Thank you for standing by. This is the conference operator. Welcome to the Trican Well Service third quarter results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Brad Fedora, President and Chief Executive Officer. Please go ahead.
Thank you very much. Good morning, ladies and gentlemen. I'd like to thank you for attending the Trican conference call. With me today is Scott Matson, our CFO; and Todd Thue, our COO. I'd like to please refer you to our website, www.tricanwellservice.com. On that website, you will find the disclaimer that we'd like you to read in conjunction with this call.
First, Scott Matson, our Chief Financial Officer, will give an overview of the quarterly results. I will then address issues pertaining to current operating conditions and near-term outlook. We'll then open the call for questions, and the three of us will be available here to answer any questions that anybody may have. I'd now like to turn the call over to Scott.
Thanks, Brad. Again, just before we begin, I'll point out this conference call may contain some forward-looking statements and other information based on current expectations or results for the company. Certain material factors or assumptions that were applied in drawing conclusions or making projections are reflected in the forward-looking information section of our Q3 2021 MD&A. A number of business risks and uncertainties could cause actual results to differ materially from these forward-looking statements and our financial outlook.
Some of these risks and uncertainties may be further amplified due to the ongoing effects of the COVID-19 pandemic. Please refer to our 2021 annual information form and the business risks section of our MD&A for the quarter ended September 30, 2021 for a more complete description of the business risks and uncertainties facing Trican.
During this call, we'll also refer to several common industry terms and use certain non-GAAP measures, which are more fully described in our quarterly MD&A. As Brad noted, our quarterly results were released after the market closed yesterday and are available both on SEDAR and our website.
With that, we'll talk a little bit about the quarter. Most of my comments will draw comparisons to the third quarter of last year, and I'll also provide a bit of commentary with respect to our results on a sequential basis as compared to Q2 of 2021. The quarter started off strong with positive momentum continuing out of a very solid Q2, with a generally positive Q3, with continued strong commodity prices driving improved activity levels across all of our service offerings.
Revenue for the quarter was CAD 164.5 million, a step change up sequentially from Q2 levels as we moved out of breakup and into the back half of the year, and up more than double compared to the CAD 74.1 million we saw in Q3 of last year. WTI averaged just over $70 per barrel during the quarter, up sequentially from an average of about $66 a barrel through Q2, and up significantly from an average of around $40 a barrel in Q3 of 2020. AECO gas pricing averaged about CAD 3.39 per Mcf for the quarter, which was also up sequentially from Q2 levels and quite a bit stronger than the CAD 2.14 per Mcf we saw this period last year.
Continued strength in commodity prices resulted in an average Western Canadian rig count of approximately 160 during the quarter, up compared both to Q2 of this year and to the same period of last year. The rig count through October has continued to climb a bit, and we do expect it to continue to pace higher as we move through the remainder of this year and into what looks like a very strong winter drilling season. These factors led to higher activity levels across most of our service lines compared to the same period of last year, and as compared to Q2 of this year.
Continued stronger activity, ongoing improvements in the efficiency of our operations, and continued focus on profitability, including the structural fixed cost improvements we've implemented over the last 12 to 18 months, have led to significant improvements in all key financial categories as compared to Q3 of last year.
Fracturing operations were up sequentially from Q2 of 2021 and significantly busier as compared to the same period of last year. Proppant pumped was up 84% as compared to Q2 of 2021, and nearly triple as compared to last year's Q3. We maintained six fracturing crews throughout the quarter, with utilization increasing to 85% for Q3 of 2021, compared to 42% in Q2 of 2021, as we came out of breakup and into a period of much higher activity.
Operations continue to be heavily focused on pad-based locations, which helps minimize both downtime and travel time between jobs and improves our overall efficiencies. Fracturing margins remained healthy through the quarter and were a significant factor in the strong financial performance of the company for the third quarter.
Our cementing division also had a good third quarter, strong activity driven by the overall increase in rig count, with activity skewed towards larger jobs resulting from primary work in the Montney and Deep Basin areas. Coiled tubing activity was down a bit sequentially, but utilization was backstopped by a number of core customers. As expected, with continued increasing activity levels, we are seeing inflationary pressures on all sides. Costs for our key inputs such as fuel, cement, chemical, and sand have all seen increases in the past few months, and the pressure is constant.
Our supply chain group has done a great job in getting ahead of these and managing these trends, but they continue to come at us on a daily basis. Our focus remains on controlling costs and passing along these increases as much as possible to help preserve our margins. Adjusted EBITDA came in at CAD 31.2 million, a significant improvement over Q3 of 2020, and just over double our EBITDA from Q2 of 2021.
It's important to note that our adjusted EBITDA calculation does not add back cash settled stock comp expense, which was CAD 1.1 million for the quarter. This expense fluctuates along with the movement in the company's share price, which saw an appreciation of just under 11% over the term of the quarter.
It also includes expenditures related to fluid end replacements, which totaled CAD 2.3 million during the quarter and were expensed in the period. Also of note, this quarter contained virtually no contributions from the Canada Emergency Wage and Rent Subsidy programs as compared to the prior two quarters, which saw significant contributions from those programs.
On a consolidated basis, we generated profit from continuing operations of just over CAD 9 million in the quarter or CAD 0.04 a share, and we're very pleased to show positive earnings on a year-to-date basis. We generated cash flows from operations of about CAD 8.8 million for the quarter following strong operational performance, but did see an expected increase in working capital through the quarter as our activity levels increased. Capital expenditures amounted to CAD 10.6 million, which were split between our capitalized maintenance and our ongoing capital projects.
The company's full year 2021 capital budget remains at CAD 58 million, with approximately CAD 20 million of that allocated to maintenance and infrastructure capital requirements and CAD 38 million allocated to growth capital. The growth capital amount is primarily related to our previously announced program to upgrade conventionally powered diesel pumpers with Cat Tier 4 dynamic gas blending engines.
These engines can displace up to 85% of the diesel fuel required with cleaner-burning natural gas, thereby reducing carbon dioxide and particulate matter emissions. These upgrades are a key part of Trican's overall ESG strategy and are a prime way of supporting our customers in meeting their individual ESG goals as well. We exited the quarter with CAD 37.6 million in cash and cash equivalents on hand, positive non-cash working capital of CAD 66.5 million, and no drawn bank debt.
Finally, with respect to our normal course issuer bid program, we were quite active in the market during the third quarter, repurchased and canceled just over seven million shares at an average price of about CAD 2.60 a share. We continue to view share repurchases as a good long-term investment opportunity for a portion of our capital in the context of returning capital to our shareholders. With that, I'll turn things back over to Brad, who will walk us through his views on operating conditions and a bit of our strategic outlook.
Okay, thanks, Scott. I'm gonna make some general commentary, and I'll try to keep my comments as short as possible, but give you a bit of a flavor of the marketplace that we're working in today. Q3 was a really strong quarter, you know, in the context of what's happening out there. We started very strong in July, and we were very active with our core group of customers. You know, we were on large pads that enabled us to work efficiently through most of the quarter.
The quarter began with about 140 rigs running, and we averaged just under 160 rigs for the quarter, peaked at about 172 at the end of September, and we're currently back down to about 165 rigs, and we seem to be sort of maintaining that level now for the last month or so. Just in general, when you think about the rig count and frack demand, I mean, generally what you wanna do is deduct the heavy oil rigs from the rig count and then divide the remaining number by about five. There's, you know, roughly five conventional rigs per frack crew. That gets us to about 26, 27 crews today, which is in fact what we have. The market's generally quite balanced.
We maintain really good market share in our cementing group, roughly 30%,35% to 40% of the market. Our cementing is very much focused in the Deep Basin and the Montney in both BC and Alberta. COVID did have an impact on the quarter. Even though it was a good quarter, we actually had expected it to be better. You know, we had rigs down in the second half of the quarter. You know, starting in sort of late August and throughout September, there was definitely reduced activity levels just due to the sort of the COVID case, you know, the case spike that Alberta experienced that took rigs down, and of course, that means there's less demand for frac crews.
We did have our own COVID issues in the field that made some of our operations slightly less efficient, although you know, we do have enough staff that you know, we can respond very quickly to any issues that we may encounter, and the delays in our operations are extremely short-lived. Even the delay to the office by the office staff in Calgary, you know, we did think actually impacted the quarter. Throughout the quarter, we pumped about 400,000 tons of sand. 277,000 of those were internally sourced, meaning that the customer supplied the rest. You know, in general, that's not really a negative, but it certainly isn't a positive trend.
You know, we do typically charge corkage for customer-supplied sand, but you know, we do wanna keep an eye on that, and we wanna make sure that we don't reduce our opportunities to make a profit. We generally try to gravitate toward customers that allow us to provide sand and chemicals. About 60% of the proppant that was pumped in Canada was Ottawa White versus the domestic source sand. Ottawa White almost invariably comes from the U.S.
We continue to see increases in the ton of sand pumped per well, you know, as customers remain focused on these resource plays and placing more sand on a per meter basis to get as much gas flow as possible. We get asked a lot, you know, what inning are we in with respect to, you know, sand tonnage per well? The answer is, we really don't know, but, you know, we do think we're sort of in the seventh, eighth, or ninth inning of how much sand goes into a well.
What we're seeing now is there's, you know, still everybody's still gravitating towards the standard, you know, tried and true methods, but there is a little bit of experimentation with respect to less or more sand on a per well basis, or just even the spacing. It's always very difficult to tell you what inning we're in with respect, but in general, it's a positive trend and, you know, generally means more revenue per well for us. Our areas of focus have not changed.
We're very focused in the B.C. and Alberta Montney and the Deep Basin. We are active throughout the basin, but you know, certainly 80%+ of our revenues would come from the Deep Basin and the Montney play in general. Even though commodity prices or gas prices have really spiked, you know, obviously, so has oil, and so activity has picked up in all areas of the basin.
We remain focused with the Montney and the Deep Basin. From a crew perspective, nothing's changed. We ran with six frac crews throughout the quarter, about 17 cement crews and about six coil crews and in fact, we still sit there today. On the pricing side, we've been really vocal about the need for price increases since early spring.
I think it was year-end 2020 and after Q1 of 2021, I was quite vocal about the need for price increases. Generally, I would regrettably say achieving those price increases were much harder than we expected. We just did not get any support from our competitors. We're still, even to this day, seeing some stink bids that would absolutely shock you in the context of what's happening.
E&P cash flows are at record highs, so our strategy hasn't changed with respect to moving prices up. We're just trying to run a sustainable business. I think actually the customers appreciate the need for a price increase more than our competitors do, 'cause they know we're not gouging them.
We're just trying to run a sustainable business. You know, definitely prices need to go higher. You know, fortunately, we didn't necessarily get the price increases we were looking for, but we did get them. We did offset more than inflation. You know, the customers were very receptive to us passing on any inflationary cost increases that we were experiencing. You know, late in the quarter, we did talk about price increases again, and we have had price increases recently in all of our service lines, particularly fracturing and cement. As you know, we're basically operating at full capacity as an industry. We expect inflationary costs to continue.
That's certainly not going away, and we'll stay diligent on sort of informing our customers about those costs and making sure that we can recover those costs to avoid any kind of margin erosion. On the cost side, you know, I'm happy to report that we've kept our G&A and our fixed costs constant, even reduced them in certain areas. As the activity and the revenues have gone up, you know, we're diligent about making sure we keep our costs down. We've implemented lots of initiatives throughout the company over the last few years, and we're continuously looking for new ways to manage our company more efficiently.
What this means is, as obviously as costs stay constant, as revenue is going up, you know, that ratio gets better and that's what operating leverage is, and that's the great thing about the pressure pumping business. In an upcycle, it's fairly exciting and there's lots of operating leverage. You know, because we kept our costs constant in an increasing market, we did have good EBITDA and free cash flow in the quarter. I wanna try to focus the conversation around free cash flow, just given the age of the fleet, whether it's in Canada, the U.S., doesn't matter.
Just given the age of the fleet, I mean, the maintenance, whether it's expensed or capitalized or doesn't matter how you treat G&A, whether it's on the income statement or it's in the divisions. You know, I wanna make sure that, you know, we talk less about EBITDA and more about free cash flow, because of course, that's all that matters. Free cash flow sort of catches everything. I think we need to sort of get away from focusing on EBITDA and talk more about free cash flow just to account for all the differences in how people treat maintenance and G&A.
Now on the supply chain and on the supply chain side, I mean, it's certainly an area of concern. You know, it's been a major issue in managing our business throughout these higher activity levels. We've done a very, you know, our group, you know, I'd like to thank our group continuously because they've done a fantastic job of managing our supply chain and making sure that we have products on a timely basis at good prices.
You know, the entire supply chain industry-wide, whether it's, you know, parts, chemicals, sand, doesn't matter, it's all starting to feel stress. As we know, you know, they're better at passing on price increases than we are. You know, we're actively working with our suppliers to ensure that, you know, we not only have good prices and we have long-term relationships, making sure we actually have the products when they're needed.
As expected, we had inflation across the entire supply chain in the last sort of six months, especially. Although, I have to say the inflation was less than we expected. You know, things like diesel obviously floats with oil price, but third-party trucking and logistics, the demand for those goods and services are much higher than the supply. You know, on the sand side, tier one sand suppliers out of the U.S. are basically operating at capacity because it's not just what the mine can produce, but it's how much of that sand can you put in a rail car. You know, there's only so many rail cars available, so many rail lines operating in Canada. That system feels fairly stressed.
You know, the increased sand volumes that we're pumping is putting a strain on our logistics. You know, we've now had to focus on making sure that we have access to transload facilities, particularly in Northeast B.C. Again, you know, our supply chain group has done a fantastic job at making sure that this has been generally seamless through what has been a very sort of stressed inflationary environment.
On the chemical side, you know, we've all seen what's happened to shipping costs and container availability. You know, a lot of the core chemicals that make up the fluids or the fluid systems that we sell, they do come from China and U.S. We've anticipated the delays that we have actually been experiencing.
We're always looking for substitutions and working with our suppliers to make sure that, you know, we have the supply that we need at a reasonable price. I think we've done a really good job of that. On the cement side, we experienced lots of cementing product issues, but the summer construction season's over now, so, you know, we should be good for the winter.
You know, even things like hotel costs just, you know, due to COVID with the labor shortages that we're experiencing in, you know, in the hospitality sector. You know, Everything's been affected, and it just all that happens is you know, you have to make sure you're doing a much better job at managing that, and the companies that manage it well, will be rewarded.
The outlook for the rest of the year and into 2022, I mean, we have fairly good visibility, I would say, until breakup. Our schedule is very busy until breakup. You know, E&P cash flows are at all-time highs almost. You know, their wells that they're drilling are paying off in a matter of months, you know, not a matter of years. That's a good thing. You know, we certainly need our customers to make money so that the industry can be healthy. You know, as a result, we've had a really good start to Q4. October is very busy. You know, we should be busy right up until Christmas.
You know, December is always a bit of a. You know, it's unpredictable, you know, just because you have winter weather and it's hard to know when the season will shut down around Christmas. You know, the indications we're getting from customers is that, you know, we're gonna start up immediately after Christmas, and by the time Q1 starts, we should be running almost full blast. You know, we're looking forward to a good Q4 and a really good Q1.
You know, the basin in our service remains very focused on sort of gas plays. You know, both obviously gas prices and condensate prices are extremely high, and so we're seeing lots of activity there. You know, even the oil plays at these levels are very attractive. You know, the whole basin is busy, and it's really stressing the system, which, you know, generally is a good thing. You know, the rig count has stayed steady. We think it'll stay steady for the rest of the quarter, and it'll obviously slow down for Christmas, but we expect that it's gonna immediately pick up.
You know, regardless of what you're hearing, you know, we do expect that 2022 will be a busier year than 2021. I mean, how much is very customer dependent. Certainly our customers are signaling to us to expect busier activity levels. You know, that's a great thing. I was saying, you know, we're basically off. There's 27 frac crews in the basin, and all of those are being used today.
Any increases in activity levels, which we're expecting, starting in early Q1, will require, you know, more frac crews on the road. You know, that's gonna stress the system. That'll drive prices higher, you know, no matter what. You know, our customers are obviously very, very focused on returning capital to shareholders, but certainly at these commodity price levels, they are going to be busier for next year, and that's gonna be good for both activity and for pricing.
You know, because of all of that, we are expecting a price increase in early Q1, both just to offset inflation and to return our business to some sort of reasonable, sustainable level so that, you know, we're able to actually generate earnings and reinvest in our equipment. As you know, as I've discussed before, the frac fleet in Canada is old. You know, the most recent frac fleet delivered to Canada was the spring of 2016, and so the equipment has been used hard. Pumping times are long. You know, it wasn't that long ago when pumping times were sort of 14, 15 hours a day, and now they're almost expected to be 22, 23 hours a day.
The equipment's been used hard, which means it's going to need a lot of capital reinvestment to keep the equipment that's running today continuing to run. If we wanna pull equipment off the fence, it's gonna take time and money to make that equipment useful in the field. Because of all of this, we are expecting a price increase in Q1, and certainly we'll be, at the very least, passing on any inflationary costs that we get.
From a crew size perspective, like I say, we've kept our crews pretty constant, and we will keep them constant for the remaining of the year at six frac crews in particular. We're always monitoring this, but, you know, I'm gonna use this opportunity to talk about the people issues that we're experiencing. The people will be the biggest bottleneck for crew activations for the next year, minimum. It is different this time. You know, you've never seen this kind of market where the number of people wanting to work in the oil patch and the demand for those people, you know, they've completely separated.
Certainly we expect this to loosen up when, you know, some of these government programs are shut down and just the travel restrictions are loosened with respect to COVID. But there's literally every company in the oil field services space is looking to add people. At the same time, you know, so are the Safeways and Walmarts and hotels and restaurants. You know, we really need the government to shut these subsidies down to get people back to work because the oil patch pays very well. Once we get people wanting to go back to work, you know, we can start recruiting across the country and we will attract people back to this industry, but it'll be tough.
We expect that this is probably a permanent change in the way we do our business. You know, now we don't take for granted that we can just hire people when we need them. You know, what we found, we've been actively trying to hire now since Q2, and it's been a lot harder than we expected. You know, we've been fortunate. We have hired. You know, we're up over 130 people on a net basis, but we still have more to go. You know, as I'm gonna talk about in a bit, in order to bring more equipment into the field, you know, we do need more people, and that is a challenge. What that means is when you're planning sort of equipment reactivations, you know, it.
Whether it's parts or people, you know, that cycle of bringing equipment off the fence is certainly going to be longer this time than it has in the past. You know, it'll be measured in terms of months, but not weeks, by all means. It's probably a good point for me to talk about, you know, the basin in general when we talk about increasing activity levels. You know, the market is sort of perfectly balanced from a supply and demand perspective today, and we expect that balance to get out of whack here in 2022. You know, there's about 1.8 million horsepower operating in or available in Canada. We're operating about 1.2 million.
It's I wanna stress that out of the 600,000 extra horsepower or idle capacity that exists today, Trican owns about half of it. You know, when we think about upside in the fracturing or the pressure pumping space, you know, basically half of that upside is gonna come to our company from just purely from an equipment perspective. You know, we're really excited about 2022 and 2023. We think we're extremely well-positioned to capitalize on any incremental growth and activity in this basin. On the technology and ESG side, you know, we're always looking at technology advances within our industry, you know, particularly the digitization of data and that data collections that we can use to be more efficient in how we operate our assets.
You know, we'll be focused on this over the next few years, you know, particularly in the AI space, to reduce our maintenance costs. You know, maintenance is one of our biggest costs. It's, you know, between capitalized and expensed maintenance, it's quite substantial. So anything we can do in that space to reduce those costs or even just reduce the downtime is extremely helpful. We'll be very focused on the digitization of data in the next few years. You know, we very recently released our inaugural 2020 sustainability report. You know, that report can be found on our website. It's been very well-received. It's a start, and it's certainly not where we're ending up with.
You know, we just hired a permanent ESG person to really herd the cats within our company and take on strategic initiatives in the ESG space. In general, you know, our industry has done a very good job of ESG over the years. We, you know, we need to use this sort of investor and public demand for more focus on the ESG as a platform to showcase all the things that we've done and to sort of, you know, publish and/or measure and publish what we've done and get those out into the public because, you know, we really have sold ourselves short as an industry in the ESG space over the last five or 10 years.
You know, I think this sort of focus on ESG is a good thing, not just for us, but for our industry. You know, we're really. I think we're taking the lead on that, and we're allocating resources internally to make sure that, you know, we get this right and hopefully it becomes a competitive advantage for us. You know, we have a very, obviously very healthy balance sheet, no debt. We have a cash balance, and so we have the flexibility to look at anything. Whether it's, you know, ESG, technology, et cetera, you know, we're in a very fortunate position to be able to look at anything. If it makes sense from a returns perspective, you know, we'll pull the trigger and make those investments. You know, our customers are very interested in new technologies.
In general, I would say they understand that some of that technology needs to come with a price premium. So, you know, we've had great conversations with our customers over the last six to nine months, and we'll continue to do so. You know, we've done a great job on the environment side with reducing emissions, particularly with the new Tier 4 pumps, you know, idle reduction technology and just even our fluid systems to reduce the amount of fresh water that we use. But we've also done a good job on the governance side. Deidre, the woman that we've hired, you know, she's gonna make sure that we up our game on the social side, so the S component of the ESG.
We're gonna make that part of the company's culture going forward and that hopefully will distinguish us in the marketplace. Just I'm gonna make some comments. I'm not gonna talk about the CapEx in detail. You know, we're happy to take questions on that, but I am gonna talk about the Tier 4 engine upgrades that we've been doing. We will be activating the first Tier 4 fracturing fleet in Canada, and that will be coming this November. The pumps are now going into the field as we speak. You know, we're extremely excited about this and proud to be the first company to roll out a low emissions fleet in Canada. We expect that this will be the standard in the next few years. We have had some delays in manufacturing, but nothing significant.
An actual fully functioning spread with, you know, 100% DGB engines on it, we should have in the field operating by November. Of course, that fleet is going termly. We've previously said that that will be our seventh frac crew. Actually, we have changed our mind on that. We are gonna stay at six frac crews. We just don't have the people to put a seventh frac crew on the road right now. This new Tier 4 gas engine frac pumps will displace the old Tier 2 diesel equipment that we've been using. We are expecting that we're gonna get our staff in place to call this a seventh spread for sort of January 1. You know, certainly we seem to be on schedule for that.
We haven't had any cost overruns. Initial reports from the field on the few pumps that are out there already have been really good. We've been getting great gas substitution, which of course, is the idea behind this technology. You know, we get up to 85% diesel displacement, which is a big cost savings for the customer. Just as importantly, it's helping reducing emissions from diesel and from methane slip.
We're very happy with how the equipment has performed to date. It is important to note that this equipment is priced at a premium. You know, I wanna make sure that our shareholders understand that, you know, of course, we're not investing CAD 20+ million to upgrade equipment and not expecting a return on that investment.
The customers have been receptive to that. They understand that, you know, the cost savings that they're experiencing from a fuel perspective is a positive thing and the emission reduction is a positive thing, and that, you know, we need to share in that as well. We've had lots of great conversations, particularly with Tourmaline on getting this equipment to work.
But you know, we are charging a premium price for this equipment. Manufacturing on the second Tier 4 DGB spread has already started, and it will continue to unfold over Q4 and Q1. We will have our second Tier 4 natural gas fleet available probably early Q2 of next year at the latest. You know, we expect, as I said, this technology will become a standard in the next few years.
On the M&A side, just very quickly, you know, we remain focused on getting our existing equipment that we own into the field. That's by far the most profitable thing that we can do. You know, our company is set up to operate a much larger fleet. Anytime we bring a fleet off the fence and put it into the field, you know, all of that field margin or that contribution margin goes straight to our bottom line. By far, that is our best investments, you know. When we were buying shares back at book or even sub book or slightly above book, that obviously was a very attractive investment as well. On the M&A side, you know, we're always open for the right transactions, and we're always looking.
Our focus is differentiating ourselves from an equipment perspective and in getting our idle equipment to work. You know, we're always available to the right deal, but you know, we're trying to do what makes the most financial sense for our investors. I think I'll stop the call there, and I'll hand the call over to the operator. Thanks for listening, and we'll take questions from here.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Our first question comes from Andrew Bradford of Raymond James. Please go ahead.
Thank you. Good morning, guys. Brad, I want to thank you for the comprehensive overview. That was really good update. A couple questions here. I want to start maybe with the Tier 4 equipment. As I understand what you just said, that you changed your mind, you're not expanding this to a seventh crew, but that is what your plan is, starting in January. As it comes out in the field, it's simply displacing equipment that was already there. Is that what I'm understanding you to say?
Yeah, correct.
So-
It's not.
So then-
We didn't change our mind. We just underestimated the difficulty in getting people, and so we couldn't staff the seventh crew today.
Right. You anticipate that you will be staffing a seventh crew in the first quarter. Is that what I understood?
Yeah. We're at least sort of halfway there already. You know, it's good. It allows us to, you know. We haven't had any issues with COVID or holidays or, you know, the hunting season. You know, we're able to operate sort of uninterrupted, because we do have some extra people, and so we're about halfway done on our seventh crew. We're feeling confident that we should be good to go by January 1.
Okay, just on that labor issue. You know, as you described some COVID-related issues late in the third quarter, and I guess maybe even beginning early in the fourth, maybe could you describe what kind of protocols you put in to sort of mitigate this impact on yourselves going forward? Then, like, as you do that, maybe describe what kind of impact that's having on your labor shortage issue.
Because, you know, even if we look just at the healthcare industry, you know, you might expect that that would be a fairly easy slam dunk in terms of implementing vaccination protocols. But still, we're hearing that, you know, people are being dismissed from their jobs and stuff. I wonder if what you're seeing in the oil patch now.
Yeah, like, starting October 15th, so roughly a month ago, we put in a new policy, you know, just in response to things were somewhat getting out of hand from a COVID positive case perspective in Alberta. You know, we were seeing it impacting our field operations. Luckily, you know, we were able to get through it, no problem. I think we, you know, we took the lead in the pressure pumping space, and about a month ago, we said that effective October 15th, you either have to be fully vaccinated, like two vaccinations, we don't care which ones they are, we have to be fully vaccinated, or you have to provide a test before you show up for your shift if you work in the field, on your own dime, and you have to take the test on your own time.
If you work in the office, you know, you have to provide a test result of every Wednesday or something like that. I mean, the point of this was there's lots of testing happening on customer locations, but we were having the issue of, you know, people were showing up, getting on a crew van, and by the time they got to the customer location, we found out, well, some of them are testing positive, but now it's too late. They've been in a crew van with 20 people or so, right? We wanna make sure that before you even show up to our base, you're COVID free. That will allow us to plan and deal with logistics way better.
We had lots of, you know, lots of griping about it, but I can tell you it didn't last long. Many people in the organization, you know, actually sent us notes saying, you know, "Thanks," right? Like, everybody has their issues, whether it's, you know, grandparents or children that, you know, they feel are exposed. They don't wanna go to work and get COVID, right?
They were happy with us for sort of you know, lower the hammer on making sure that, you know, we do whatever we can to make sure that when you come to work, one of your safety concerns is not getting COVID from one of your coworkers. We didn't have any problems with it at all. We have literally only lost one person that is refusing testing and refusing vaccines. We have 950 people, so we will be just fine.
Yeah. Okay. That's good to hear. Thank you. From your discussion, you said that your clients, your customers are telling you that, you know, to expect more demand. You spoke a bit about reactivating spreads and of the spreads that are available to be reactivated, you know, half of them belong to you, and that this will all require some costs. I think it'd be helpful if you could just sort of maybe describe that a bit more. You know, you are going to have a seventh spread working in the first quarter, and it sounds like you're going to have an eighth much larger spread by the second quarter.
Does that sort of fulfill the incremental demand that you're imagining or that your customers are talking about? Or do you think that there's gonna be further reactivations beyond that?
Yeah, the demand, like, if you think about 200 drilling rigs, you know, you take out the heavy oil rigs, and there's roughly five rigs per frack crew. Like, we need 35-ish crews. We're not gonna get there as an industry. We have 26, 27 today, and as we're finding, we couldn't even add one. You know, like, we never experienced this in the past, right? Like, we're struggling to add one. It's gonna take six months to add a seventh crew to our fleet. So there's no way we're gonna get there, and that's a good thing, maybe. You know, to finally get this price up off the floor from COVID levels and, you know, have real businesses. So, you know, we're not at all concerned about the fact that we're adding two crews.
You know, our stress comes from making sure we can get the people to add two crews. You know, we're fortunate that we can afford all the investments that are required. As an industry, you know, there is significant capital investment to reactivate equipment and significant efforts to get the people to run that equipment. It's gonna be very, very difficult to get to 35 crews for next year if we're gonna-
Oh, okay. I wonder if you could then maybe reconcile for me. This is my understanding as well, but I wonder if you could reconcile that with the idea that you are seeing your existing customers stink bid by competitors, which can only really happen, I think, if they have windows or if they're trying to secure a new anchor customer or something to that effect.
Yeah.
That must mean that they have available space.
Yeah.
I'm trying to reconcile the tightness of the industry with these windows that must exist across the industry.
Yeah. We think about that all the time and because we're having a hard time making sense of exactly that. I think what it is is you know maybe we just have more predictability or you know our customers are maybe you know we're lucky to have the customers that are giving us sort of long-term scheduling. There's we don't have a lot of angst over our schedule in January, February already. You know, it's October, and already we're you know sort of booked for Q1. Whereas if you know if you're a company that doesn't have long-term customers or customers that don't give you you know if every month you're fighting to fill your board, even though the board gets filled every time, there's still.
You know, you're still anxious about that white space that's a few weeks out, and then it just, you know, drives that kind of pricing behavior to make sure that the board gets filled. You know, if they just had a bit of faith, like, do some basic math, you know, and you may not see it today, but it will get filled, right? I mean, we don't have the capacity to take on a bunch of work that we don't already have booked, right? It's got to get done. I think what's happening is just the anxiousness over the lack of predictability a couple of months out is driving that pricing behavior. That's the best I can do because, you know, we obviously think about this all the time.
Yes. Okay. No, you know, thank you for that. Last question here, I promise. You have you're currently pushing the Tier 4 equipment into the patch. That'll form a seventh crew in the first quarter. You'll have another ESG crew in the second quarter. You also said, though, this will become the industry standard. For how long do you think that you have this first mover advantage where a Tier 4 crew is differentiated before a Tier 4 crew just becomes called a crew?
Man, you probably know this better than I do. A year, 18 months.
Eight or 18 months. Okay.
I don't like-
Um.
You know, I don't obviously know what our competitor is planning.
Let me ask it slightly differently. If you decided that a third crew was a good idea, when would you anticipate being able to put that third crew into the field?
It would be late next year if you know you had the foresight to plan it with the engine manufacturer.
Okay.
But if you weren't having-
If you ordered today-
Yeah, if you weren't having those conversations.
As an order process today, it would be the end of a year, a year from now. Is that correct?
Yeah, at least.
Okay. That's all for me. Thank you very much, guys.
Thanks.
Our next question comes from Waqar Syed of ATB Capital Markets. Please go ahead.
Thank you for taking my question. Brad, with, you know, rising service intensity, what are you seeing on the maintenance CapEx per crew or per horsepower? Any numbers that you can share with us?
Yeah. I mean, it's generally going up. You know, Todd knows this stuff better than I do, so I'll maybe hand it over to him.
It's just the run rate or percentage of expense has not increased substantially. It's kind of it floats with the activity of the equipment and the hours that it's run. It's inching up slowly, but not, you know, it's not taking a giant step up.
Would it be somewhere in the CAD 2.5 million-CAD 3 million per crew on an annual basis?
What was that? We didn't quite catch that.
Yeah. Would the maintenance CapEx per crew be around CAD 2.5 million-CAD 3 million annual?
Higher.
Higher than that.
Probably a little higher than that, Waqar.
I was excluding fluid ends that, you know, that you guys expense.
Yeah.
More in the $3 million-$5 million range?
Yeah, I think that's probably fair.
Yeah. You know, just a lot of it is obviously dependent on the pressures that you're working on, you know, in the certain, you know, whatever the customer base that you have, right? If you're doing low pressure oil, it might be lower than that. If you're banging away in the Montney, you know, at 70 MPa or something like that, then it's gonna be five. It also depends. Was that pump built in 2009 or was it built in 2015? That's why we're kind of flaky in our answer because there's so many variables that go into
It's, you know, if you had to model it as an industry average, I mean, I think you're safe using CAD 5 million a crew per year.
Okay. You know, in the U.S., zipper fracs are becoming, you know, fairly common now, and we're also seeing a lot of simul-frac. Are you seeing those trends develop in Canada as well?
That's not new. I wouldn't say it's common, but if my understanding of the zipper, what you're saying with the zipper frac, where you're fracturing two opposing wellbores, that's been happening for quite some time now.
Zipper frac would be, I think, here in the U.S. to say, like, it's you fracture one and you plugging and perforating next one while simul-frac today is like you're fracturing both wells at the same time, and then there are two other wells that you are plugging and perforating at the same time. Everything is running.
Yeah. That, that's common.
At one time.
Yeah. You're plumbed in, for lack of a better word, to the pad as a whole, and so your operations are uninterrupted almost.
Right.
You know? Yeah.
You're seeing that in Canada?
That would be the norm in the Montney.
Oh, is that right? Okay. Wow.
Yeah.
Okay, good. That's all I have. Thank you very much.
Thanks.
Our next question comes from Cole Pereira of Stifel. Please go ahead.
Hey. Morning, guys. You're very active with the buyback in the quarter, and obviously you need to continue investing in the fleet. How do you think about other return of capital avenues such as dividend?
Yeah, we're looking at that. We do have a growing cash balance, and we're happy to hold cash, don't get me wrong, but there's only so much cash that should be held. We're not gonna discuss maybe the exact levels at this point, but we do feel we may exceed those sort of internally imposed thresholds by the end of next year. Certainly, you know, dividend conversations have started to enter into board discussions, but there's not really anything more to report at this time. You know, there's many things to consider when you talk about dividends. You know, we're bullish for this industry for the next few years for sure.
Okay, perfect. That's helpful. Thanks. Just wanted to confirm as well. For Q1, you do expect to generate true, call it net pricing? How confident are you that this doesn't get eroded by further cost inflation somehow?
Well, it'll get eroded. It's just a matter of how much. We, you know, we do think. You know, back to the supply and demand of, you know, the rig count versus the frac crew count, that's gonna get out of whack in Q1. You know, even the people, you know, the companies that have no vision beyond the end of the week, even they'll respond with pricing increases. You know, we'll finally get these prices lifted off the COVID floor and back to something more reasonable, you know. You know, when you look at the pricing today versus even two, three years ago, it's the amount of erosion that's taken place is incredible. It's absolutely incredible. Yet, at the same time, the pumping efficiencies have greatly increased.
You know, we just have to stop. We, you know, need to start running a business properly here as an industry, and I think that'll happen in Q1.
Okay, great. That's all for me. I'll turn it back. Thanks.
Our next question comes from Keith Mackey of RBC. Please go ahead.
Hey, thanks very much and good morning. I just wanted to maybe follow up on the comment you made about sand logistics being tight, Brad. Is there any more you can say about that? Like, do you expect sand availability, whether it's from transportation or actual production to impact operations over the next, you know, call it couple of quarters, or is it just a matter of managing the tighter logistics, but things should be okay?
The sand supply, like Brad mentioned, the sand supply from out of Wisconsin in the U.S. is approaching, you know, maximum levels of what they can produce or ship to Canada. It's probably, you know, the planning and the logistics part of it, and the transloading is the important piece to take out the, you know, the high demand cycles or try to plan with your customers about reducing the high demand cycles.
But you know, there's a higher concentration of activity into Northeast BC, so there is some limitations to transloads. Just, you know, there's only one rail line going in there as well. Probably near term, no shortage worries, but longer term, definitely needs to be some changes or increase to supply, logistics and transportation.
Got it. Okay. Is that just on the U.S. end, or could it be substituted with local sand as needed?
It certainly could be. You know what? That is sometimes that's a customer preference about which sand type they would wanna use in their treatment. There is adequate Tier 2 sand supply in Western Canada and to fill the void if there was one. It's transportation again, because the location of that has to come from, you know, central Alberta, mainly up into Northeast B.C. There again, that requires, you know, transportation, whether that's rail or trucking.
Got it. Okay. Thanks for that. One more for me, just to go back to pricing. Don't wanna harp on it too hard, but one of your peers hosted a call this morning and discussed, you know, double-digit pricing increases for next year. Call it North America-wide. Sounded like maybe Canada didn't dip as hard in the last couple of years as the U.S., so may not increase quite as much through the next year.
Given, you know, the shortage that you foresee in Q1, which might perpetuate through the rest of the year, would you have a similar view of pricing, you know, where things will end up throughout next year beyond, maybe just beyond the you know, supply-demand imbalance we might see in Q1? Are you now, you know, more pessimistic or optimistic about that level of pricing improvement?
Well, I hope he actually opens up the books to his Canadian operation and has a look at his pricing. He certainly needs double-digit pricing increases to even compete with the rest of us. As an industry, I would think double-digit price increases are likely, you know, by, you know, whether it's Q1 or Q3. It's likely. There's just you know, it's not even a customer resistance issue. Like, this is a frac company issue. The price erosion that's occurred, it's incredible, right? It's 40% in the last couple of years.
If we can all just relax and you know do some supply and demand work and get more comfortable with where we're gonna be, I think those kind of price increases would be totally reasonable.
Got it. Okay. That's good for me. I'll turn it back. Thanks very much.
Once again, if you have a question, please press star then one. Our next question comes from Josef Schachter of Schachter Energy Research. Please go ahead.
Good morning, Brad and Scott. Congratulations on the much improved quarter. I have three questions. First one going back to the dividend, which you said is something you're contemplating with the board in 2022. We saw how you had to do a special dividend because they didn't wanna handle, you know, a commitment on a regular basis. Are you looking at special dividends if you wanna keep your cash balance or if there's any concern about prospects moving forward in the industry if competitors don't give the pricing you need to justify spending more money?
Yeah, like, dividend discussions are philosophical in nature, and, you know, we understand the issues with service companies paying dividends, and we don't wanna put something in and then have to take it out in a couple of years, and that's usually what happens. When we think about dividends, you know, we think about, you know, really low base dividends or special dividends or maybe no dividends, right? I mean, maybe we up our NCIB activity and, you know, our return of capital comes in that form. Like, it's early days, and we're open to anything, and we're not gonna back ourselves into a corner by any means and, you know, get ourselves into a position where, you know, we have regrets over what we did.
You know, dividends are dividends to me, whether they're regular or special. It's, you know, I mean, you know, I'm certainly a fan of the special dividends just to maintain flexibility. You know, like I said, maybe you know, maybe we allocate the money via the NCIB instead. Or maybe we find a great deal to do next year, and we don't do any kind of dividends or NCIB.
Like, you know, we're evaluating all of our options, and we'll, you know, we'll do a thorough analysis and be very thoughtful about what we're going to do. I can assure you that whatever we decide to do, you know, we won't have regrets over, and we'll do whatever is best for returns and what's best for the shareholders.
Good. Second question, the eighth crew, frac crew, the Tier 4 that you're bringing on in the spring of 2022, you've announced that Tourmaline was a customer for the first fleet. Is there one customer for that second fleet, or is it two or three companies that have done it in a consortium to tie it up between them?
Yeah, we're still. You know, we don't like to talk about the customers unless we sort of have specific permission from them to discuss it. I don't really wanna talk more about that, but it, the equipment would be for our core customer base.
Just like Tourmaline thought it was something to inform the street about because of the ESG improvements, do you think at some point these customers would be wanting to also disclose, and you're just waiting for them to do that?
Yeah, I don't wanna speak for them, but.
Okay.
Yeah.
Last one for me is growth. You mentioned, you know, that there might be something that could be an acquisition. On slide three of your new presentation, you go through the four quadrants, drilling cycle, completion cycle, production cycle, full cycle technical expertise. Are you looking at acquisitions to add on top of your three basic businesses right now, or are you looking to grow the three basic businesses?
Yeah, we're open to any of that. You know, like it's. I mean, you know, you sort of look at your board of acquisition opportunities, and it's all of the above, right? There's things you'd like to do within each division, and there's, you know, new divisions to add. So we're not. Like, there's so many things that go into the evaluation, but, you know, first and foremost, it's return on that investment. So we're open to any of them.
Okay. If you're looking at acquisitions, would it be also to grab manpower? Would that be something where if the equipment was decent and you were able to get the manpower, given the manpower shortage and the question about adding a third Tier 4 unit, would that be something that would fit in the equation?
Yeah, absolutely. I mean, it's, you know, whether it's, you know, consolidation for cost efficiencies used to be the sort of main motivator and, you know, now it, you know, you not only do you get cost efficiencies from the consolidation, you know, getting crews is a material issue now.
Yeah.
Right? As long as the equipment's not old and tired, it's something for sure we'd look at. Yeah.
Super. That's it for me. Thank you very much.
Thanks.
Our next question comes from Aaron MacNeil of TD Securities. Please go ahead.
Good morning, guys. Thanks for taking my questions. I know it's going a little late today. Brad, just more of a high-level question for you. You know, in the past, you're one of the early adopters of variable salaries and other sort of small things that make big differences to kind of the resiliency of the business. I guess I'm wondering, at a very high level and with, you know, consolidation among your customers, is there anything you can do to, you know, in terms of contract structures or things that kind of, you know, improve the stability of pricing through the cycles?
I wish. You know, our best opportunity is things like the Tier 4 engine technology, where you're truly adding a valued service that nobody else can add. You know, the customers understand that it's not commonplace at this stage, and you know, they understand the value of the service that you're providing. You know, given that, you know, they know what we know, which is this industry has had no investment, and it's been ridden hard and put away wet now for seven years. When something good comes along, you better grab it, and you better hold on to it.
Because yes, we all know, you know, it's LNG prices around the world are looking pretty attractive, you know, and if you actually cared about the environment, you'd encourage as much Canadian natural gas activity as possible. We're really bullish on this industry in Canada for the long term. I think our customers, they understand that we're at an odd point, right? Which is old equipment at the beginning of what is going to be very increased demand. You know, we're using new technologies as a way of changing that contract structure. For the most part, you know, it hasn't been easy. You know, old habits die hard, as we all know, right?
You know, maybe having to move up the chain a little bit to get people to understand the value in long term, you know, securing equipment long term. The short answer is, on a general scale, no, but on, you know, certain assets, yes. We're trying to do our best to get away from this, you know, sort of you're only as good as your last well kind of mentality.
Understood. All my other questions have been answered. I'll leave it there. Thanks.
Thanks.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Fedora for any closing remarks.
Okay. Thanks, everyone. We appreciate your time, and we appreciate you dialed in to listen to us. We'll wrap the call up now, but certainly, you know, Todd, Scott, and I are available for questions throughout today and tomorrow. I think everybody knows how to get a hold of us, and we'll do our best to make ourselves available. Thanks again.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.