaborate a little bit on your concluding comment on potential M&A activities. Give us maybe a wish list in terms of where your highest priorities are going to be in terms of targeting acquisitions. We certainly look at the areas where we think the plays are long-term active plays. We're looking at opportunities where we have a small market share, and we're trying to grow our market, and it's difficult to do that organically. Look at the active plays across North America, both in Canada and the U.S. Certainly, if the opportunity was there, and there are some opportunities we're looking at. If the opportunity was there to buy a private or a family-owned type business in one of those plays that do very similar services that we do, we would look at that. We believe that the opportunities right now on both the maintenance side, maintaining the client's assets, as well as some on the production services side, some of those opportunities look pretty favorable. Between maintenance and production services, I think we're not seeing a whole bunch of opportunities on the oilfield services side, although we do like the fluid hauling business as well. It tends to be long-term, steady-state type contracts. If we could find some in fluid hauling, we might be interested in that as well. Okay, that's good for me, guys. Good quarter, recovery-wise. Thank you. Our next question comes from Melissa Valcovic from Credit Suisse. Your line is open. Hey, guys. I was hoping you guys could provide some kind of anecdotal commentary on the producer's willingness to award contracts, I guess, within mostly the FI segment. Has the environment over the past few weeks given them any additional caution or pricing discipline that you're seeing? Certainly, I won't comment on the environment since Friday, because I think everybody is still holding their breath to see how things are going to shake out. Fair enough. Yeah. But we had meetings with clients last week, and our clients in facility infrastructure group or major oil sands construction are mostly the larger guys that have a long-term view of the world. Yeah. They're looking at a 20-year view of what energy prices are going to be like. So we certainly see that they are not hesitating. Their plans are quite firm now, and we don't see them delaying or pushing back anymore. As a matter of fact, they're kind of anxious to get awards out because they have committed to their boards and shareholders that they would get to production targets by certain dates. Okay. We're seeing them push ahead as fast as they can. Okay. Well, that's good to hear. I guess also now that you guys are doing work on that MEG contract, what type of sequential improvement can we expect in FI? Just doing the quick numbers, if it's a seven-quarter contract and you're saying roughly CAD 300 million, I guess less than that because that probably includes the Firebag work, too. But maybe around CAD 40 million a quarter. But what kind of improvement can we expect? Well, we're not going to be ramping up on the construction in the near term. We will have some people assigned to the project on the planning and constructability side. But I think in terms of ramping up in the field, most of that is going to occur In probably the fourth quarter of this year, and then we'll peak sometime mid next year. Okay. All right. That's helpful. You'll see a slow build. But what is very busy is Suncor at the Firebag site, and we are now up to about 1,500 people on site, and it'll continue busy here for And it dovetails quite nicely, so I think that you'll see continued improved, but not a great big lift in the next couple of quarters in facility infrastructure. Okay. All right, great. That's all I had. Thanks a lot, guys. Thank you. Again, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from Jeff Fetterly from CIBC World Markets. Your line is open. Morning, all. Just a couple of variety of questions. Paul, the proceeds from sale of capital assets outside of N-Trak. Can you give us some color around what that was? Fairly sizable in the quarter. It was, Jeff. As we look to the utilization of our assets across North America, you saw that we did have some restructuring. We have focused on how do we realign the use of our assets. We had some equipment that was getting to the end of its life late last year, but we held off on putting it to the sales until this spring because the sale prices and the price of equipment was coming up, and we felt if we waited till the spring, we could do a better job of making sure we're covering at least the book value of those assets. We certainly did that, incurring some small gains on most of the equipment. It was mainly surplus equipment in production services as we shifted around to the various basins in the U.S. and then in oilfield services. We did the reallocation of assets to the U.S. and then the growth there. We also looked at the types of equipment for the changing drilling structures of our customers, and we got rid of some of the equipment that was being underutilized. It really was a cleanup to try and go through our fleet and make sure we didn't have a lot of capital tied up where it wasn't going to be real useful in the next couple of years. The CapEx, the sizable CapEx increase, is that just a shift in assets? On a net basis, would you say the productivity capacity of the business is still the same? There is a couple of parts to that. The first is you got to remember, under IFRS, that we no longer have operating leases. Even things like replacements of light trucks will go into our capital expansion today, whereas a year ago, they would've been part of our operating leases and wouldn't show up through the balance sheet and as a use of cash. In general, we will have an increase in capital expenditures by pretty close to DKK 8 million or DKK 9 million a year just from the light truck fleet turnover in Flint. There's a couple of million DKK a quarter there. Then we had a number of leases when we were really busy in 2007 and 2008 on equipment that were three-year capital leases and operating leases on some of our yellow iron that came to conclusion, and the equipment was in good shape, so we bought out some of those leases as well. So it was a combination of things, but you will see a slightly higher capital expenditure just because of the conversion to IFRS because there's no operating leases anymore. Where do you expect your gross and net CapEx to be this year? Well, our disposals were higher than we'd anticipated at the start of the year as we got a real good momentum of our employees and our management looking at ROCE as we try to break down that metric into the divisional and segmented levels. So return on capital had people thinking about what was good utilization levels. So we're about DKK 28 million, I think, of capital expenditures so far this year. And I think that we'll probably be around the DKK 50 million mark, DKK 50-DKK 55, maybe even a bit more by the end of the year because of building the office in Williston and that. But it will include, like I said, some of the other types of assets as well. I would say our fleet capacity is probably pretty similar, maybe slightly smaller in some areas of the U.S. for our production services, but I don't think it'll negatively impact our ability to meet the demand in the next year at all. Okay. Production services U.S. margins abnormally high in Q2. What was the driver behind that, and what are you expecting going forward? Well, I am not sure I want to say they were abnormally high. Well, 18% we have not seen in decades. Well, we had some significant improvement in a couple of those areas. We did have a number of projects we picked up that were by the hour, and we just did a better job of managing the execution. So it was a little bit higher than average. But we do have that capacity sometimes when you take those smaller lump sum jobs. In the first quarter, we had one or two that went the wrong way. In the second quarter, we had a couple we were very efficient on. So you can sometimes get a little bit of success from that as well. On the quarter-over-quarter with our revenue recognition, Jeff Fetterly, the way we do the revenue recognition, you know, you may have had some costs, and I think we said that on the call in the first quarter. We had some costs in the first quarter where change orders were not approved and things weren't signed off, and you couldn't recognize the revenues or profits. So we might have a little bit of that going from Q1 to Q2. That's what I'm getting at. The change order, the one-time revenue recognition that essentially is margin. Was that meaningful in Q2 for the U.S. production services specifically? You got to look at the relative percentage on the size of the production services on EBITDA. So, you know, if you got three-quarters of a million dollars, that it does help quite a lot in the margin for the group. Okay. And I'm not exactly sure what that number was at the end of the month. We can get back to you with that, Jeff Fetterly, on a specific amount that it might have been involved in this research. Okay. Facility infrastructure. From a new project standpoint, can you give us some perspective in terms of what you're looking at from a timing and size perspective and, I guess, specific whether Surmont is still out there? Certainly Surmont's still out there, and we continue to have very positive meetings with ConocoPhillips. We're thinking over the next couple of months, we should have something more definite on that. I feel very good about that one. But you never know until it happens. Is there, from a project standpoint, are there other significant ones that you expect to come to fruition, either for you or others, between now and the end of the year? Yeah, I think the other one is Northwest Upgrader. To be honest, if we get both of those, we are full. We will have to stop bidding, because for the next 2, 3 years, we will not be able to take on anymore. We would be able to bid on things beyond those, but not anything during the same cycle. Last question, M&A-wise, following up on Roy. From a size perspective, what are you comfortable looking at and absorbing? Obviously, financial flexibility of the business is strong, but how far up are you willing to step in terms of acquisition size? Right. I think it depends on how accretive it was, how good a strategic fit. Certainly Paul and I, we look at some smaller acquisitions sometimes which are only slightly accretive, and we do not give them a lot of thought. It is easier to organically grow. If you are keeping true to the service segments we have and able to do a larger acquisition that is very accretive to the shareholders, I think we are willing to do a sizable one. Something in the DKK 500 million range wouldn't be totally out of the question. Are we looking at any that big? No, we are not. But you just asked how high we would go. I think more likely, we would do things that are DKK 100 million, DKK 150 million range, something like that would be quite comfortable. What are you seeing from an opportunity standpoint for acquisitions in that sweet spot? Jeffrey, both Canada and the U.S., we're getting quite a lot of things brought to us that would be in that from DKK 70 million to DKK 150 million range. We've certainly passed on a number of them with preliminary investigations where we found that we either thought the cost structures or the location of the assets didn't match the future as we saw it for the North American land-based companies like ourselves. We're getting lots of different things brought to us and shown to us by different people, and we're filtering through them and looking for ones that are going to match our strategic plans and our business model. Thanks, guys. Good momentum. Thank you. Thanks. Our next question comes from Todd Gorman from Petersham. Your line is open. Good morning. I wanted to look at the year-over-year decrease in the Canadian production services margin level. In the release, it mentions that it is a combination of adverse weather and underutilized assets, and I would like to take a more detailed look on the underutilized asset side. Can you provide us with some insight there? Well, in Southern Alberta, of course, we continue to having to sort of rationalize and move some of our assets and people around because that area is still very slow. We have got pockets in the production services where we are seeing significant growth, and it is getting the assets to those areas. In Northeast Alberta, we are getting busier all the time, where we are winning projects at much better margins. A year ago, we were still finding that there was too many bidders, and customers were looking for the bidder that made a mistake in their estimate or bid for cash just to try and stay in business. Today, we are seeing them coming to us and saying, "We want reliability in completion of jobs, and we will do it by time and material or by the hour or a fixed price or a best price estimate," and we are seeing much better. The Northeast is getting much busier, better projects through Grande Prairie, in the Eastern Alberta, Bonnyville areas. The South is still very slow, so I would say we were still underutilized in the South, even with the consolidation and rationalization of some assets there. We are, of course, starting to pick up in areas like the Bakken in the Southern, in the U.S. side with our offices there, and then the Marcellus is moving. They have done all the drilling in those areas, so now we are starting to see them move into this infrastructure and production side where they are building facilities and pipelines. We are going to see significant growth in those areas. But overall in Canada, pricing was still tough in the second. You have got to remember, work in the second quarter would be work that we bid through December, January, when things were still pretty slow, and some of those pricings were still pretty tough. The work we are starting to do now was work we were bidding into the second quarter or Estimators and bidding groups are full, and we are getting to start to select the areas and the things and start to test the market for pricing. We've done a little bit of changing in how we're structured as well, Todd Gorman, and we're using more of a hub and spoke approach. We had some locations that the revenues had dropped off so much that you either had to close it down or make it a satellite of a bigger center. So we've turned some of our offices, got rid of some of the equipment and indirect people in those offices, and made them a hub or made a peer center a hub and made them a satellite office of a bigger office. That's been able to reduce some of our costs, and we were still doing some of that as we came into the quarter. The other thing, when you look year-over-year, we did have some revenue recognition issues in Canada in the second quarter. Those for approvals and expansions of ongoing contracts, as we get customer approval, you'll see those flow into the third quarter. We didn't get to count everything we could have, just IFRS and accounting rules, you can't. As the earlier question was, all of the costs are in, but the revenue hasn't been recognized on a couple of contracts. Due to weather delays and requested scope changes, we didn't have that done and signed by June 30th. That's correct. If we looked at, say, the first half of 2011 relative to the first half of 2010, and we understand which areas are slow. But what types of assets are being underutilized? Can you share with us what type of assets have been sold as part of the CapEx program for, say, this year? Our utilization on plows and ditchers in the south would have been very low, and we've sold some of those. The older ones that we didn't think would be ever used again, kept a new fleet, the stuff that's more efficient, and sold some of the older stuff. That would be a good example of a couple of styles of equipment that have been underutilized. Those are the main ones. The plow is gone, and we don't have any more ditching machines in the south right now. Okay. Were there any non-recurring job losses in the second quarter? I think you referenced some of them, but could you expound on or provide some more detail in terms of the magnitude? No, I don't think we had any big. I'm just thinking back. No big job losses. We had some underperforming jobs, but none that had big losses. We are probably DKK 1.5 million of unsigned change orders, something in that range at the end of the quarter that would move into the costs have been recognized but not the revenue. Just lastly, any insight into why the DSO is up, I think it is 10 days sequentially? Absolutely. There is one major customer in one of our groups that has significantly altered their pay process of packaging, and it has impacted it significantly all by itself. It stems mostly to one client, and we are resolving the issue with that client. Should we think about whether or not could there be any part of that accounts receivable that might not be recoverable because it is increasing? How should we think about that? No, it is a good client. There is no problem with getting the money. I think in the future, you will see our DSOs improve. Okay. Thank you. Again, if you would like to ask a question, please press star then the number 1 on your telephone keypad. Your next question comes from Dana Benner from AltaCorp Capital. Your line is open. Gentlemen. From Dana Benner. I wanted to come back to the topic of acquisitions. You mentioned you're probably the top end range and the level you'd be more comfortable with. If you were to do a larger acquisition, could you at least say in which area it might happen, in what segment? I think it's hard for us to start predicting that, Jeff, without going where we probably shouldn't be. Sorry, Dana. We've talked about in the past that we're interested in expanding our maintenance because we do a lot of that in Canada, but none in the U.S. We feel there's opportunities to expand some of our fabrication. We've been very successful with our production equipment manufacturing in the U.S. and our modular fabrication here in Canada. We'd like to look at opportunities to expand in a couple of those areas. And then like Bill said, you look at our geographic footprint, and it is really got to be where is there an area starting up where it will be difficult for us to do organic growth, and it might be better to try and do an acquisition and get some of the skilled people or maybe someone who is in that area or has a better presence than we do. Right. If you think about the allocation of your own time, resources, et cetera, would you say that you have a much greater propensity to do acquisitions now than even, say, 6 months ago, 12 months ago? How much of your time would it be taking up? Or is it something that you will do only if the right one comes in the door, but you are really focused on organic growth? But in terms of how much of our time, I bet Paul and I spend about 10%-15% of our time looking at that, maybe less, maybe 5%, 10%. It is not something that is taking a lot of time. But we do have an analyst here who is modeling those things for us on a regular basis, and we are seeing a lot more opportunities come in the door. There is a lot of people who are looking to sell at this time. So there is a number that we are evaluating. And I think, more likely it would be in the production services or maintenance or oilfield services. We are not looking at large construction companies. We are not looking at facility infrastructure. Okay, perfect. If you were to think about growth rates, say, sustainable growth rates, let us forget about gyrations in the broad market. If we just think about some type of a trend line growth, various areas, would you say that your trend line growth in the U.S. would be much higher than in Canada? Or can you say that? Well, I think if you are looking at larger acquisitions, the larger ones are definitely in the U.S. We are seeing many more come out of the U.S. that are bigger companies, because the U.S. market is quite a bit bigger than the Canadian market. Generally, it is about five times the size of the Canadian market. I think we are also seeing that there are opportunities in some of those basins that would give us a chance to grow through acquisition. Okay. Just one final question. Looking at your margins, in which area do you think there is the most room for sustainable upside? Would that be oilfield services as that business really comes into its own or over to you? I think, if you look at margins by segment, if you look at oilfield services, it still needs to improve quite a bit. We should be at 25% EBITDA margins in that side of our business. So we do have some good sustainable growth. As long as the activity levels stay high, I expect margins continue to improve substantially. At production services, compared to historic, our margins are still down. So I believe those two specifically will come up substantially in the back half of the year. The facility infrastructure, while the margins were off, we had a lot of bid costs, a lot of recruiting costs in the second quarter. We do not expect them to rise dramatically. We should stay in that 9%-10% EBITDA margins for facility infrastructure. The margins have been fairly stable in maintenance services, and we expect them to just stay. The contracts are long-term. There's no way you can get a big lift in margins in that business. It's kind of a low margin but high return on investment type business. Okay, guys. Well, that's all I've got. Thanks for the insight. Thank you. You're welcome. There are no further questions at this time. I would now like to turn the call back over to Guy Coquette. Thank you, Tracy, and thanks to everyone for participating in our presentation today. We look forward to talking to you again on November 5th with the results from our third quarter 2011 call. Thank you. This concludes today's conference. You may now disconnect.