TSE:TOT Total Energy Services Q1 2024 Earnings Report C$9.15 -0.05 (-0.54%) As of 04:00 PM Eastern Earnings HistoryForecast Total Energy Services EPS ResultsActual EPSC$0.38Consensus EPS C$0.46Beat/MissMissed by -C$0.08One Year Ago EPSN/ATotal Energy Services Revenue ResultsActual Revenue$204.69 millionExpected Revenue$235.35 millionBeat/MissMissed by -$30.66 millionYoY Revenue GrowthN/ATotal Energy Services Announcement DetailsQuarterQ1 2024Date5/9/2024TimeN/AConference Call DateFriday, May 10, 2024Conference Call Time11:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptInterim ReportEarnings HistoryCompany ProfilePowered by Total Energy Services Q1 2024 Earnings Call TranscriptProvided by QuartrMay 10, 2024 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Thank you for standing by. This is the conference operator. Welcome to Total Energy's First Quarter 2024 Results Conference Call and Webcast. 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. Operator00:00:31I would now like to turn the conference over to Daniel Halleck, President and CEO of Total Energy Services Inc. Please go ahead. Speaker 100:00:40Thank you, and good morning. Welcome to Total Energy Services' Q1 2024 conference call. Present with me is Julia Gorbach, Total's VP Finance and CFO. We will review with you Total's financial and operating highlights for the 3 months ended March 31, 2024. We will then provide an outlook for our business and open up the phone lines for questions. Speaker 100:01:03Yuliya, please go ahead. Speaker 200:01:05Thank you, Dan. During the course of this conference call, information may be provided containing forward looking information concerning Total's projected operating results, anticipated capital expenditure trends and projected activity in the oil and gas industry. Actual events or results may differ materially from those reflected in Total's forward looking statements due to a number of risks, uncertainties and other factors affecting Total's businesses and the Oil and Gas Service Industry in general. These risks, uncertainties and other factors are described under the heading Risk Factors and elsewhere in total of most recently filed Annual Information Form and other documents filed with Canadian Provincial Securities Authorities that are available to the public at www dotceroplas. Ca. Speaker 200:02:01Our discussions during this conference call are qualified with a reference to the notes to the financial highlights contained in the news release yesterday. Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars. Total Energy's financial results for the 3 months ended March 31, 2024, reflects relatively stable industry conditions in Canada, lower drilling activity in the United States and extended wet weather in Australia that significantly reduced field activity levels compared to the Q1 of 2023 despite stable industry conditions. On March 7, 2024, Total Energy completed acquisition of Saxon Energy Services Australia Pty Limited for a total purchase price of approximately $50,000,000 47,400,000 was paid on completion and $2,700,000 less any post completion adjustments is payable on March 7, 2025. During the Q1 of 2024, the company paid $19,700,000 of income taxes and related interest and penalties arising from the Canadian income tax reassessment related to Total Energy's conversion from an income trust in 2,009. Speaker 200:03:29While Total Energy has appealed the Tax Court decision, all amounts owing pursuant to such reassessment have been paid in full. Consolidated revenue for the Q1 of 2024 was 14% lower compared to Q1 2023. This was due primarily to lower drilling activity in the United States, restricted fuel activity in Australia due to wet weather and lower fabrication sales in the CPS segment. Modest price increases and cost management mitigated the decline in revenue such that 1st quarter consolidated EBITDA decreased by 11% compared to 2023. Geographically, 50% of 1st quarter revenue was generated in Canada, 39% in the United States and 11% in Australia as compared to the Q1 of 2023 when 46% of consolidated revenue was generated in Canada, 44% in the United States and 10% in Australia. Speaker 200:04:40By business segment, Contract Drilling Services generated 40% of 1st quarter consolidated revenue, followed by the CPS segment at 38%, well servicing at 12% and RTS segment at 11%. In comparison, for the Q1 of 2023, the CPS segment contributed 41% of consolidated revenue, contract drilling services 35% and well servicing 14%, followed by RTS segment at 10%. 1st quarter consolidated gross margin was 28% as compared to 25% from the prior year. Margin improvement in our CVS, RTS and CPS segments offset a decrease in Well Servicing segment. Relatively stable drilling activity in Canada and acquisition of Saxon on March 7, 2024, partially offset an industry wide decline in U. Speaker 200:05:40S. Drilling activity and the negative impact of wet weather on Australian activity, with the result that the CDS segment experienced a 3% decline in the Q1 operating days as compared to 2023. Despite a modest increase in revenue per operating day, lower activity resulted in a 2% year over year decrease in the CDS segment's 1st quarter revenue. Price increases arising from rig upgrades, a change in the mix of equipment operating and cost management resulted in a 10% year over year increase in the Q1 CDF segment EBITDA. In Canada, market share gains and the relocation of a triple rig from the U. Speaker 200:06:31S. In 2023 contributed to a 5% year over year increase in the Q1 operating days. Increased operating days, combined with a 2% year over year increase in Canadian revenue per operating day, resulted in a 6% year over year increase in Q1 Canadian drilling revenue relative to 2023. In the United States, 1st quarter revenue declined by 40% as lower U. S. Speaker 200:07:01Drilling activity and the transfer of the triple drilling rig to Canada in the Q2 of 2023 contributed to a 39% decrease in operating days. Revenue per operating day declined by 1%, due primarily to the mix of equipment operating. Efficient operations and cost management more than offset the decrease in revenue, such that the Q1 operating income more than doubled compared to 2023. In Australia, operating days increased with the addition of Saxon on March 7, 2024. Partially offsetting this increase was a general reduction in field activity levels due to extended wet weather conditions. Speaker 200:07:45Revenue per operating day increased 2% as a result of rig upgrades and the addition of heavier socks and drilling rigs. Revenue in the RTS segment decreased compared to Q1 of 2023 as a result of lower industry activity, particularly in the United States. Modest pricing increases and the mix of equipment operating contributed to a slight year over year increase in the 1st quarter segment EBITDA. 1st quarter revenue in total CPS segment decreased by 21% as compared to 2023, due primarily to lower fabrication sales and the impact of lower natural gas prices on parts and service activity. The decrease in fabrication sales was primarily due to a significant portion of fabrication activity in the CPS segment directed towards the construction on new compression rental units rather than fabrication sales, as evidenced by a 35% increase in compression horsepower and rent in the United States during the Q1 of 2024. Speaker 200:08:58Utilization of the rental fleet was slightly lower on a year over year basis due to the deployment of several newly constructed rental units late in the Q1 of 2024. Improved fabrication sales margins and increased rental revenue contributed to an 8 percent year over year increase in the Q1 CPS segment EBITDA margin. This increased margin partially offset the 21% decrease in revenue, such that segment EBITDA declined by 13%. The quarter end fabrication sales backlog decreased to $185,700,000 compared to the $227,400,000 backlog at March 31, 2023. Sequentially, the quarter end sales backlog increased by $22,900,000 during the Q1 of 2024. Speaker 200:10:051st quarter Well Servicing segment revenue decreased by 28% compared to 2023 as utilization and revenue per service hour decreased 26% and 2% respectively. This was due to lower activity in all jurisdictions. Australian activity was impacted by extended wet weather conditions, while lower well abandonment activity contributed to lower Canadian activity. Segment EBITDA and EBITDA margin declined as a result of lower activity as well as lower pricing in the United States. From a consolidated perspective, Total Energy's financial position remains very strong. Speaker 200:10:48At March 31, 2024, Total Energy had $124,400,000 of positive working capital, including $45,000,000 of cash. During the Q1, Total Energy borrowed $50,000,000 to complete Saxon acquisition and paid CAD 19,700,000 arising from a Canadian income tax reassessment, which resulted in a $25,400,000 of net debt at March 31, 2024. Total Energy's bank covenants consist of maximum senior debt to trailing 12 month bank defined EBITDA of 3 times and the minimum bank defined EBITDA to interest expense of 3 times. At March 31, 2024, the company's senior bank debt to bank EBITDA ratio was 0.41 and the bank interest coverage ratio was 10.05 times. Excluding $10,500,000 of non recurring interest expense relating to the income tax reassessment, The interest coverage ratio was 30.77 times. Speaker 100:12:01Thank you, Yuliya. We are pleased with our Q1 results. Despite a significant year over year decline in U. S. Industry activity levels, our U. Speaker 100:12:10S. Businesses performed reasonably well, particularly our U. S. Drilling Group, which did an excellent job managing their operations in a slower environment. In the context of relatively stable industry conditions and our strong financial position and having regard to our future prospects, the Board of Directors of total approved a 13% increase to our dividend during the Q1 as earlier press released. Speaker 100:12:42As Yuliya mentioned, our CPS segment made a significant investment in growing its compression rental fleet during the Q1. This is the most significant growth of the fleet in many years and is a result of improving market conditions in part likely due to higher interest rates. While this investment reduced 1st quarter CPS segment revenue and EBITDA, the return on such will be realized over the next several years. We are excited about the addition of Saxon to our Australian drilling business. The addition of the 11 Saxon rigs substantially increases the operational capacity of our Australian drilling fleet. Speaker 100:13:23For example, during the Q1, Saxon Rig 185 drilled the longest horizontal coal seam gas well ever drilled in Queensland at a total measured depth of 5,020 meters. The rig requirements to drill this well were beyond the capacity of our pre Saxon Australian drilling rig fleet. Saxon had no significant bottom line impact during the Q1 given the timing of closing and the expenses incurred to complete the acquisition. Rather, the impact of the Saxon acquisition will begin to be realized in the second quarter, particularly should recently improved weather conditions continue. The full impact won't be realized until we complete the integration and realize the efficiencies of the combined operation, which we expect to complete by the end of this year. Speaker 100:14:21In addition to Saxon, our Australian operations expect a newly constructed drilling rig to commence operations in the 3rd quarter and 2 upgraded service rigs in late Q2 and Q4 respectively. All three rigs will be operating under long term contracts. As such, we expect the income statement contribution from our significant investment in Australia will increase substantially over the next several quarters. As such investment was made without the issuance of any new equity, the impact will be amplified on a per share basis. Investment opportunities also exist in North America, as evidenced by the $19,800,000 increase to Total Energy's 2024 capital expenditure budget announced yesterday. Speaker 100:15:14$8,300,000 of this increase is targeting North American growth opportunities, including $6,400,000 allocated to purchasing new rental equipment for the RTS segment. Total Energy's investment in upgrading its equipment fleet over the past few years has not only provided a reasonable return for our owners, but it has also increased the capacity and performance of our equipment for the benefit of our customers. A highlight occurred in April when we drilled the longest Montney well ever drilled in Canada at a total measured depth of 8,006 meters. The well was drilled by Savannah Rig 653, an AC Electric telescopic double rig in just 19.2 days. Our safety performance during the Q1 was commendable, and I would like to thank all of our employees for their continued commitment to operating in a safe and efficient manner. Speaker 100:16:20Several of our operating segments achieved a 0 total recordable injury frequency in the Q1, which resulted in a 0.90 consolidated and a 12 month rolling trip of 1.34. A special shout out goes to the employees of Total Oilfield Rentals who achieved a zero trip for the past 12 months in respect of our entire North American RTS segment operations. Congratulations on a job well done. Finally, I'd like to invite you to attend our Annual General Meeting that is being held this coming Tuesday, May 14, at 10 a. M. Speaker 100:17:02At the Calgary Petroleum Club. I would now like to open up the phone lines for any Operator00:17:12questions. Thank And our first question today comes from Cole Piero with Stifel. Please go ahead. Speaker 300:17:41Hi, good morning all. Dan, you've provided a few comments on the Saxon acquisition thus far. I mean, wondering if you could just add any color on how things are progressing relative to your expectations, any surprises, positive or negative, etcetera? Speaker 100:18:01So things are progressing well. I would say we're very happy with the acquisition. I think the fit is good. In terms of the equipment and personnel, I would say generally, what we're finding is more positive relative to expectations. And what I'm seeing is a group that's happy to be part of our company. Speaker 100:18:27We're excited to be in the land drilling business and we're excited to grow the business. And I think that excitement is shared by the Saxon employees that are now part of our company. And so, I'm quite excited to see where our Australian business will go over the next several quarters. Speaker 300:18:53Great. That's helpful. Thanks. And can you just provide an outlook on how you're thinking about the wealth servicing segment and what the outlook is there, call it for the next few quarters? Speaker 100:19:06So Canada, we had a bit of a flat line, less abandonment work certainly impacted. There were some customer consolidation that impacted programs a bit in Q1. Although, our sales group there is working to broaden the customer base with healthy oil prices, the differential on heavy oil tightening here, we're reasonably optimistic on the Canadian business. The U. S. Speaker 100:19:37Side had a tough quarter. I think industry consolidation, there were a number of significant consolidation events. Those always are preceded by a drop in activity. I think the group struggled to manage their labor force, keeping employees in anticipation of activity and that didn't materialize. Again, the focus is on broadening the customer base and with healthy oil prices, we expect that business to improve going forward. Speaker 100:20:14Australia was really about weather. And as I mentioned, we've as part of our 2024 capital budget, we are deploying 3 service rigs, one of which was deployed here about a month ago and I commented on the other 2 that will be in late Q2 and the other one in Q4. We'll see a nice pickup in our service rig activity in Australia over the balance of the year here. So as long as oil prices remain stable, that business should be okay. Speaker 300:20:54Okay, great. That's helpful. Thanks. And Yuliya, just outside of anything from the CRA, how should we think how should we be thinking about total cash taxes going forward? Speaker 200:21:07Well, like this is binary problem. It's good when you don't pay taxes, have enough losses and it's bad when you're actually paying taxes. But when you're profitable enough to be paying taxes, so I guess we're going to deal with that problem as we go. We have disclosed our available losses in U. S. Speaker 200:21:24And Canada. So our income won't be translated into cash taxes in the near future, but some of it will. So just the way you look at it, you look at the year end disclosure and you can project the cash based on that. Speaker 100:21:43The one comment I would make is the $10,000,000 plus of interest that was paid on the reassessment was not tax deductible, which is why a bit of a strange anomaly here the past couple of quarters. Speaker 200:21:58So you're going to see the rate is looking a bit higher is because that $10,000,000 wasn't deductible. Couple of things to think about U. S. Is that in U. S. Speaker 200:22:11You can only apply 80% of your income to available losses. So that will definitely factor into what amount will be cash taxable. Speaker 300:22:26Got it. Okay, great. That's all for me. Thanks. I'll turn it back. Speaker 100:22:31Thanks, Cole. Operator00:22:33Thank you. Our first one our next question comes from Tom Montangelo with ATB Capital. Please go ahead. Speaker 400:22:46Hey, good morning. Speaker 100:22:48Good morning, Tim. Speaker 400:22:50Tim calling in for Tom. So in Australia, I'm just curious, like weather was a big impact. How much I don't know how you want to quantify it, revenue or activities that you lost because of weather in Australia, both on the drilling and well servicing side? Speaker 100:23:11There was a lot of standby with crew, standby without crew. We haven't done the exact math. And even if we did, we probably I hate blaming weather too much, but literally Q1 is always the slow time in Australia due to their wet weather season. This year was exceptionally wet. Literally, we had helicopters having to retrieve crews off of rigs because you could not access them by ground. Speaker 100:23:43When I think things are bad though, I was reminded by 2 of our directors who were founders of Savannah that when they first moved to Australia, they literally lost 2 rigs, were totally destroyed by flooding. So it could be worse. So like I said, Q1 there is always the wet season. It's kind of their breakup season. But the weather has improved and hopefully that continues. Speaker 100:24:14And if it does, we expect to have a pretty solid operation there. Speaker 400:24:21Can you speak how many rigs are running in Australia today? Speaker 100:24:26Drilling rig wise, I think we're in that 9 range. Speaker 200:24:31Yes, it is. Yes. Speaker 400:24:35Again, servicers? Speaker 100:24:39Probably 4 or 5, 4. Speaker 400:24:434. Yes. Okay. That's helpful. Were there any onetime costs in Q1 just related to the integration of Saxon that weren't called out in the MD and A? Speaker 100:24:58Acquisition about Speaker 400:25:01$500,000 Okay. And then I was curious about the CTS segment. Good to see that utilization ticking up alongside higher fleet size. Are you through that build now for 2024? Or are you going to continue to be utilizing floor space for internal buildings? Speaker 100:25:24There's always rental activity. What we saw beginning in Q4 culminating in Q1 was the largest build we've seen in quite a few years. And it's literally a timing issue where we had a couple of large rental orders that were deployed to the U. S. And so that was definitely a bit of a exceptional situation. Speaker 100:25:52We normally wouldn't comment too much on the break down in terms of production activity, but it was meaningful enough to highlight that. And going forward, that's really dependent on customer preference at any point in time. And so we're not going to try and forecast that. But what I would say generally is the rental business has improved I think in large part due to a higher cost of capital, which is now taken some of the financial players out of the market. We offer a true operating lease, which means we take residual risk at the end of the lease term as opposed to a finance lease. Speaker 100:26:40So the asset stays on our balance sheet and we take residual risk and we expect to be compensated for that risk for quite a few years likely due to low interest rates, the market in our judgment was under pricing risk. That's normalized a little bit and if there's good opportunities to deploy capital in growing the rental fleet, we'll pursue it. If there's not, we won't. Speaker 400:27:09Okay. Just in terms of like the capital budget that's been allocated to that and there's some carryover from 2023 and the 2024 budget. How far are you through the allocation to the U. S. Rentals? Speaker 100:27:22A lot of that 2023 carry forward was the compression rental build. And so you can see in Q1, there was about $10,500,000 of capital expenditures within the CPS segment. That's virtually all rental fleet additions. Keeping in mind, the Q4 would have also been and I don't have that number in front of me, the setup for that build. So anyways, we don't build compression rental units on spec. Speaker 100:28:02And typically what we will do is increase our rental budget for any major new projects. We did allocate $5,000,000 in our preliminary budget this year to this rental build or the rental fleet. A lot of that simply when units come back off rent, you've got to do some retrofit and modifications to make them suitable for new projects. Basically, you modify the equipment in response to new rental opportunities. So that would not be kind of net new additions to the fleet. Speaker 100:28:41We don't approve those until we have opportunities that are acceptable. Speaker 400:28:48Okay. And can you speak to the level of demand that you're seeing in terms of 3rd party orders for compression process services? Speaker 100:29:00I would say right now, North America is all about infrastructure build. And so what we're seeing is a I would say the demand is primarily driven by pipeline and midstream companies. Speaker 400:29:21Is or can you give us an indication of direction that you're seeing that? Is it improving flat line? Speaker 100:29:28I would say it's pretty steady. Obviously, the backlog went up during Q1. So that speaks for itself. Operator00:29:37Okay. Speaker 400:29:40And then I'm just curious if you're getting a sense that your customers are planning more or less growth than they would have been planning for the back half of the year in Canada relative to 3 months ago? Speaker 100:29:57I think it's a I would call it a stable market. We're in breakup right now, which is always a difficult time to kind of assess. It's really going to depend on oil price stability, a recovery in gas prices. Obviously, we're going into 2025 when LNG Canada will fire up. You get different views on what that means exactly. Speaker 100:30:22But I would say generally, we expect and we're planning for a relatively stable market. Speaker 400:30:31Okay, great. I'll turn it back. Thanks for the details. Speaker 100:30:34Thank you. Operator00:30:41Our next question comes from Joseph Schachter with Sandler. Please go ahead. Speaker 500:30:46Good morning, Dan and Julio. Thanks for taking my question. I'm just wondering, Dan, if you're seeing for the latter part of this year and into 2025 in each of your business lines, a pickup for our orders related to build out drilling and build out for LNG projects between LNG Canada and we're seeing Rockies moving ahead. Are you starting to see discussions and orders? And is the size of the equipment, let's say, for compression getting bigger? Speaker 500:31:23And of course, are they more complicated and therefore potentially more profitable for you? Speaker 100:31:29So definitely, as I mentioned earlier, Joseph, infrastructure build is driving North American demand. The material demand for compression process equipment. And so definitely the answer to your question, are we seeing continued demand there, it's yes. It is bigger horsepower equipment, some of it's electric and depending again on the location. We expect that demand to be relatively stable over the next couple of years. Speaker 100:32:08And it's again driven by the requirements to feed all of these LNG plants that are coming online in North America. I would say most of it is tied to the gathering system level at this point. What I would expect to see as we get closer to in service dates would be more field compression, which would likely mean a bit smaller horsepower and more from the producer level. That remains to be seen, but that's typically how these things go. As we get closer to in service dates, again, you'd expect gas drilling to pick up and completion activity. Speaker 100:32:52Clearly, right now, there's a lot of gas in North America. We've definitely seen some shifts away from gas towards oil. Again, the next couple of quarters will be again hear different numbers about how much is needed to fill these things. But I would say kind of what's driving the drilling business in Canada right now is certainly the recent commissioning and in service of Trans Mountain, we're seeing some pretty strong demand for our AC Doubles and super single class of rigs for liquids directed activity. And that will pull our rental business as well as our service rig business with it. Speaker 500:33:46And just to follow-up on that, are you do you have enough capacity across the system, let's say, for compression or is it going to be are you going to have to do some major construction once you start seeing more contracts coming your way? Speaker 100:34:07I would be hesitant to add more capacity. I think we've always found a way to increase throughput and there's different ways to do it both by being creative in the way you use your physical floor space, adding shifts, night shifts. So I would say within the CPS segment, we're fine for physical capacity. It would be labor ramp ups primarily. In the drilling business, if you want an AC double and a high spec single today, good luck post breakup. Speaker 100:34:46Those are tight markets in Canada. The U. S, I think we've seen hopefully knock on wood, our rig count bottom and again our guys have done a wonderful job down there managing their business. And with oil prices holding and some of this LNG kicking in, hopefully that will see a ramp up in U. S. Speaker 100:35:09Drilling over the back half of the year. Our rental group is obviously short certain lines of equipment. I won't give specifics for competitive reasons, but we just made a significant investment to add some brand new equipment there. Again, the type of equipment will tend to pull other lines of equipment that we have ample now. So like I said, all in all, I think we're reasonably optimistic. Speaker 100:35:42Again, it's a strange macro environment, so I don't take things for granted, but we'll enjoy the activity as it plays out and we're not going to put ourselves in a position that if things slow down materially, we're going to be at risk. Speaker 500:36:00Super. Thanks for the color. I appreciate that. Thank you. Operator00:36:03You're welcome. Our next question comes from Ernest Wong with Baskin Wealth Management. Please go ahead. Speaker 600:36:13Hi. Good morning, Dan and Yuliya. Good morning, Ernest. I just want to stay on the topic of LNG. So maybe on a big picture, what is how do you think about the ability of the industry overall in Canada to meet the upcoming demand and expected production increase in gas? Operator00:36:38Well, there's going to have to Speaker 100:36:39be more investment both in infrastructure and drilling and completion. We're seeing that play out on a steady basis within the CPS segment, but there's more to go. And on the drilling front, we expect you've seen a pretty significant uptick in BC drilling over the past year. Some of that was related to restrictions on drilling due to some aboriginal issues there that have now been resolved. But we think there's a relatively healthy demand for infrastructure and gas supply that will play out here over the next couple of years as Canada gets ready to finally start exporting LNG. Speaker 100:37:33The global LNG market is generally fairly healthy. Pricing has moderated somewhat from the extreme levels over the past year or so, honestly, we see that as a good thing. Extremely high pricing discourages investment in future infrastructure built around using natural gas. And so I think our kind of general view is pricing today is sufficient to see investment in developing and producing LNG. Australia is a prime example. Speaker 100:38:09Their national government just issued a policy here earlier this week that's very pro natural gas and pro LNG development, which is we see that as reassuring giving it's typically been seen as somewhat of a hostile regime towards natural gas development. So you're seeing the reality physics and economics always dictate outcomes and the reality is the world needs more energy and they're increasingly turning to natural gas to supply that. And so I tend to be a relatively bullish person on natural gas in the medium to long term, whether it's North America, Australia or elsewhere. Speaker 600:38:55Got it. And have you you guys raised CapEx obviously, but is there any change in terms of how you think about excess capital deployment, whether it be for capital returns or M and A or debt pay down? Speaker 100:39:13We continue to take a balanced approach. We never I don't like hard and fast rules. We use our balance sheet when it makes sense and we pay down debt at any time in between. We used our balance sheet to do what we see as an attractive acquisition with Saxon. Effectively, the rest of our CapEx is paid with cash. Speaker 100:39:44And given kind of how we're trending here, I expect debt repayment will not take too long to deal with and we increased our dividend effective Q1. We'll continue to look at share buybacks and our board reviews our dividends on a quarterly basis. But we also don't like to we like sustainability and a balanced approach to shareholder returns, but we've given a lot of capital back to our owners over the years. In fact, we've given more back through dividends and share buybacks than we've raised. So, we'll continue. Speaker 100:40:29I think anyone who's followed the company and been a shareholder for a long time knows that we don't talk about shareholder returns, we just do it. Speaker 600:40:39Sounds good. Thank you. You're welcome. Operator00:40:45And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Hallick for closing remarks. Speaker 100:40:52Thank you everyone for participating and we look forward to hopefully seeing some of you at our AGM and speaking with you after our Q2. Have a good weekend. Operator00:41:05Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallTotal Energy Services Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsInterim report Total Energy Services Earnings HeadlinesWhy I’d Consider These 3 Small Caps for a $5,000 Investment With Long-Term HorizonsApril 23 at 1:49 PM | msn.comHere’s How Many Shares of Total Energy Services You Should Own to Get $2,000 in Yearly DividendsMarch 25, 2025 | msn.comGet Your Bank Account “Fed Invasion” Ready with THESE 4 Simple StepsStarting as soon as a few months from now, the United States government will make a sweeping change to bank accounts nationwide. It will give them unprecedented powers to control your bank account.April 25, 2025 | Weiss Ratings (Ad)Total Energy Services' Projected Earnings Seem Likely To Cover Future DistributionsMarch 11, 2025 | finance.yahoo.comTotal Energy Services (TSE:TOT) shareholders have earned a 31% CAGR over the last five yearsMarch 8, 2025 | finance.yahoo.comTSX:TOT (Total Energy Services Inc.)February 3, 2025 | fool.caSee More Total Energy Services Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Total Energy Services? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Total Energy Services and other key companies, straight to your email. Email Address About Total Energy ServicesTotal Energy Services (TSE:TOT) Inc is an energy services company. The operating segments of the company are Contract Drilling Services, Rentals & Transportation Services, Compression & Process Service, Well servicing, and Corporate. 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There are 7 speakers on the call. Operator00:00:00Thank you for standing by. This is the conference operator. Welcome to Total Energy's First Quarter 2024 Results Conference Call and Webcast. 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. Operator00:00:31I would now like to turn the conference over to Daniel Halleck, President and CEO of Total Energy Services Inc. Please go ahead. Speaker 100:00:40Thank you, and good morning. Welcome to Total Energy Services' Q1 2024 conference call. Present with me is Julia Gorbach, Total's VP Finance and CFO. We will review with you Total's financial and operating highlights for the 3 months ended March 31, 2024. We will then provide an outlook for our business and open up the phone lines for questions. Speaker 100:01:03Yuliya, please go ahead. Speaker 200:01:05Thank you, Dan. During the course of this conference call, information may be provided containing forward looking information concerning Total's projected operating results, anticipated capital expenditure trends and projected activity in the oil and gas industry. Actual events or results may differ materially from those reflected in Total's forward looking statements due to a number of risks, uncertainties and other factors affecting Total's businesses and the Oil and Gas Service Industry in general. These risks, uncertainties and other factors are described under the heading Risk Factors and elsewhere in total of most recently filed Annual Information Form and other documents filed with Canadian Provincial Securities Authorities that are available to the public at www dotceroplas. Ca. Speaker 200:02:01Our discussions during this conference call are qualified with a reference to the notes to the financial highlights contained in the news release yesterday. Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars. Total Energy's financial results for the 3 months ended March 31, 2024, reflects relatively stable industry conditions in Canada, lower drilling activity in the United States and extended wet weather in Australia that significantly reduced field activity levels compared to the Q1 of 2023 despite stable industry conditions. On March 7, 2024, Total Energy completed acquisition of Saxon Energy Services Australia Pty Limited for a total purchase price of approximately $50,000,000 47,400,000 was paid on completion and $2,700,000 less any post completion adjustments is payable on March 7, 2025. During the Q1 of 2024, the company paid $19,700,000 of income taxes and related interest and penalties arising from the Canadian income tax reassessment related to Total Energy's conversion from an income trust in 2,009. Speaker 200:03:29While Total Energy has appealed the Tax Court decision, all amounts owing pursuant to such reassessment have been paid in full. Consolidated revenue for the Q1 of 2024 was 14% lower compared to Q1 2023. This was due primarily to lower drilling activity in the United States, restricted fuel activity in Australia due to wet weather and lower fabrication sales in the CPS segment. Modest price increases and cost management mitigated the decline in revenue such that 1st quarter consolidated EBITDA decreased by 11% compared to 2023. Geographically, 50% of 1st quarter revenue was generated in Canada, 39% in the United States and 11% in Australia as compared to the Q1 of 2023 when 46% of consolidated revenue was generated in Canada, 44% in the United States and 10% in Australia. Speaker 200:04:40By business segment, Contract Drilling Services generated 40% of 1st quarter consolidated revenue, followed by the CPS segment at 38%, well servicing at 12% and RTS segment at 11%. In comparison, for the Q1 of 2023, the CPS segment contributed 41% of consolidated revenue, contract drilling services 35% and well servicing 14%, followed by RTS segment at 10%. 1st quarter consolidated gross margin was 28% as compared to 25% from the prior year. Margin improvement in our CVS, RTS and CPS segments offset a decrease in Well Servicing segment. Relatively stable drilling activity in Canada and acquisition of Saxon on March 7, 2024, partially offset an industry wide decline in U. Speaker 200:05:40S. Drilling activity and the negative impact of wet weather on Australian activity, with the result that the CDS segment experienced a 3% decline in the Q1 operating days as compared to 2023. Despite a modest increase in revenue per operating day, lower activity resulted in a 2% year over year decrease in the CDS segment's 1st quarter revenue. Price increases arising from rig upgrades, a change in the mix of equipment operating and cost management resulted in a 10% year over year increase in the Q1 CDF segment EBITDA. In Canada, market share gains and the relocation of a triple rig from the U. Speaker 200:06:31S. In 2023 contributed to a 5% year over year increase in the Q1 operating days. Increased operating days, combined with a 2% year over year increase in Canadian revenue per operating day, resulted in a 6% year over year increase in Q1 Canadian drilling revenue relative to 2023. In the United States, 1st quarter revenue declined by 40% as lower U. S. Speaker 200:07:01Drilling activity and the transfer of the triple drilling rig to Canada in the Q2 of 2023 contributed to a 39% decrease in operating days. Revenue per operating day declined by 1%, due primarily to the mix of equipment operating. Efficient operations and cost management more than offset the decrease in revenue, such that the Q1 operating income more than doubled compared to 2023. In Australia, operating days increased with the addition of Saxon on March 7, 2024. Partially offsetting this increase was a general reduction in field activity levels due to extended wet weather conditions. Speaker 200:07:45Revenue per operating day increased 2% as a result of rig upgrades and the addition of heavier socks and drilling rigs. Revenue in the RTS segment decreased compared to Q1 of 2023 as a result of lower industry activity, particularly in the United States. Modest pricing increases and the mix of equipment operating contributed to a slight year over year increase in the 1st quarter segment EBITDA. 1st quarter revenue in total CPS segment decreased by 21% as compared to 2023, due primarily to lower fabrication sales and the impact of lower natural gas prices on parts and service activity. The decrease in fabrication sales was primarily due to a significant portion of fabrication activity in the CPS segment directed towards the construction on new compression rental units rather than fabrication sales, as evidenced by a 35% increase in compression horsepower and rent in the United States during the Q1 of 2024. Speaker 200:08:58Utilization of the rental fleet was slightly lower on a year over year basis due to the deployment of several newly constructed rental units late in the Q1 of 2024. Improved fabrication sales margins and increased rental revenue contributed to an 8 percent year over year increase in the Q1 CPS segment EBITDA margin. This increased margin partially offset the 21% decrease in revenue, such that segment EBITDA declined by 13%. The quarter end fabrication sales backlog decreased to $185,700,000 compared to the $227,400,000 backlog at March 31, 2023. Sequentially, the quarter end sales backlog increased by $22,900,000 during the Q1 of 2024. Speaker 200:10:051st quarter Well Servicing segment revenue decreased by 28% compared to 2023 as utilization and revenue per service hour decreased 26% and 2% respectively. This was due to lower activity in all jurisdictions. Australian activity was impacted by extended wet weather conditions, while lower well abandonment activity contributed to lower Canadian activity. Segment EBITDA and EBITDA margin declined as a result of lower activity as well as lower pricing in the United States. From a consolidated perspective, Total Energy's financial position remains very strong. Speaker 200:10:48At March 31, 2024, Total Energy had $124,400,000 of positive working capital, including $45,000,000 of cash. During the Q1, Total Energy borrowed $50,000,000 to complete Saxon acquisition and paid CAD 19,700,000 arising from a Canadian income tax reassessment, which resulted in a $25,400,000 of net debt at March 31, 2024. Total Energy's bank covenants consist of maximum senior debt to trailing 12 month bank defined EBITDA of 3 times and the minimum bank defined EBITDA to interest expense of 3 times. At March 31, 2024, the company's senior bank debt to bank EBITDA ratio was 0.41 and the bank interest coverage ratio was 10.05 times. Excluding $10,500,000 of non recurring interest expense relating to the income tax reassessment, The interest coverage ratio was 30.77 times. Speaker 100:12:01Thank you, Yuliya. We are pleased with our Q1 results. Despite a significant year over year decline in U. S. Industry activity levels, our U. Speaker 100:12:10S. Businesses performed reasonably well, particularly our U. S. Drilling Group, which did an excellent job managing their operations in a slower environment. In the context of relatively stable industry conditions and our strong financial position and having regard to our future prospects, the Board of Directors of total approved a 13% increase to our dividend during the Q1 as earlier press released. Speaker 100:12:42As Yuliya mentioned, our CPS segment made a significant investment in growing its compression rental fleet during the Q1. This is the most significant growth of the fleet in many years and is a result of improving market conditions in part likely due to higher interest rates. While this investment reduced 1st quarter CPS segment revenue and EBITDA, the return on such will be realized over the next several years. We are excited about the addition of Saxon to our Australian drilling business. The addition of the 11 Saxon rigs substantially increases the operational capacity of our Australian drilling fleet. Speaker 100:13:23For example, during the Q1, Saxon Rig 185 drilled the longest horizontal coal seam gas well ever drilled in Queensland at a total measured depth of 5,020 meters. The rig requirements to drill this well were beyond the capacity of our pre Saxon Australian drilling rig fleet. Saxon had no significant bottom line impact during the Q1 given the timing of closing and the expenses incurred to complete the acquisition. Rather, the impact of the Saxon acquisition will begin to be realized in the second quarter, particularly should recently improved weather conditions continue. The full impact won't be realized until we complete the integration and realize the efficiencies of the combined operation, which we expect to complete by the end of this year. Speaker 100:14:21In addition to Saxon, our Australian operations expect a newly constructed drilling rig to commence operations in the 3rd quarter and 2 upgraded service rigs in late Q2 and Q4 respectively. All three rigs will be operating under long term contracts. As such, we expect the income statement contribution from our significant investment in Australia will increase substantially over the next several quarters. As such investment was made without the issuance of any new equity, the impact will be amplified on a per share basis. Investment opportunities also exist in North America, as evidenced by the $19,800,000 increase to Total Energy's 2024 capital expenditure budget announced yesterday. Speaker 100:15:14$8,300,000 of this increase is targeting North American growth opportunities, including $6,400,000 allocated to purchasing new rental equipment for the RTS segment. Total Energy's investment in upgrading its equipment fleet over the past few years has not only provided a reasonable return for our owners, but it has also increased the capacity and performance of our equipment for the benefit of our customers. A highlight occurred in April when we drilled the longest Montney well ever drilled in Canada at a total measured depth of 8,006 meters. The well was drilled by Savannah Rig 653, an AC Electric telescopic double rig in just 19.2 days. Our safety performance during the Q1 was commendable, and I would like to thank all of our employees for their continued commitment to operating in a safe and efficient manner. Speaker 100:16:20Several of our operating segments achieved a 0 total recordable injury frequency in the Q1, which resulted in a 0.90 consolidated and a 12 month rolling trip of 1.34. A special shout out goes to the employees of Total Oilfield Rentals who achieved a zero trip for the past 12 months in respect of our entire North American RTS segment operations. Congratulations on a job well done. Finally, I'd like to invite you to attend our Annual General Meeting that is being held this coming Tuesday, May 14, at 10 a. M. Speaker 100:17:02At the Calgary Petroleum Club. I would now like to open up the phone lines for any Operator00:17:12questions. Thank And our first question today comes from Cole Piero with Stifel. Please go ahead. Speaker 300:17:41Hi, good morning all. Dan, you've provided a few comments on the Saxon acquisition thus far. I mean, wondering if you could just add any color on how things are progressing relative to your expectations, any surprises, positive or negative, etcetera? Speaker 100:18:01So things are progressing well. I would say we're very happy with the acquisition. I think the fit is good. In terms of the equipment and personnel, I would say generally, what we're finding is more positive relative to expectations. And what I'm seeing is a group that's happy to be part of our company. Speaker 100:18:27We're excited to be in the land drilling business and we're excited to grow the business. And I think that excitement is shared by the Saxon employees that are now part of our company. And so, I'm quite excited to see where our Australian business will go over the next several quarters. Speaker 300:18:53Great. That's helpful. Thanks. And can you just provide an outlook on how you're thinking about the wealth servicing segment and what the outlook is there, call it for the next few quarters? Speaker 100:19:06So Canada, we had a bit of a flat line, less abandonment work certainly impacted. There were some customer consolidation that impacted programs a bit in Q1. Although, our sales group there is working to broaden the customer base with healthy oil prices, the differential on heavy oil tightening here, we're reasonably optimistic on the Canadian business. The U. S. Speaker 100:19:37Side had a tough quarter. I think industry consolidation, there were a number of significant consolidation events. Those always are preceded by a drop in activity. I think the group struggled to manage their labor force, keeping employees in anticipation of activity and that didn't materialize. Again, the focus is on broadening the customer base and with healthy oil prices, we expect that business to improve going forward. Speaker 100:20:14Australia was really about weather. And as I mentioned, we've as part of our 2024 capital budget, we are deploying 3 service rigs, one of which was deployed here about a month ago and I commented on the other 2 that will be in late Q2 and the other one in Q4. We'll see a nice pickup in our service rig activity in Australia over the balance of the year here. So as long as oil prices remain stable, that business should be okay. Speaker 300:20:54Okay, great. That's helpful. Thanks. And Yuliya, just outside of anything from the CRA, how should we think how should we be thinking about total cash taxes going forward? Speaker 200:21:07Well, like this is binary problem. It's good when you don't pay taxes, have enough losses and it's bad when you're actually paying taxes. But when you're profitable enough to be paying taxes, so I guess we're going to deal with that problem as we go. We have disclosed our available losses in U. S. Speaker 200:21:24And Canada. So our income won't be translated into cash taxes in the near future, but some of it will. So just the way you look at it, you look at the year end disclosure and you can project the cash based on that. Speaker 100:21:43The one comment I would make is the $10,000,000 plus of interest that was paid on the reassessment was not tax deductible, which is why a bit of a strange anomaly here the past couple of quarters. Speaker 200:21:58So you're going to see the rate is looking a bit higher is because that $10,000,000 wasn't deductible. Couple of things to think about U. S. Is that in U. S. Speaker 200:22:11You can only apply 80% of your income to available losses. So that will definitely factor into what amount will be cash taxable. Speaker 300:22:26Got it. Okay, great. That's all for me. Thanks. I'll turn it back. Speaker 100:22:31Thanks, Cole. Operator00:22:33Thank you. Our first one our next question comes from Tom Montangelo with ATB Capital. Please go ahead. Speaker 400:22:46Hey, good morning. Speaker 100:22:48Good morning, Tim. Speaker 400:22:50Tim calling in for Tom. So in Australia, I'm just curious, like weather was a big impact. How much I don't know how you want to quantify it, revenue or activities that you lost because of weather in Australia, both on the drilling and well servicing side? Speaker 100:23:11There was a lot of standby with crew, standby without crew. We haven't done the exact math. And even if we did, we probably I hate blaming weather too much, but literally Q1 is always the slow time in Australia due to their wet weather season. This year was exceptionally wet. Literally, we had helicopters having to retrieve crews off of rigs because you could not access them by ground. Speaker 100:23:43When I think things are bad though, I was reminded by 2 of our directors who were founders of Savannah that when they first moved to Australia, they literally lost 2 rigs, were totally destroyed by flooding. So it could be worse. So like I said, Q1 there is always the wet season. It's kind of their breakup season. But the weather has improved and hopefully that continues. Speaker 100:24:14And if it does, we expect to have a pretty solid operation there. Speaker 400:24:21Can you speak how many rigs are running in Australia today? Speaker 100:24:26Drilling rig wise, I think we're in that 9 range. Speaker 200:24:31Yes, it is. Yes. Speaker 400:24:35Again, servicers? Speaker 100:24:39Probably 4 or 5, 4. Speaker 400:24:434. Yes. Okay. That's helpful. Were there any onetime costs in Q1 just related to the integration of Saxon that weren't called out in the MD and A? Speaker 100:24:58Acquisition about Speaker 400:25:01$500,000 Okay. And then I was curious about the CTS segment. Good to see that utilization ticking up alongside higher fleet size. Are you through that build now for 2024? Or are you going to continue to be utilizing floor space for internal buildings? Speaker 100:25:24There's always rental activity. What we saw beginning in Q4 culminating in Q1 was the largest build we've seen in quite a few years. And it's literally a timing issue where we had a couple of large rental orders that were deployed to the U. S. And so that was definitely a bit of a exceptional situation. Speaker 100:25:52We normally wouldn't comment too much on the break down in terms of production activity, but it was meaningful enough to highlight that. And going forward, that's really dependent on customer preference at any point in time. And so we're not going to try and forecast that. But what I would say generally is the rental business has improved I think in large part due to a higher cost of capital, which is now taken some of the financial players out of the market. We offer a true operating lease, which means we take residual risk at the end of the lease term as opposed to a finance lease. Speaker 100:26:40So the asset stays on our balance sheet and we take residual risk and we expect to be compensated for that risk for quite a few years likely due to low interest rates, the market in our judgment was under pricing risk. That's normalized a little bit and if there's good opportunities to deploy capital in growing the rental fleet, we'll pursue it. If there's not, we won't. Speaker 400:27:09Okay. Just in terms of like the capital budget that's been allocated to that and there's some carryover from 2023 and the 2024 budget. How far are you through the allocation to the U. S. Rentals? Speaker 100:27:22A lot of that 2023 carry forward was the compression rental build. And so you can see in Q1, there was about $10,500,000 of capital expenditures within the CPS segment. That's virtually all rental fleet additions. Keeping in mind, the Q4 would have also been and I don't have that number in front of me, the setup for that build. So anyways, we don't build compression rental units on spec. Speaker 100:28:02And typically what we will do is increase our rental budget for any major new projects. We did allocate $5,000,000 in our preliminary budget this year to this rental build or the rental fleet. A lot of that simply when units come back off rent, you've got to do some retrofit and modifications to make them suitable for new projects. Basically, you modify the equipment in response to new rental opportunities. So that would not be kind of net new additions to the fleet. Speaker 100:28:41We don't approve those until we have opportunities that are acceptable. Speaker 400:28:48Okay. And can you speak to the level of demand that you're seeing in terms of 3rd party orders for compression process services? Speaker 100:29:00I would say right now, North America is all about infrastructure build. And so what we're seeing is a I would say the demand is primarily driven by pipeline and midstream companies. Speaker 400:29:21Is or can you give us an indication of direction that you're seeing that? Is it improving flat line? Speaker 100:29:28I would say it's pretty steady. Obviously, the backlog went up during Q1. So that speaks for itself. Operator00:29:37Okay. Speaker 400:29:40And then I'm just curious if you're getting a sense that your customers are planning more or less growth than they would have been planning for the back half of the year in Canada relative to 3 months ago? Speaker 100:29:57I think it's a I would call it a stable market. We're in breakup right now, which is always a difficult time to kind of assess. It's really going to depend on oil price stability, a recovery in gas prices. Obviously, we're going into 2025 when LNG Canada will fire up. You get different views on what that means exactly. Speaker 100:30:22But I would say generally, we expect and we're planning for a relatively stable market. Speaker 400:30:31Okay, great. I'll turn it back. Thanks for the details. Speaker 100:30:34Thank you. Operator00:30:41Our next question comes from Joseph Schachter with Sandler. Please go ahead. Speaker 500:30:46Good morning, Dan and Julio. Thanks for taking my question. I'm just wondering, Dan, if you're seeing for the latter part of this year and into 2025 in each of your business lines, a pickup for our orders related to build out drilling and build out for LNG projects between LNG Canada and we're seeing Rockies moving ahead. Are you starting to see discussions and orders? And is the size of the equipment, let's say, for compression getting bigger? Speaker 500:31:23And of course, are they more complicated and therefore potentially more profitable for you? Speaker 100:31:29So definitely, as I mentioned earlier, Joseph, infrastructure build is driving North American demand. The material demand for compression process equipment. And so definitely the answer to your question, are we seeing continued demand there, it's yes. It is bigger horsepower equipment, some of it's electric and depending again on the location. We expect that demand to be relatively stable over the next couple of years. Speaker 100:32:08And it's again driven by the requirements to feed all of these LNG plants that are coming online in North America. I would say most of it is tied to the gathering system level at this point. What I would expect to see as we get closer to in service dates would be more field compression, which would likely mean a bit smaller horsepower and more from the producer level. That remains to be seen, but that's typically how these things go. As we get closer to in service dates, again, you'd expect gas drilling to pick up and completion activity. Speaker 100:32:52Clearly, right now, there's a lot of gas in North America. We've definitely seen some shifts away from gas towards oil. Again, the next couple of quarters will be again hear different numbers about how much is needed to fill these things. But I would say kind of what's driving the drilling business in Canada right now is certainly the recent commissioning and in service of Trans Mountain, we're seeing some pretty strong demand for our AC Doubles and super single class of rigs for liquids directed activity. And that will pull our rental business as well as our service rig business with it. Speaker 500:33:46And just to follow-up on that, are you do you have enough capacity across the system, let's say, for compression or is it going to be are you going to have to do some major construction once you start seeing more contracts coming your way? Speaker 100:34:07I would be hesitant to add more capacity. I think we've always found a way to increase throughput and there's different ways to do it both by being creative in the way you use your physical floor space, adding shifts, night shifts. So I would say within the CPS segment, we're fine for physical capacity. It would be labor ramp ups primarily. In the drilling business, if you want an AC double and a high spec single today, good luck post breakup. Speaker 100:34:46Those are tight markets in Canada. The U. S, I think we've seen hopefully knock on wood, our rig count bottom and again our guys have done a wonderful job down there managing their business. And with oil prices holding and some of this LNG kicking in, hopefully that will see a ramp up in U. S. Speaker 100:35:09Drilling over the back half of the year. Our rental group is obviously short certain lines of equipment. I won't give specifics for competitive reasons, but we just made a significant investment to add some brand new equipment there. Again, the type of equipment will tend to pull other lines of equipment that we have ample now. So like I said, all in all, I think we're reasonably optimistic. Speaker 100:35:42Again, it's a strange macro environment, so I don't take things for granted, but we'll enjoy the activity as it plays out and we're not going to put ourselves in a position that if things slow down materially, we're going to be at risk. Speaker 500:36:00Super. Thanks for the color. I appreciate that. Thank you. Operator00:36:03You're welcome. Our next question comes from Ernest Wong with Baskin Wealth Management. Please go ahead. Speaker 600:36:13Hi. Good morning, Dan and Yuliya. Good morning, Ernest. I just want to stay on the topic of LNG. So maybe on a big picture, what is how do you think about the ability of the industry overall in Canada to meet the upcoming demand and expected production increase in gas? Operator00:36:38Well, there's going to have to Speaker 100:36:39be more investment both in infrastructure and drilling and completion. We're seeing that play out on a steady basis within the CPS segment, but there's more to go. And on the drilling front, we expect you've seen a pretty significant uptick in BC drilling over the past year. Some of that was related to restrictions on drilling due to some aboriginal issues there that have now been resolved. But we think there's a relatively healthy demand for infrastructure and gas supply that will play out here over the next couple of years as Canada gets ready to finally start exporting LNG. Speaker 100:37:33The global LNG market is generally fairly healthy. Pricing has moderated somewhat from the extreme levels over the past year or so, honestly, we see that as a good thing. Extremely high pricing discourages investment in future infrastructure built around using natural gas. And so I think our kind of general view is pricing today is sufficient to see investment in developing and producing LNG. Australia is a prime example. Speaker 100:38:09Their national government just issued a policy here earlier this week that's very pro natural gas and pro LNG development, which is we see that as reassuring giving it's typically been seen as somewhat of a hostile regime towards natural gas development. So you're seeing the reality physics and economics always dictate outcomes and the reality is the world needs more energy and they're increasingly turning to natural gas to supply that. And so I tend to be a relatively bullish person on natural gas in the medium to long term, whether it's North America, Australia or elsewhere. Speaker 600:38:55Got it. And have you you guys raised CapEx obviously, but is there any change in terms of how you think about excess capital deployment, whether it be for capital returns or M and A or debt pay down? Speaker 100:39:13We continue to take a balanced approach. We never I don't like hard and fast rules. We use our balance sheet when it makes sense and we pay down debt at any time in between. We used our balance sheet to do what we see as an attractive acquisition with Saxon. Effectively, the rest of our CapEx is paid with cash. Speaker 100:39:44And given kind of how we're trending here, I expect debt repayment will not take too long to deal with and we increased our dividend effective Q1. We'll continue to look at share buybacks and our board reviews our dividends on a quarterly basis. But we also don't like to we like sustainability and a balanced approach to shareholder returns, but we've given a lot of capital back to our owners over the years. In fact, we've given more back through dividends and share buybacks than we've raised. So, we'll continue. Speaker 100:40:29I think anyone who's followed the company and been a shareholder for a long time knows that we don't talk about shareholder returns, we just do it. Speaker 600:40:39Sounds good. Thank you. You're welcome. Operator00:40:45And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Hallick for closing remarks. Speaker 100:40:52Thank you everyone for participating and we look forward to hopefully seeing some of you at our AGM and speaking with you after our Q2. Have a good weekend. Operator00:41:05Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.Read morePowered by