Good day and thank you for standing by. Welcome to the Precision Drilling Corporation 2021 Third Quarter Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to Cary Ford, Senior Vice President, Chief Financial Officer.
Please go ahead.
Thank you, Amanda, and good afternoon. Welcome to Precision Drilling's 3rd quarter earnings conference call and webcast. Participating with me today is Kevin Nabu, President and Chief Executive Officer. Precision reported 3rd quarter results through a press release earlier this morning. Please note, these financial results are in Canadian dollars unless otherwise indicated.
Also, please note some of our comments today will refer to non IFRS And will include forward looking statements regarding Precision's future results and prospects, 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. Prior to Kevin providing an operational outlook and update, I will review our Q3 financial results. Precision's 3rd quarter results were characterized by increasing North American activity, improved spot market pricing and largely temporary increases And U. S.
Operating costs ahead of a stronger Q4 and Q1 activity outlook. Our 2nd quarter adjusted EBITDA of $45,000,000 Included a share based compensation expense accrual of $14,000,000 Absent this accrual, adjusted EBITDA would have been $59,000,000 The share based compensation accrual resulted from continued strong performance of Precision Shares and our cash settled accounting treatment For each quarter, we accrue an expense or benefit based on marking the plan to market and accounting for planned vesting in the quarter. As noted on our 2021 conference calls, the cash treatment and share price volatility may present higher volatility in financial results. Please keep in mind that we have the ability to pay a portion of these awards in either cash or equity upon vesting. During the quarter, we received $6,000,000 of CUES assistance payments and we believe that CUES program is largely complete for Precision With the 2021 impact of approximately $24,000,000 Moving to the U.
S. Drilling activity for Precision averaged 41 rigs in Q3, an increase of 2 rigs from Q2. Daily operating margins in the quarter were US5,211 dollars a decrease of US15.41 dollars from Q2. Absent impacts from IBC and Turnkey, daily operating margins would have been US12.95 dollars lower than Q2. Although we were able to achieve pricing increases of close to US700 dollars we experienced a higher we experienced higher cost during the quarter, resulting from higher repair and maintenance expense and rig mobilization costs that will be recouped in a rig contract.
During the quarter, we prepared 4 rigs For activation, and on average, they had been idle for 20 months. Our U. S. Operating costs for the quarter were higher than expected, but we believe the The majority of the cost increase is temporary and the actions taken in Q3 are building a larger revenue base for the next two quarters. For Q4, we expect normalized margins to be US1500 dollars to US2000 dollars higher than Q3.
Moving to Canada, Drilling activity for Precision averaged 51 rigs, an increase of 33 rigs from Q3 2020 and representing a nearly tripling of the rig count. Daily operating margins in the quarter were $6,238 a decrease of $2,268 from Q3 2020, primarily due to rig mix as we had a much higher percentage of shallower rigs working this year. As of the Q's impact, Margins would have been $5,303 or $9.67 lower than Q3 last year And slightly higher than Q2 2021, which is consistent with the guidance provided last quarter. For Q4, we expect margins absent of queues and one time recoveries to be up $500 per day higher compared to Q4 last year $1500 to $2,000 a day higher than Q3 this year. For reference, daily operating margins in Q4 2020 absent queues and one time recoveries were $6,895 Moving on to international operations.
Drilling activity for Precision in the current quarter averaged 6 rigs. International average day rates were US52,277 dollars down US2610 dollars from the prior year primarily due to Revenue generated during rig moves. In our C and P segment, adjusted EBITDA this quarter was $5,400,000 Up approximately $1,500,000 compared to the prior year quarter, adjusted EBITDA was positively impacted by a 107% increase in well service hours. Well abandonment work represented approximately 15% of our operating hours in the quarter as customers appear to be focusing more on Producing wells and plug and abandon ore. Capital expenditures for the quarter were $20,000,000 and our Full year 2021 guidance has increased to $74,000,000 The increase in planned capital spending is largely due to advanced drill pipe orders Steel price increases and ensuring availability in a rapidly tightening market.
Our 2021 capital plan is comprised of $51,000,000 for sustaining and infrastructure and $23,000,000 for upgrade and expansion, which relates to anticipated investments supporting our Alpha Technologies as well as contracted customer upgrades. As of October 20, we had an average of 35 contracts in hand for the Q3 and an average of 35 contracts for the full year 2021. As of September 30, Our long term debt position net of cash was approximately $1,100,000,000 and our total liquidity position was approximately $500,000,000 excluding letters of credit. Our net debt to trailing 12 month EBITDA ratio is approximately 6 times and our average cost of debt is 6.3%. We remain in compliance with all our credit facility covenants in the 2nd quarter and the 3rd quarter with an EBITDA to interest coverage ratio of approximately 2 times.
During the quarter, we reduced total debt by $8,000,000 and year to date debt reduction is $60,000,000 And we expect to make debt payments during the Q4 to achieve our debt reduction goal of $100,000,000 to $125,000,000 for the year. Our capital allocation program remains substantially weighted to debt reduction and we remain on track to meet or exceed our long term debt reduction target of $800,000,000 between 2018 and 2022 where we have already reduced debt by $610,000,000 since the beginning of 2018. We expect to continue generating free cash flow through operations in the 4th quarter and with higher activity, improved pricing And only $3,000,000 of cash interest due in the quarter, the business is well positioned to support further deleveraging. For 2021, Our guidance for depreciation and G and A before share based compensation remains $280,000,000 $55,000,000 respectively. Of note, our strict focus on cost control is represented by our consistent G and A expense guidance throughout the year despite realized activity far exceeding our expectations at the beginning of 2021.
Our run rate cash interest Expense is less than $80,000,000 and we expect it to move lower into next year as debt pay down continues. We expect cash taxes to remain low and our effective tax rate to be below 10%. One final note on operating leverage. Those who follow the land drilling space Through cycles, understand the operating leverage and torque inherent in the business. As several years have passed, since we have The market where both margins and activity were growing, I would like to highlight an illustration using today's activity and our lean and scalable fixed cost structure.
With 112 rigs running globally today, a $1,000 per rig increase daily operating margin across the fleet should result in approximately $40,000,000 of increased EBITDA on an annualized basis. With activity expected to increase and continued pricing momentum, we look to demonstrate Precision's operational leverage through our financial results over the next several quarters. With that, I will now turn the call over to Kevin.
Thank you, Carrie, and good afternoon. While this is the first time in over a decade where a strong resilient commodity backdrop lines up with the Annual E and P budgeting cycle, unusual territory indeed. Virtually all, in fact, I believe all the key leading indicators we monitor are trending favorably as we develop Precision's outlook for 2022 and beyond. Following the significant drilling activity reduction during the pandemic And now with energy demand firmly rebounding, we are very encouraged by the strong spot in future strip oil and gas commodity prices. Underlying these key industry fundamentals is the supply discipline demonstrated by OPEC Plus and the capital discipline of the publicly traded oil and gas producers.
Looking at our core U. S. And Canadian markets, the cash generating capabilities of the oil and gas producers will continue to be strong, Much stronger than it was expected even just a few months ago. Much of the balance sheet repair work the industry needed in the investors sought has been completed All will shortly be complete. We believe the mantra of capital discipline and sustainable shareholder returns will continue to be the key strategic focus of our customers.
And we expect This will lead to a healthier and more balanced result for our industry over the longer term. On the near term, the dwindling inventory of uncompleted wells in the U. S. Is a key indicator we watch closely. Undoubtedly, the operators will need to shift focus and direct spending back to the drill bit just to sustain current production levels, let alone provide for any increase in demand.
Now, while many have written off the shales as a swing producer, When you look at the shale industry structure from a logistics, capability, infrastructure perspective, it's functionally structured to be one of the fastest responding sources of incremental oil and gas production. Every aspect of the domestic shale industry has been structured around the rapid return of capital. Industry features include fast and efficient decision making, Short cycle drilling and completion techniques, industrialized scale to lower costs and now digital analytics optimization. We believe that by following a disciplined approach to capital employment And coupling a capital efficient well managed growth profile, the shales may still play an important role as a swing producer. Now it's becoming clearer now over the past few months that while the global energy transition is underway, The path will not be a straight line to net 0 and that the stable and reliable energy available from hydrocarbons will remain a critical element in the global energy supply chain for some time to come.
Importantly, our industry is urgently responding to energy transition. And while it may be difficult to satisfy the most extreme views, Virtually every producer and most service firms are addressing emissions reductions and lower environmental impacts, expanding community engagement, While continuing to drive efficiency, safety and financial performance. At Precision, we highlighted our ESG positioning by setting it as a strategic priority at the beginning of the year. This led to the creation of 2 business teams, which we internally branded as the E Team, focused on environmental initiatives and the S team focused on employee and stakeholder engagement. An early result of this initiative was the 3rd quarter launch The Precision Evergreen brand of environmental solutions designed to enhance the performance of our drilling operations while reducing the environmental and emissions impact for our customers.
2 of our Evergreen service offerings are off to a quick start as our customers seek out ways to reduce GHG emissions. We deployed our first Evergreen Hybrid Rig Power System during the Q3. This system will reduce emissions by dynamically substituting natural gas for diesel and utilizing a battery energy storage system. This system requires fewer internal combustion engines than a traditional system and will lower emissions and fuel costs for our customer, while reducing maintenance costs for Precision. We have customer orders and interest for several more of these Evergreen Hybrid Power Systems planned for deployment in 2022.
Also during the Q3, we introduced the Precision Evergreen combustion fuel monitoring system. This system provides high frequency and accurate real time combustion With these accurate emission profiles monitored during all aspects of the drilling operation and then utilizing Alpha Automation, we can optimize the power demands and engine loading make other recommendations to reduce rig emissions. The introduction of this system has been a huge success with customer demand widely outstripping supply even before our first field deployment. Currently, we have 5 of these systems in our backlog with 3 to be deployed before the end of this year. We see the potential to install these systems on every rig in our fleet as our customers strive to measure, manage, report and reduce their GHG emissions.
It's very exciting to see our customers acting on the GHG emission file, and I'm thrilled that Precision is a key part of their strategy. Our Elfa Digital Technologies continue to penetrate the market with sequential utilization growth with revenue and the associated margins continuing to grow. We now have 46 rigs equipped with Elfa Automation in the field and 60% of our North American drilling days on those rigs include Elfa Automation. 16 apps are fully commercial and we've increased app activity by 38% sequentially. Also, we continue to add New Alpha customers during the quarter supporting our thesis that Alpha Digital Technologies are a key driver of Precision's market share growth opportunity.
So it's important to discern that we are not describing a digital aspiration or a future promise. This is today. We're generating significant customer savings with our Alpha digital services, and we're capturing a fair and reasonable portion of that value. I point you to our Alpha web pages where we post case studies and we demonstrate that our alacarte pricing model for Alpha Technologies retains 40 plus percent of the total well cost savings we create for our customers. We view this as a sustainable and enduring value proposition for both our customers and Precision Drilling.
Turning now to the domestic U. S. Market. Our activity trend has slightly delayed our prior guidance, and there are a couple of factors that constrained rig adds over the past few weeks. You will know that from mid July to late August, The Delta variant surge and the resulting economic risk drove WTI down below $60 for a few days.
This volatility and uncertainty delayed customer decisions, Delayed planned rig deployments and accounted for a couple of rig activations postponed until later this year. But the second factor, which is probably more important, is related to our strong focus on price discipline and day rate increases, which we demonstrated during the Q3 by walking away from several rig Opportunities for pricing pressure driven by the E and P procurement teams was below our desired thresholds. We know that in the short term, this will cost us some market share. We believe that as the super spec market continues to tighten and activity ramps up into 2022, we will be well positioned to take more favorable prices. So So I reiterate what we stated on our Q2 call that our goal is to march our rates back to positive EPS territory, and we remain committed to that strategy.
Despite those headwinds, we are achieving pricing traction. We can see it in our renewal book where active and hot rigs are recontracting now In the low $20,000 range and moving upwards. We can see this on rig activations that the pricing is now moving into the $20,000 range. And as you can see it in our reported day rates now up $700 sequentially. Now while our Evergreen Solutions and ELPA Digital Technologies A la carte price premiums may be a tougher sell to an E and P procurement executive, who is typically focused on the headline all in rig rate.
We are highly successful selling these solutions to most of our customers who have a strategic view on emissions reduction and total wellbore AFE cost. Now Carrie mentioned certain items dragging our costs related to reactivating rigs and mobilizing rigs. We view these costs as transitory We expect that the bottom for both Day REACH and margins as well in the rearview mirror. Today, we are operating 45 rigs, but more interestingly is our bid book, which is at a multiyear high with over 200 active bids that we're tracking. Now that does not mean that we expect 200 industry rig adds, But it's a strong leading indicator of heightened customer interest.
There is no question that U. S. Rig counts are going up into 2022. Turning to Canada. Currently, we're operating 61 rigs and our Q3 average was surprisingly 21% higher than Q1, which is typically our busiest time in Canada.
Our Canadian outlook is further strengthening with the key commodities, AECO Gas, WCS Oil and the NGL condensate prices, all during the critical budget season for our customers. We expect Q1 activity for the industry could exceed 2018 levels, Suggesting peak industry demand in the 250 to 300 rig range, I would not Be surprised to see even higher demand if operators front load 2021 spending during the winter season. With our strong positions in the Montney and heavy oil, Along with broad industry demand and the consolidated Canadian drilling market, we are bullish on the near term and mid term outlook for both utilization and day rates. The pricing discipline I mentioned in our U. S.
Business is also our focus in Canada. We will continue driving our day rates to achieve positive EPS. We believe the market structure will support this strategy. Now turning to our international business, activity remains steady. We're in the process of renewing 2 of our 3 Saudi Arabian rig contracts for additional 2 to 3 years and expect these rigs will remain stable for the next several years.
Aramco is in the process of reactivating idle but contracted rigs, and we expect new tenders to be developed once those rigs have been reactivated in early 2022. In Kuwait, we've also extended contracts for 2 of our operating rigs and this indicates that our customer is now beginning to forward plan. The pending multi rig tender we've been talking about is expected to be released later this month. As we understand it, our customers delayed the tender waiting on the government to reopen the work visa process. Now remember that virtually all field crews in Kuwait are foreign expatriate workers and the work visas are not in the control of the National Oil Company.
Earlier this week, the visa process was reopened and this should clear the way for the rig tender to proceed. Outside the NOCs in Kuwait and Saudi Arabia, we're currently addressing Customer inquiries at the highest level in several years. Clearly, we see activity trending upwards internationally. Our well servicing group remains very busy with 40 rigs running today in Canada and 5 in North Dakota. Crewing service rigs is an acute industry challenge Our team has managed exceedingly well and we continue to meet our customers' needs.
We believe crewing will remain an important competitive advantage for Precision Well Servicing. It will also drive further upward pricing tension in the well service sector. Our focus on driving our rates back to positive EPS It's also a key objective of this business. Regarding our strategic priority for cash flow leverage and debt reduction, I believe Kerry covered those topics well. As he explained, we remain on track.
I'll reinforce that when we make these multiyear commitments focused on creating shareholder value, support those commitments by building the internal systems and aligning our people to deliver on those commitments. On that note, I want to conclude by thanking the employees of Precision. All of you out in the field operating our rigs, all of you in our support facilities and our corporate team for all doing their parts to deliver our strategic priorities Making Precision successful through us in an intensely challenging period. Thank you. I'll now turn the call back to the operator for questions.
The first question comes from the line of Ian Macpherson with Piper Sandler. Your line is now open.
Hi, Ian.
We're seeing a lot of Stubbed toe is in this cost environment and it's refreshing to hear that it feels looks from your results and feels that you have a good handle On containing the cost inflation throughout your labor and elsewhere. But where do you think The differentiation that you spoke to on your part for sourcing quality labor, can you speak to that? And what other ways maybe your business or company are unique in insulating you from these pressures that we're seeing elsewhere throughout the industry.
Yes. Well, so there's kind of pressures in 2 areas, obviously labor costs, But generally, our contracts, both in U. S. And Canada and internationally have provisions to pass those through to our customers. So we're a little bit less concerned about labor cost inflation.
But I want to come back to the recruiting question in just a moment. On the material cost inflation, most of what we experienced in the 3rd quarter is related to kind of start up costs Some remobilization costs, we're continuing to work with our partners on supply chain and we think we're able to mitigate inflation on the near term And we expect over the longer term, our price increases will strip the effects of inflation. But you did see us increase capital spending during the quarter pick up an opportunity to buy some drill pipe that goes in inventory at a very good price and kind of get out ahead of the steel price increases that are imminent. Now back on the recruiting front, it's a challenge in every market we face. It's a challenge in the U.
S. And Canada, particularly in our well servicing group. In fact, I spent a couple of days up with our recruiting team in Nisku last week, and we're working on some systems there to really amp up our recruiting efforts. It includes Everything from referral bonuses to kind of incenting our recruiting team tied to activity levels for the industry. The Precision brand is a very strong attractor for employees.
Our training systems attract employees. But I think it's our systematic approach to generating Applications, reading through the applications to find the right types of candidates and then training those candidates and getting them out to our rigs with a good training program that helps us Meet that challenge. Hope I've answered your question, Ian.
Yes. No, that's great. That's great. Thanks, Kevin. You also talked about Turning down more work recently in order to help your sales team push rates where you need them to get.
Where are we with regard to that? And is it becoming are you how many more rigs do you think in the U. S. The market needs to absorb before there's really no more turning down rate. It's more Liberated pricing power on your part as opposed to cherry picking your battles?
We are right in the middle of I commented on couple of 100 bids active in the U. S. And our bid count in Canada is probably over 100 rigs right now, also 100 different inquiries we're bidding on. I really don't want to get into too much narrative that would either upset our customers or our sales team in those discussions. What I would tell you is that our willingness So to walk away at work right now tells you that we think that there are better opportunities to price into imminently.
Got it. Well, I will pass it over for now and look forward to catching up more soon. Thanks.
Thanks, Ian.
Your next question comes from Aaron MacNeil with TD Securities. Your line is now open.
Hi, Aaron. I think I'll piggyback on Ian's question, Kerry. I think you did a good job of covering the cost pressures in the U. S. But I guess I'm wondering from your prepared remarks, was there also labor cost inflation in Q3?
And if so, How much of that, call it $700 a day was say a gross pricing increase versus net of labor And implied in your $1500,000 to $2,000 sequentially increase in margins in Q4, How much of that would be gross pricing versus lower costs or anything else that you might be able So Carso? Yes.
I can give you a few pieces of information to kind of help you on your calculations. So I would say that if we average 41 rigs in the quarter, if we're going to activate 4 rigs at some pretty chunky Expenses for each one of those rigs, not a whole lot of rigs to spread them out over and then having a rig move, you're probably talking $2,000,000 maybe $3,000,000 for those costs spread over 40 rigs. So we don't expect to have similar costs in the 4th quarter. And there may be may have been a little bit of higher R and M cost and overhead burden on The rig activity we had this year or this quarter, but as we go to next quarter, we expect that to be spread Across more activity in Q4 and again not have those lumpy costs. We didn't have any meaningful wage increases in the U.
S. Market. There were Industry wage increases in the Canadian market during the quarter. So I think those are some data points on the cost side for you to Consider. And I can't break out how much of the day rate increase was a gross or net for you.
I'm really just I'm less interested in dissecting one time costs. Just trying to parse out your implied Pricing guidance for Q4 because it would obviously be
partially Yes, so yes, you can take away that we are Planning to have day rate increases in Q4 and we expect the daily operating costs to go down in Q4, which is why the margin jump expectation is so large.
Got it. Okay. Kevin, sequential app growth seemed to be out of step with the growth in Automation and analytics. I assume it's a function of new apps that are getting spread across the fleet. But can you maybe give us a bit more on that?
And If it is a new app, can you share specifically what you rolled out this quarter that had good uptake?
It's really kind of Okay. Three components that drive that app pickup. I would tell you that we're having really good success with our managed pressure drilling app. So that's one important piece. And, but we're also seeing though are that more and more rigs are using multiple apps, not just one app as our operators get more comfortable with the value that apps create.
And then there is word-of-mouth transfer from rig to rig. So good organic new customer sort of adoption of apps, Customers adding more absolutely get more comfortable and the one app that's out there that seems pretty good right now is managed pressure drilling.
Understood. Last question for me. You mentioned COVID's impact on the commodity, but did you see that impact On day to day operations in your fleet in either Canada or the U. S. In the Q3.
Okay. You opened the door, so I'm going to jump in if that's okay.
Sure.
We actually did see kind of a surge of infections kind of with the Delta variant in August. And it was so sharp and so quick that we implemented a policy on September 1 that was a mandatory Vaccine or provision of negative test. And we are expecting some pushback in the field. There was some noise, But when the procedures went live in mid September, out of almost 4,000 employees, I think the number of employees that didn't comply is less than 4, 4 people out of 4,000. Everybody else Full compliance with either full vaccine or providing negative tests.
And since the implementation of That requirement, we haven't had a rig hour impacted by COVID-nineteen. I'm really pleased with the response of our people And the effectiveness of the program, wish everybody would do it. Got you.
All right. That's all for me. I'll turn it over. Thanks.
Thanks, Harry.
Our next question comes from Taylor Zurcher from Tudor, Pickering and Co. Your line is now open.
Hey, Taylor.
Hey, Kevin and Carey. Thanks for taking my question. I've got a bit of a high level one to start. So for 2021, the strategic three primary Strategic priorities have been digital leadership, balance sheet deleveraging and delivering leading ESG performance, all of which You've made pretty good progress on as we've progressed through the year. And I guess my question is, without Front Run-in 2022, Just curious if you could give us a sneak peek or sneak preview if there are any sort of buckets that might change on the Strategic direction for 2022, we're obviously in a much different commodity price environment as well as a much different activity environment.
It seems like improving Pricing is going to be right there at the top in terms of strategic priorities. But where we sit today, just curious if there are any sort of items that stick out to you that there
J. Rice:] Taylor, good question. We'll release those in February with our Q4 conference call. But I'll tell you, ESG is not going away anytime soon. It's going to be up there on that top priority for quite a while.
Leveraging our scale and delivering strong shareholder returns will be up there. And I think We may get to the point where the technology digital initiatives become common course business for us, but I'm not sure we're there quite yet. But I think it's a fair question. And just a reinforcement, I'm sure ESG will be there. I'm sure financial performance will be there.
Okay, fair enough. And again for 2022, if we think about pricing, you've got a number of different rig classes in Canada and then More of a uniform rate class at the high end of the market in the U. S. And just curious as we think about the next 12 months, is there one bucket where Whether it's just U. S.
Versus Canada, where you see the best chance of improving pricing, clearly pricing is going to be trending higher across both markets. But Particularly in Canada, the high end of the super triple market feels like it's fully sold out today. So you probably have a great chance of pushing pricing there. But I'm just curious if you could maybe rank for us where you're seeing the strongest tightness today and best chance of significant pricing momentum as we get into 2022?
Taylor, unless something changes from the macro that we kind of described at the beginning of my prepared comments, It's probably a rising tide across all classes. Okay. And that's
what we're seeing
right now. And that's what we're seeing so far. And that's what this macro is kind of laying out there for us.
Okay. And then last question for me on CapEx. So the 2021 budget has come up, a piece of that's maintenance, some of it's Just opportunistic spending. And again, for 2022, we can kind of build up a CapEx forecast. Starting with maintenance, you probably had some growth for Alpha and maybe some growth for Evergreen.
Any other sort of Opportunistic or growth oriented buckets that, whether it's in the back half of twenty twenty two for Q4 Excuse me, Q4 2021 or full year 2022, any sort of growth areas that screen intriguing to you today from a capital allocation perspective?
Taylor, from a North America perspective, it's going to be maintenance capital, which will be linear with activity. And then these contracted upgrades that we're doing, which are kind of be $500,000 to $2,000,000 per rig to increase pump inter racking capacity We're adding Alpha to the rig. So don't expect real big dollar amounts per rig in North America. And Internationally, it would likely be the same thing if we're reactivating rigs internationally. We're not talking about a $60,000,000 newbuild.
It will probably be Anywhere from $3,000,000 to $6,000,000 to reactivate a rig in the international market, that might be a little bit chunkier. But I would say that the CapEx plan given our activity increases or activity expectations would be Similar to the plan this year with probably an increase in dollar amount Mirroring the increase in activity.
Understood. Makes sense. Thanks for all the answers guys.
Yes. Thank you. Thank you.
Our next question comes from Makar Sayeed from ATB Capital Markets. Your line is now open.
Hello, Makar.
Yes. So first of all, congrats for rejecting A job rather than taking a lower rate. I hope all other management teams take similar kind of steps. This is Certainly needed in the industry and thank you for taking the leadership in that respect. My question is, Kerry, in terms of international reactivation, you mentioned the cost that would go in To the CapEx bucket, would there be any cost on the OpEx side as well as you reactivate some rigs?
It would be a lot smaller than the CapEx side, where it would be $100,000,000 OpEx per rig reactivation. And what we're talking about is the 3 idle rigs in Kuwait as we reactivate those And then potentially moving some rigs from North America for opportunities where they'll need some modifications, but it would be Yes, well less than $10,000,000 per rig.
Okay. Secondly, Kevin, you mentioned that there were about 200 or so bits Out there in the U. S. Market, could you give us a split between Like privates and publics amongst those bids?
Look, the weighting has shifted kind of back to more traditional. Yes, I think we're seeing kind of majority would be public, but still a large percentage of Private equity, I don't have the numbers in front of me, but think about it like it's sixty-forty.
Okay, great. And then you have 45 rigs currently working.
What I cost you on that number, the 200, don't take that. We're not projecting that as 200 rig adds. We are in budgeting season, price discovery season. There's a lot of moving pieces, but it certainly is easily an order of magnitude higher than a year ago, the interest in inquiries.
Okay, great. And then you're currently running 45 rigs in the U. S. You still expect to exit the year around 50? Or is that number changed now given some of your Recent actions?
It seems like every time I projected a rig count going forward, I come up short the last couple of calls. I'm a little nervous about saying anything about rig count going forward. Certainly, we have really good line of sight and would It appear to be pretty solid opportunities to get rigs deployed by the end of the year and get through that 50% threshold. And as soon as I leave this meeting, something might change. But it looks quite promising.
Okay. Good.
All of it has been cracked the previous couple of quarters.
That's okay. That's okay. So then just final question on the well abandonment program. When do you expect that to be exhausted and when your well servicing revenues may Come in the Canadian market?
Yes. That's a really good question, Wachar. So first of all, the well servicing program, it's actually scheduled to end funding at the end of next year, But they'll only have used up a fraction of the available funds because it's been quite slow and kind of I wouldn't say bureaucratic, but it's kind of complicated in how they've been distributing the funds Alberto B. C. And Saskatchewan.
I think there's a going to be a good push to extend it. So it could be extended, But there's been no indication yet. I think that'll be mid to late 2022 government decision if it goes that way. So I think we commented that 15% of our activity has been tied to that work. There is enough, I'd say, traditional demand That I think it could replace that work and not see the work pull back in.
We went through about a 5 year period from 2014 through 2020 before the pandemic and before this program, where the first thing they got cut by the operating companies as they moved into discipline was Reducing and eliminating well service work and really focusing on the drill bit. But now in this period of real capital efficiency, It actually makes good sense to work over a lot of wells. So I think there's a lot of core demand both in heavy oil and conventional oil, gas For core well service work, core abandonment work that will continue When that program finally runs out.
Okay, great. And if I may just sneak in one more question. Kerry mentioned that there may be some rig mops out of the U. S. Into the international markets.
Would those be for super spec rigs or more traditional SCR type rigs? And would it be To the same kind of markets where you already have presence? Or are you looking to enter into new markets as well?
So I'll be a bit vague with my answer, but I think it'll still answer your question. So we're looking in the Arabian Gulf region, the bordering Gulf, including Kuwait and Saudi Arabia. There is a high interest in pad style drilling. So the AAC Super Triple rig, I think will have attractiveness. We saw one of our other competitors actually do a deal with The Abu Dhabi National Drilling Company a couple of months back.
So I think that all points to kind of a growing opportunity for pad drilling. And we also see opportunities right now for some heavy oil drilling with shallower rigs. So it's again, what we see in international markets are that they tend to be a bit slower, but then they react in an Industrialized manner to both technology and opportunities that North America uncovers. So I think pad drilling will grow in the Middle East. I do think that Even heavy oil drilling will have a future in the Middle East.
And there's things that several North American drillers will bring To play there, certainly precision with our super singles and our super pad super triples. We have very interesting opportunities, both in the places we work and adjacent countries.
Great. Thank you very much.
Great. Thank you.
Our next question comes from Keith Mckee with RBC. Your line is now open.
Hi, Keith.
So just wanted to start out, in Canada, we've heard anecdotal evidence of Labor restrictions keeping, say, rigs from going back into the field through kind of Q3 timeframe. So Just curious what gives you the confidence and I guess how confident are you that the industry can reach that 250 to 300 Rig count level in Q1.
Well, you may notice that my comments were demand, Not necessarily activity. So I commented for sure we see that level of demand. Whether or not the industry can actually staff those rigs, I think is a challenge. The industry has a good history of staffing rigs and getting rigs fired up. Generally, in every previous rebound that has been this sharp or even sharper, the drillers have been successful staffing rigs.
But boy, I'll tell you, it's a big challenge right now.
Yes, got it. Is it challenging in any particular areas, Singles versus triples or is it across the board?
Well, for sure, well servicing, which is call out style business where the job isn't as secure As a rig job that would likely be for months on end with a defined rotation. So I'd say drilling is a bit easier than well servicing. Certainly, through the summer, Both in every market, simply every market we participate, every geographic market we participate in, there seem to be reluctance for people to go back to work. We saw that improve Maybe those young men were recruiting wanted to take the summer off, we're not sure, but certainly recruiting improved in September. And we really doubled down our recruiting process starting September.
So it's actually working well for us now. I think that so going back to that original question, if demand is 300 rigs as a peak and that means Precision has to staff up 75, 80, 80 5, 90 rigs. I think that we'll be able to get there.
Got it. Okay. No, that's very helpful. Just shifting gears to your comment about seeking to get data rates so that you can get back to Positive EPS levels and things like that. Can you maybe just comment on relative to 2019 levels, What's activity levels in general and day rates in general would be required to hit that target?
Yes. I actually don't have those numbers at my fingertips here, but it's going to
be Yes.
I think we're going to cover Our depreciation, interest and taxes, so depreciation, dollars 2.80 interest, call it $80,000,000 tax rate would be relatively low. But We need to get to an EBITDA level that's getting close to $400,000,000 which is where we were in both 2018 2019. And we think that the mix of activity could be a little bit lower than it was then. Number 1, we've got a lower fixed cost base than we did back in 2018 2019. And number 2, we have a rapidly growing but maturing technology business that we did not have in 2018 and That's helping drive pricing and EBITDA.
Perfect. Appreciate the answers. Thanks very much.
Our next question comes from Joseph Schachter from Satra Energy. Please go ahead.
Thanks, Kevin and Carrie for taking my question. With your discussions with customers, are you finding They're wanting to lock in the equipment they're comfortable with, the crews they're comfortable with, the technologies they're using Longer than into the end of 2022 pushing into 2023? And is there a difference in the customer discussions between Canada and the States On longevity of contracts, given the desire to have the rigs and the crews, that they've worked with regularly for a while.
Joseph, good question and it's a bit complicated. But I would tell you that the Human behavior in both markets is relatively similar. Corporate behavior is relatively similar. And so one answer kind of applies to both markets. I would tell you that for most operators, they will have some base level of activity that they're highly certain they're going to be running even though their budgets haven't been approved.
So for those rigs, yes, absolutely, we're seeing customers trying to lock in rigs and crews for full year 2022 And sometimes even a little bit beyond that. Certainly, they're trying to capture, call it, 2020 rates They can or even early 2021 rates have locked them in for a longer period of time. So a little opportunistic on their front. But then also there's a larger component of rigs that probably haven't been approved yet, but are in their sites and budget and that's where they're being either running those rigs on a well to well basis right now Or on shorter term contracts. So it's a bit of a mix.
But I would say that the behavior we've seen so far has been a bit more opportunistic, a little less strategic, if that Makes sense to you.
Okay. Yes. And do you see much contracting pushing into 23 yet, anything material in terms of the book of business?
We're not anxious to project current rates that far out. So we're not digging those up and pushing for them. There would be the odd opportunity where a customer comes forward and says, we always like to book it for 2 years, but there's no real trend yet And no momentum in that direction. And I wouldn't read that as any certainty or uncertainty in the market right now. I still think that the market is firming up its base.
Spending is going to increase to some degree, activity And the best rigs are yet contracted. I expect that as our book builds for 2022, there'll be a mix of 1 year contracts and probably a growing mix of 2 year contracts the deeper we get into this recovery.
Super. Last question for Carey. In the quarter that you just released under your adjusted EBITDA, corporate was $15,455,000 versus 7.8%. And then you look at the 1st 9 months, it was up by 49%. The quarter was up by 99%.
Can you walk me through what happened in the quarter, that, that number was such a big difference?
So
The big variable on our corporate expenses is share based compensation accrual. So our 3 year long term share based plans We mark to market based on the share price at the end of the quarter and then based on the time vesting of each plant participant. So we had a we continue to have really strong share price performance this year. So the value of the plant has increased and so we just took an accrual during the quarter. I would say on SG and A broadly, at the very beginning of the year, we gave guidance that our G and A before share based comp Accrual would be $55,000,000 for the year and we've tracked that every quarter and are still providing that guidance Even though we've had a significant increase in activity throughout the year.
So it's really been a big focus of the management team to try to keep the cost structure As soon as we can as we're going into this recovery.
Super. Okay. Thanks for that more clarification. Thanks very much guys.
Thank you. Thank you.
Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Cary Ford for any closing remarks.
Thank you. That concludes our conference call. Appreciate you joining us today, and we look forward to meeting with you all again for our Q4 conference call in February.
This concludes today's conference call. Thank you for participating. You may now disconnect.