Precision Drilling Corporation

Good day, and thank you for standing by. Welcome to the Precision Drilling Corporation 2022 Third Quarter Results Conference Call. I would now like to turn the conference over to LaVon Zdunic, Director of Investor Relations. Please go ahead.

Thank you, Operator. Welcome, everyone, to Precision Drilling's Third Quarter Earnings Conference Call and Webcast. Participating on today's call with me is Kevin Nebu, our President and CEO, and Kerry Forge, our CFO. Earlier this morning, Precision reported impressive third quarter results, which Kerry will review with you, followed by an operational update and output commentary from Kevin. Once we have finished our prepared comments, we will open the call to questions. Some of our comments today will refer to non-IFRS financial measures and will include forward-looking statements, which are subject to a number of risks and uncertainties. Please see our news release and other regulatory filings for more information on financial measures, forward-looking statements, and risk factors. As a reminder, we express our financial results in Canadian dollars unless otherwise indicated. Kerry, over to you.

Thanks, Lamont. Precision's revenue in the third quarter was $429 million, 69% higher than the same period last year, while the Just Deeper Dow was at $120 million. an increase of 163% from Q3 2021. On a normalized basis, adjusted EBITDA, excluding stock-based compensation and non-recurring charges, was $130 million, representing corporate margins of approximately 30%. These results reflect steadily increasing North American drilling activity, improved pricing, expansion of our alpha and evergreen offerings, and a continued focus on cost throughout the business. We've been highlighting the operating leverage inherent in our business for several quarters. We believe our Q3 results reflect the beginning of a multi-quarter demonstration of how rising activity and rates translate into expanding EBITDA and margins for precision. During the quarter, we completed the acquisition of High Arctic's wealth service and related rental assets and successfully integrated the business. Having already realized $3 million of the $5 million in expected synergies, we expect to realize substantially all of these by the end of Q1 2023. Moving on to the drilling business, Q3 activity increased 40% in the U.S. and 17% in Canada compared to the same period last year, while day rates increased 37% in the U.S. and 39% in Canada. In the U.S., our normalized average daily operating margin for the quarter absent any turnkey or IBC impact was $9,662 $2,488 higher than Q2 and in line with our guidance. With repricing of spot market rigs impact of Alpha Technologies evergreen solutions, we project normalized average margins to increase to approximately $11,500 per day in Q4, and we expect a similar sequential increase to average margins of $1,000 per day $2,000 per day in Q1 of 2023. In Canada, our average Q3 daily operating margin was $10,034 and significantly exceeded our guidance of $8,000 to $8,500 per day. Our strong margin performance was supported by higher day rates, alpha technologies and evergreen solutions revenue, and increased labor and cost recoveries. For Q4, We project average daily operating margins to increase sequentially to approximately $12,000 per day and expect a similar sequential increase of $1,000 to $2,000 per day in Q1 of 2023. In our C&P segment, our revenue increased 101% to $57 million, while adjusted EBITDA was $15 million. These results were positively impacted by a 62% increase in wealth service hours, in part due to the completed acquisition of the high Arctic assets and improved pricing as industry-wide shortage of high-quality assets and skilled labor continue to support increases in hourly rates. Moving to the balance sheet, we remain firmly committed to reducing debt by over $400 million between 2022 and 2025 with a target of $75 million this year, and we are on track to achieve both the short-term and long-term targets. We ended this quarter with $40 million of cash in the balance sheet and $540 million of available liquidity, excluding letters of credit, and our average cost of debt is 6.9%. We expect our net debt to adjusted EBITDA before share-based compensation expense to be below three times by the end of the year and to decline further into 2023 pacing us to achieve a leverage level below 1.5 times much earlier than expected. To deliver on our customer-backed rig upgrades, of which we now expect to have over 30 during 2022, and certain drill pipe commitments, we are increasing our capital budget to $165 million this year from $149 million. As a reminder, for our upgrades, we will require full cash on cash payback within the term of the contract and rates of return well above our cost of capital. Moving on to guidance for 2022, depreciation is expected to be approximately $280 million. SG&A is expected to be approximately $80 million before share-based compensation expense. Cash interest expense is expected to be $85 million for the year. Cash taxes are expected to remain low and our effective tax rate is expected to be slightly negative for the year. That concludes my comments. I'll now turn the call over to Kevin.

Thank you, Kerry, and good afternoon. Well, as Kerry explained, our business performance in every service line in every region is strong and continues to improve. I'm especially thrilled to have returned to profitability. And the next key benchmark we are focusing on is a return on capital target, but more on that later. I'll start by recapping our recent Kuwaiti contract award. We are very pleased to have been awarded the four contracts, which include reactivation of two of our idle rigs, bringing our active rig count up to five rigs in Kuwait by mid-2023. I want to thank our international team for their hard work and perseverance on the successful bid process that's dressed over several quarters. I remind you that these are very large 3,000-horsepower super-triple rigs with a revenue and margin profile that looks a lot more like two North American rigs for each Kuwaiti rig. Coupled with our recent contract renewals in Saudi Arabia, all eight international rigs will be operating under five-year terms. We continue to look for other good opportunities to activate more of our remaining five vital rigs in the region. Our international business stands on its own as a meaningful and stable contributor to Precision's cash flow profile, and now with firm visibility through the latter part of this decade. And now following up on our recent well-serviced acquisition, as Kerry mentioned, the financial performance of Precision's well-serviced business is strong. Tom and his team have done an excellent job integrating the acquisition while also keeping their focus on the business at hand. They're ahead of plan achieving the expected synergies, and I believe we'll see this business continue to perform well for the foreseeable future. Now, as customer budgets wind down later this year and we hit the holiday season in mid-December, we expect a short-term moderation in activity. However, customer bookings and indicated demand for the winter season through 2023 full year will likely exceed the industry's ability to staff and support those rigs. And I think this is an area where Precision's reputation coupled with our recruiting and training capabilities creates a meaningful competitive advantage. We recently hosted a group of analysts for a tour of our NISQ drilling support center where we highlighted our new employee recruiting and training capabilities including showcasing our alpha-equipped super triple training rig. We also introduced the group to our training and talent acquisition teams based in the NISQ Center. By the way, for any of you who attended the tour and may be looking for a career change, we're accepting applications assuming you pass our controlled substance screening. I'm sure that those of you that were able to attend came away with a view that Precision is well on top of the recruiting challenge and is very well positioned to deploy high-quality and very well-trained personnel to the field for our drilling rigs. I'm expecting a significant challenge accruing across the industry this winter for all OFS services, but I believe our recruiting and training teams exuded confidence and were up to the task. Now, as we've been saying for several quarters, the Canadian drilling market is very strong for precision. To date, we have 73 rigs running, which, as expected, exceeds our winter peak from earlier this year. Our super triple fleets fully booked for the coming winter and should have 100% utilization during Q1. During the third quarter, we redeployed another ST-1200 from the U.S. to Canada. And those of you that attended our NISQ tour will have seen that rig, Rig 536, in our yard undergoing recertifications. That rig is now on location and drilling under a long-term contract for an oil and gas operator focused on LNG. So clearly, LNG drilling activity is underway. It will increase for the next several years, further increasing demand for precisions already fully utilized through patrol fleets. While term contracts in Canada are less common, customers are increasingly looking to secure access to our super triple rigs by locking in those rigs with long-term take-or-pay contracts rather than running the availability risk of the traditional pricing agreement with no firm use commitment. Besides guaranteed access to a rig, the primary customer benefit of a take-or-pay rig contract is crew recruitment and retention. That steady income opportunity, firm work schedule, and close operating relationship with the oil company stabilizes the rig crew at every position. This factor alone has substantial value for all customers. With strong commodity prices and a weaker Canadian dollar, conventional heavy oil and clear water activity is accelerating, driving high customer demand for our super single rigs, which are achieving the highest utilization level since 2014, and we expect continued growth into next year. Our evergreen products, including battery systems, fuel monitoring apps, and lighting systems, are gaining wide market appeal. Billing activity for the new evergreen products approached 2,000 days during the third quarter and are meaningfully contributing to Canadian revenues and margins. The outlook for Canadian drilling activity is strong. Based on our customer expectations, we expect to see peak winter activity levels approach and likely exceed 80 rigs. With these high demand levels, our confidence in our margin guidance is firm. Now turning to the U.S., while industry rig additions have moderated, our rig count continues to grind higher as our customers look to displace lower performing rigs with precision super triples and particularly look to activate our alpha automation services. We expect this trend to continue through 2023 with our current super triple fleet to be fully utilized during the first half of next year. There's a lot of talk about rates in the upper 30s and approaching $40,000 per day. While we agree with that narrative, I would point out that with our Alucard add-ons, such as Alpha Automation, Alpha Apps, Evergreen Products, and Managed Pressure Drilling Systems, we have several rigs with all the rates well above that range. During the third quarter, over 20 rigs repriced to the current market rates. In the fourth quarter, we expect 10 to 15 rigs to reprice at a similar pace in the first quarter of next year. Based on our current contract book, our super triple utilization, and the customer interest we see, we have a high degree of confidence in our forward margins and guidance for the U.S. Now, our press release mentioned that we're ahead of schedule on the alpha automation installations, and we expect to have our full super spec fleet kitted up by early 2024, almost a year ahead of our plan. The value proposition for alpha is compelling, and customer uptake is outpacing our expectations. Our technology deployment team has been very busy installing alpha kits, but more importantly, also training our drillers to become alpha drillers. I offer a shout out to our technology and remote ops team for the great job they're doing training and supporting our new alpha drillers. Now our alpha drillers love how alpha automation frees them up from all the mundane and highly repetitive tasks they typically perform in manual drilling. With alpha, they're better able to lead their crew and oversee the whole drilling operation. Alpha substantially improves the drilling performance, the crew safety, and the overall execution of the customer's well plan. Everybody wins. So I want to circle back on pricing and value for a moment. I know our customers in both Canada and the US are struggling with cost inflation across all OFS services, and I know the drilling rig rate inflation is concerning for them. It's our sales team's job to help our customers understand our cost drivers, our capital investments, and the efficiency gains driving the incredible value we are delivering today. When considering today's day rates, three factors must come into play, which are different than prior cycles. First of all, precision's cost to operate a rig with labor and supply inflation has risen more than $4,000 per day. But in addition to the inflationary factors, we have cost inflation driven by increased maintenance due to the accelerated wear on equipment and the higher pace of drilling today. The second factor is a substantial increase in capital equipment scope, such as additional mud pumps, generators, advanced mud cleaning equipment, rig walking systems, other upgrades on the rigs. These upgrades have involved significant investments by precision, but also increased operating costs for the rig as the equipment's more complex, requires more maintenance. These requirements also impact the potential new build or replacement cost for a rig. 2014's $25 million rig today's super spec equipment scope and steel inflation would likely cost over 35 million dollars to build and that's only if the components are available in the supply chain which is highly unlikely the third factor to consider is the efficiency gains these upgraded rigs deliver and the value we create through that efficiency if you look back at the prior peak for day rates which would have been 2014 and compare overall rig efficiency then to today the results are startling in the u.s Across Precision's fleet, we are drilling wells 55% faster today compared to 2014. In Canada, drilling productivity has more than doubled when compared to 2014. Now, these efficiency gains have been driven by those capital upgrades we've talked about, including padwalking systems, increased mud pump capacity, generating capacity, pipe rocking capabilities, drilling automation, drilling digital optimization, and improved crew capabilities. The equipment, the crew, and the digital capabilities have driven a massive step change in drilling performance. So it's fair to conclude that while day rates are well up from the lows of 2020, the value and cost of our rigs, the crews, and technology has been substantially increased, and the value we provide our customers has never been better. On that pricing note, I've been saying for several quarters that our sales team was tasked with pressing rates upwards to aid in precision's return to profitability. So I need to give a shout out to our Canadian and U.S. sales teams for taking on that challenge. Thanks, team. Yet we still have work to do. We need to continue to improve our results and strive to achieve a reasonable rate of return on our investment. And we're on that path, making good progress, but we still have a ways to go. In short, great work, team, but please keep it up. Regarding our strategic priorities, all three are on track. I mentioned our digital evergreen market growth earlier. We've reaffirmed our debt reduction plan, and we will achieve our goal. And Precision's improving operating margins also reflect our strict cost controls in search to demonstrate our operational leverage. So to wrap up, I'd like to thank our shareholders and our customers for their continued support. And during my early prepared notes, I gave a shout out to a few of our PD groups. For the rest of the PD team, I want to sincerely thank all of you for your hard work, your focus, and the great results you're producing this year. Thank you. I'll now turn the call back to the operator for questions.

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your touchtone telephone. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Aaron McNeil with TD Securities. Your line is open.

Hey, morning all. Thanks for taking my questions. Based on your Q2 and Q3 disclosures, it looks like there's 10 incremental rig upgrades. So in other words, going from 20 to 30 rig upgrades in 2022. So I'm just thinking about this in the context of incremental activity and your outlook there. You know, how many of those rigs are already working post-upgrade? how many were already working and you're just doing an add-on upgrade to an already active rig. And I guess what I'm really driving at is of those 30 rig upgrades, how many of those would be incremental to your current rig count today?

Well, it's actually a very complex question, Aaron. I don't have the details rig by rig. I can tell you that a number of these upgrades were third pump, fourth generator additions on rigs that were working, and now they're stepping into much higher day rates with that addition. So of the additional upgrades we've added, I think probably something like two-thirds of those would be just stepping up the capability of the rig and reaching out to a much higher day rate class with that upgrade. And I think that about a third of those, probably three or four, will be rig additions between now and into Q1.

And then maybe to bug Carrie and follow up, you know, maintenance capital is obviously dependent on activity assumptions, but can you give us a glimpse of what, you know, a preliminary growth or upgrade capital spend might look like in 2023 and how many rig upgrades that might contemplate? And I know what you're going to say, that, you know, it depends on getting the right contract and everything, but just trying to get your pulse there.

Yes, so upgrade capital is completely separate from maintenance. So I can tell you a few things about maintenance. It has gotten a bit more expensive per day. You know, we're trending closer to $2,000 a day versus, you know, kind of the $1,500, $1,600 a day that we historically have trended at. So that's a function of inflation largely. The other thing I'll tell you is that long lead items are, we're having to plan a lot earlier to purchase those. So we have, you know, for the past year, we've been doing advanced drill pipe purchases and the lead time items on those items might be six to nine months. So we are doing more of those bulk purchases. And the other item I'll point out is just the weaker Canadian dollar. You know, the majority of our capital expenditures, whether it's maintenance or upgrade, they're purchased in U.S. dollars. And when you convert to Canadian, that makes that number go a bit higher. So with that all being said, maintenance will still trend along with activity. So I think if your expectations for activity increases next year are a certain percentage, say 20% higher than this year, then the baseline would be a maintenance capital that's 20% higher than what we're anticipating in 2022. And on the upgrade side? On the upgrade side, I think we will continue to see the same type of upgrades as we did this year, so increasing capacity of the rig, adding automation, adding evergreen solutions to the rig. But that will run out at some point. The level of upgrades we have beyond those kind of $1, $2, $3 million upgrades that we've been pursuing will be related to the demand for an SCR to AC conversion, which we've said historically is going to be about $12 million to complete that upgrade. So because we want cash-on-cash payback within the term of contract, we're likely going to need to see a two-year contract and a day rate approaching $40,000 before we undertake that upgrade. So when the super spec rigs are sold out in the industry and customers start looking for those types of upgrades, we'll be ready to pursue it, but we're not quite there yet.

Okay, perfect. Maybe I'll just sneak one more in if I could. The C&P business had a very strong quarter, which sort of quickly proves out the rationale for the high Arctic acquisition. Kevin, does this sort of embolden you to pursue more tuck-in acquisitions like this for C&P? And even if you wanted to, do you think you could transact at similar metrics?

So, Aaron, I think this is an important deal for us. And the team has really proven that they can integrate a fleet quickly and efficiently and achieve the synergies we thought we could achieve. So there's a lot of proof of concept going on right now. the market still looks quite strong. And, you know, we're seeing work that was kind of delayed for several years and a backlog of work now looking forward that looks like it's several years long. So this, the well service business has legs to it right now. And I think the market is still too fractured. So if there's an opportunity for us to do further consolidation, we'd be interested. But, you know, we're not going to overpay. And if the seller expectations are too high, we won't do a deal.

Understood. Thanks, guys. That's all for me. I'll turn it over.

Thank you, Aaron. Thanks, Aaron. And one moment for our next question. Our next question comes from with ATB Capital Markets. Your line is open.

Thank you for taking my question. Kevin, in the press release, you mentioned that at least eight rigs could be active in the Middle East by the middle of next year. Could you maybe provide some more color of where could additional rigs be and what are the tenders you're looking at?

Sure. So the eight rigs we referenced are the ones that are contracted right now. And we have five more idle rigs in the region. I'd say the most relevant idle rig would be the rig that we have in Kuwait, which is a 1,500 horsepower AC super spec rig that's configured for well servicing. That rig could be easily converted to a drilling rig. So I think that's a most likely candidate for early activation. Probably somewhere on that same side of the Arabian Gulf, Saudi Arabia, Kuwait, somewhere like that. We have the one rig in Saudi, two more rigs in Kurdistan, one rig in Georgia that we continue to bid into opportunities in the region. I don't think we'll have all those rigs active by the end of the year, but I think there's a good chance that we'll see opportunities that allow us to bid competitively on two or three of those. And we do have active bids right now in multiple locations for those rigs. So the first one that's gone from bid to bid The first tender we've been involved in that's actually gone to award was the Kuwaiti tender. All of the tenders are still kind of hanging open.

And between now and, you know, middle of next year when these rigs would be up and running in Kuwait, is that what the tender stipulates or is that because of the time that you require to activate the rig? What's the reason for that delay of six, nine months?

Well, it's exactly according to their schedule for activation. They had this multi-rig project that they put out for tender, and they had a schedule of operations that we bid into their schedule. So we're following their schedule. There will be some recertification requirements we'll do in those rigs early next year. There'll be some capital tied to that that we'll circle up on later once we have that all determined. We bid into their schedule. We'll have the rigs ready for their schedule. We'll be up. There's no early start bonus. They seem to be quite tight in their scheduling.

Okay. And then in the U.S., you may have additional 1,200 horsepower rigs. Is there demand to move additional rigs, 1,200 horsepower rigs from the U.S. into Canada?

Great question. The market is short rigs in Canada for Q1. We don't know how that's going to play out for the year because not all of our 1,200 horsepower rigs are under firm take-or-pay contracts. We still have a few of these rigs up there that are on the typical Canadian pricing agreement. We're encouraging our customers that if they want to retain those rigs, they need to lock them up with term contracts. And that's good for everybody. It's good for the rig crew. It's good for the customer. You have a very stable, high-performance rig. If we're successful contracting up the majority of those rigs and we can get a contract to move another rig up, I'd entertain that with the right economics.

Yeah, and, McCarr, I just add that the utilization on our remaining 1,200 AC rigs, it's approaching 80% right now. So there is a very strong market in the U.S. for those rigs as well.

Okay. And, Kerry, what was the cost of mobilization embedded in that $4 million number, and would you be amortizing that reimbursement over the term of the contract?

Right. So it was roughly $1 million to move the rig, and we took the hit in the third quarter. So those are in our Canadian operating cost. And then we're going to recoup the cost of that rig through the day rate increase that we're charging the customer over the life of the contract.

Okay. Yeah. Okay, good. Okay, that's all I had. Thank you very much.

Thanks, Makar. And one moment for our next question. Our next question comes from Culper with Stiefel. Your line is open.

Hi. Afternoon, all. To start, can you just remind us where leading edge rates would have maxed out in the 2014 period?

Cole, in Canada, we saw rates that got close to $30,000 a day, but most rates were in the high 20s. In Canada, in the U.S., kind of the same numbers in U.S. dollars.

Got it. And as well, can you just refresh us on how many super spec rigs you have in your U.S. fleet? How many more are readily available and how many rigs would be the SCR to AC upgrade candidates?

Sure. So our U.S. fleet was comprised of 67 super spec rigs right now. And 56 of those are running. 57 are running. And we see a pretty good line of sight to get most of those working, as I said earlier, by mid next year or sooner. We have another 15 rigs in the U.S. that are DCSER rigs. They're very good upgrade candidates for that sort of $12 million U.S. price range. In Canada, we currently have carried 28 SuperSpec rigs. 29 SuperSpec rigs currently, and they're fully booked up for the winter, and some of those contracted out for multiple periods.

Okay, great. That's helpful. Thanks, and Some of your peers are talking about that their leading edge rigs are generating 50% gross margins. Are you seeing any of that in your U.S. fleet yet? And I mean, is there a conceptually line of sight that that could occur on a blended slash reported basis for your U.S. business over the next few quarters?

hey cole so i think kevin did a good job covering the equipment difference between 2022 and 2014 and how there's a lot more value being provided by the with the rigs delivering there is an operating cost difference so our operating cost back in 2014 was probably 13.5 and today it's about 17.5 in both markets it's about a 4 000 a day difference so the old 30 000 needs to be 40,000 just to get the same cash margin. On a percentage basis, we now need to get day rates into the upper 30s. And we are seeing that at the leading edge. I think Kevin covered that as well. So I think that we are seeing a handful of rigs that are in that 50% field margin range. In terms of getting the entire fleet to that range, we'll see how long the fundamentals of this industry stay strong, but we have given guidance for Q4 and Q1 that shows pretty significant margin increases for both Canada and the U.S. So I think we can expect, if the commodity prices hold together, we can expect continued increases in day rates and margins in both markets.

Nicole, I think we sort of guided the past. It usually takes about three quarters for leading as rates to flow through into the fleet averages. So that would push us into sort of late Q2, mid Q3 next year. And the fundamentals certainly look firm through that period.

Okay, got it. Thanks. And just one more quick one for me. How should we be thinking about working capital in Q4?

We should have kind of flat working capital, maybe a little bit of working capital relief depending on when the winter slowdown happens at the very end of the year. But we did have a, you know, we've had quite a big increase so far this year. It's been about $80 million, and that's just reflective of higher revenues, higher activity.

Got it. That's all for me. Thanks. I'll turn it back.

Thanks, Cole. And one moment for our next question. Our next question comes from Keith Mackey with RBC. Your line is open.

Hi. Good afternoon, and thanks for taking my questions. Just wanted to start out with what you're seeing on the customer inquiry front, maybe in Canada and the US. Can you just talk about the level of inquiries you're seeing versus the amount of super spec rigs you have available? And I think importantly, are these inquiries from customers who are looking to pick up rigs or potentially high grade from existing rigs they may be running that are either a current mechanical or SCR rig that are running now? that they'd look to replace with a super spec rig?

Yeah, so first of all, in Canada, I give guidance. I thought our rig count would get into the high 70s, maybe hit 80, maybe get a bit above 80 in Q1, which would be about 15% higher than last year for activity. That's based on customer conversations and indications and firm bookings that we have. On the super spec front in Canada, I think the market is probably short probably short four or five rigs in Q1, which means that customers may then look to push some more work into Q2, which would give us a stronger push into Q2. So we're encouraged by that. Also supports work farther into Q2 and even into Q3. And if we see a strong contracting pickup by our customers to lock in rigs, that might mean that we have room to bring one more rig up. We'll see. So that's how Canada kind of plays out. In the U.S., you know, the rig count in the U.S. is flattening out a little bit, moves up a little bit, goes flat, moves up a little bit industry-wide. We seem to be keep on, you know, we're adding rigs. A few of our peers are adding rigs. There clearly is still this trend to increase the capability of rigs in the field of the super spec. If a rig... If a rig operating today only has two mud pumps, it'll either get replaced by a rig that has three mud pumps or an upgrade will happen. And the rate moves up with it, so it's a good trade and the capital gets recovered. But we've replaced a few probably decent rigs, not super spec, decent rigs that had two pumps with some rigs now that have three pumps going out. I'd say that there's still a strong narrative of capital discipline, which is barely healthy by the operators. But it does feel like when we get into a new budget cycle in 2022 and with fresh capital and a new year and likely strong commodity prices, I think we could see a move up in rig count. And I think you could see rigs being added in January, probably not much before then.

Yeah. And Keith, I'll just add one other point to answer your question. When we talk about customers looking to increase the capabilities of the rigs and improve performance, we are not seeing customers switch from mechanical and SCR rigs to a precision AC rig. We're seeing competitors AC rigs running for the customers and the customer deciding to make a switch to improve performance by taking on a precision rig.

Got it. Thanks for that. Kevin, maybe just to follow up on your question about, or on your comment rather, about Canada being short four or five rig, super spec rigs in Q1, and then maybe some of that gets pushed into Q2 and beyond. It seems like we have seen more of a flattened, a little bit more of a flattened seasonality structure in Canada with a little bit more of that happening. We're always going to have breakup and always going to have times of the year when it's more amenable to getting equipment in and out of the field. But do you see that becoming more of a trend where the industry looks to supply maybe more of an average basis year over year or during the year rather than the peak demand as much, which ultimately may bode well for overall margins and activity levels? Or is it just more of circumstance that we've seen the curve shape up that way?

Keith, I'd say that there's always been a desire in healthier times by E&P companies to try a level load. That was around in the mid-2000s when gas activity was going strong, level loading. It was around in 2010, 2012 when we had strong commodity prices. What's changed and made it probably more likely now is this broad abundance of super-spec padwalking rigs where we can load the pad up with enough casing and mud and maybe bring some fuel in across road bands, but you can keep that rig running deep into breakup. And if it's a dry enough spring, you can get kind of backfired up and keep things going without losing any time at all. So I'd say that development style drilling with large pad rigs really plays into that level loading when you've got a healthy commodity price environment, which is what we see today.

Perfect. Well, thanks very much for the comments. We'll turn it back.

Great. Thank you. Again, ladies and gentlemen, if you have a question or a comment at this time, please press star one, one on your touchtone telephone. One moment for our next question. Our next question comes from a John Daniel with Daniel energy partners. Your line is open.

Hey guys. Thanks for squeezing me in. Um, I guess Kevin might not a numbers question for you or Carrie, but, uh, you go back the last several quarters, you know, the whole labor topic was a big company discussion point just across the industry. the challenges and so forth. And, you know, during that same timeframe, ESG was also a big question talking point from the bias from sell side by side. I'm just curious, speak to us on both of those, what you see today.

The, um, I'd say that virtually every, uh, by side investor meeting, we have the labor question that comes up and, uh, because it's still, it's still a huge issue for the industry. And I've used that term industry, John, in my comments, number of times, the industry, uh, is challenged. The drilling contractors in general and precision for sure, I think have been able to manage that a little better, particularly with contracted rigs where you can attract crews because they know they've got stable work for a long period of time and it's a structured, not call-out style work. So for us and for most of the drilling contractors, labor has been a challenge but easier than a lot of the other oil services we've had to deal with. Even our well service group struggles because of the nature of the business on labor. But I'd say that question still remains a big question on the buy side. And we haven't seen it limit our business. Our business has been able to move forward because we've been able to stop rigs and most of our peers have done the same. On the other question about ESG... I'd say that if it's raised by an investor, the investor is also now thinking about energy security to some degree. So more balance is coming into the discussion, and it's being raised by a lot fewer investors of late.

Yeah, and John, I would just add, it seems like the larger institutional investors are still interested in ESG. They want to have us communicate the things that we're doing that touch ESG. But we're seeing very few investors who tell us they are not able to invest in our securities because of ESG. Right.

And real quick, going back to the labor, I mean, you guys have done a great job of, you know, deploying equipment once the demand has shown up. But when we hear comments from companies about labor could be a headwind to activity growth, I mean, and again, I'm making an industry question. You're not all precision. But it really – It doesn't seem that obvious. Would you characterize it as a headwind that limits activity growth next year at all? I'm just trying to make sure I understand that.

I think from the drilling side, actually no. Here's my theory. The drilling rig operates a bit, you've heard the term factory drilling or industrialized drilling is pretty common. Once you set up a rig and get running, you really don't want to stop it because there's a huge stop start cost, there's a huge switching cost associated with rigs. So our customers tend to plan the drilling operations, which is why they'll let their ducks build up at times if they can't get the rest of the services. So customers are incentivized to keep the rig running kind of independent of whether they can complete the rest of the well or not. Cool.

Okay. I was just curious. Thanks. I appreciate you guys letting me ask questions. Great. Thanks, John. Okay. Bye-bye.

And I'm not showing any further questions at this time. I'd like to turn the call back over to LaVon for any closing remarks.

Thank you. And I'd like to thank everyone for your interest in precision and joining us today. That wraps up our third quarter conference call. Have a great day. Bye.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.