Calfrac Well Services Ltd.
Q3 2020 Earnings Call Transcript

Published: 12 Nov 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to today's Calfrac Well Services Ltd. Third Quarter 2020 Earnings Release Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. I'd now like to hand the conference over to your speaker today, Scott Treadwell, Vice President of Capital Markets and Strategy. Please go ahead.

[Scott Treadwell:]

Thanks, Michelle. Good morning everyone and welcome to our discussion of Calfrac Well Services third quarter 2020 results. Also on the call today are Lindsay Link, Calfrac's President and Chief Operating Officer; and Michael Olinek, our Chief Financial Officer. This morning's conference call will be conducted as follows

[Lindsay Link:]

Thanks, Scott. Good morning and thank you everyone for joining our call today. Before Mike comments on financial matters, I'd like to offer a few opening remarks. As we've all seen, the third quarter of 2020 showed the strength of our diversification and the quality of our team. Our Canadian and Russian operations performed very well, largely due to longstanding client relationships and excellent field performance. In the United States, activity improved sequentially, as we built back operating capacity at a measured pace. Our North American operations delivered positive financial results despite great pricing having fallen by as much as 20% over the last year. In Argentina, the government mandated shutdown of operations was partially lifted as the quarter progressed and improvement continues. We also achieved a number of milestones in pursuing our recapitalization having secured the approval of the amended Recapitalization Transaction by our shareholders, noteholders, and the courts. We’ll keep you all informed as matters evolve. I look forward to putting the past several months behind us and moving ahead to better days for Calfrac, our stakeholders, and our industry. Over the past months, our employees, vendors and clients have continued to demonstrate their support for Calfrac. Our clients, in particular, have repeatedly voiced their appreciation for the excellent service Calfrac provides in the field and in the office to support their development plans. I'd like to thank all of our people, partners, investors for their support over the last few months as we move through the recapitalization process. While the worst of 2020 seems to be behind us, and activity levels are improving across much of our operations, we will not be in a rush to add equipment or cost to our footprint. We'll continue to advance a prudent and measured approach to capital allocation and operation expansion in improving markets globally, with a focus on free cash flow and appropriate returns on capital to underpin Calfrac's long-term success. Now I'll pass the call over to Mike who'll present an overview of our quarterly financial performance.

[Michael Olinek:]

Thank you, Lindsay, and thank you everyone for joining us for today's call. Our third quarter results improved significantly compared to the prior-quarter in all divisions due to activity improvements and field productivity, combined with cost savings throughout all areas of our business. Consolidated revenue in the third quarter decreased by 68% year-over-year to $127.8 million largely due to material slowdowns in the United States, Canada, and Argentina, along with a more modest reduction in Russia. Adjusted EBITDA reported for the quarter was $8.5 million compared to $43 million a year-ago. Operating income was down 83% to $8 million from $47 million in 2019. These weaker results were driven by lower activity and pricing in North America and Argentina as well as non-cash charges of $2.8 million and $0.4 million related to restructuring costs that were recorded during the quarter. The net loss for the quarter was $50 million compared to a net loss of $29.4 million in the same period of 2019. For the three months ended September 30, 2020, depreciation expense decreased by $27 million to $31.7 million from $58.7 million in the corresponding quarter of 2019. This decrease was driven primarily by $227.2 million impairment to PP&E that was recorded in the first half of 2020, as well as lower levels of capital spending on capital items with shorter useful lives and corresponding higher depreciation rates. In January of this year, Calfrac's Board of Directors approved the company's 2020 capital budget of $100 million. This budget was subsequently reduced in March to $55 million due to the significant changes in industry activity that were experienced earlier in the year. In November, the Board of Directors has further reduced the company's capital budget to $40 million, and it will be adjusted further if necessary to respond to changes in market conditions and economics. After a significant release in the second quarter of 2020, working capital build during the third quarter by $26.2 million. This build was the largest driver of the $47.8 million reduction in cash on hand during the third quarter, which also included a $5 million decrease in borrowings under the company's revolving credit facility. To summarize the balance sheet as at September 30, the company had working capital of $128 million, including $40.1 million in cash. At September 30, 2020, the company had used $0.9 million of its credit facilities for letters of credit, and had $165 million of borrowings under its credit facilities, leaving $209.1 million in potential capacity at the end of the third quarter. Subsequent to the end of the third quarter, following court approval of the amended Recapitalization Transaction, Calfrac's senior lending syndicate granted the company a waiver on its funded debt-to-EBITDA covenant. This waiver is a precursor to further changes to the credit facilities that will become effective upon the closing of the Recapitalization Transaction. I would now like to turn the call back to Lindsay to provide our outlook.

[Lindsay Link:]

Thanks Mike. I will now present an outlook for Calfrac's operations across our geographical footprint. Despite a number of significant global events, including the ongoing impacts of COVID-19, oil prices have remained relatively stable around $40 per barrel. We continue to see a balance in the market as supply curtailments in OPEC and capital spending reductions globally have maintained pace with demand destruction resulting from COVID-19 related restrictions. At some point, a recovery in demand levels will tighten the physical market for oil and will likely require a material increase in activity in North America to maintain balance. Natural gas fundamentals have continued to improve through 2020, with strip pricing at Henry Hub now approaching US$3 million per MMBtu's for 2021. This improvement has been reflected partially in capital shifts on the part of our clients and we expect more focus on natural gas development in the year ahead in Canada, the United States and Argentina. Where incentives for development designed to reduce energy imports and strengthen the domestic industry and economy could improve activity levels in the Vaca Muerta shale play. We continue to see a consistent focus on prudent capital allocation over production growth on the part of our client base and expect that strategy to continue in 2021. It’s worth noting that across the oilfield services space, pricing is down materially from 2019, while sales performance has improved substantially. Our customers are getting outstanding performance in the field for the lowest cost in years. While this situation is a material tailwind for the operations of our clients, it is not sustainable and in the long-term, especially as it pertains to pricing and returns on investment for oilfield services. As always, our focus at Calfrac is to deliver on our brand promise to do it better, to do it safely, and to do it on time. Even through 2020, we have been able to advance our performance against the standard. Our fixed costs, which include district and divisional costs, as well as our reported SG&A, are expected to be down over $70 million in 2020 compared to 2019. Some of these savings have come from compensation and headcount reductions, but a significant portion have been realized due to ongoing process improvements and the implementation of our ERP system during 2020. We will not cut corners in making sure that we can operate safely, reliably and efficiently in the field. But we'll always look for ways to execute our back office support and corporate functions as cost effectively as possible. By doing this, we aim to maximize the dropdown of profits earned in the field to our bottom line. In our U.S. division, the quarter showed steady improvement in activity. Although some projects were delayed, our frac calendar improved through the quarter, and that trend has continued into Q4. As budgets reset for 2021, we expect modest incremental improvement in activity levels across most basins in the United States. This may present opportunities to improve utilization further and potentially add more active crews to our U.S. operation in the early part of 2021. There has been no pricing improvement in the U.S. market over the summer, and outside of any input cost inflation, pricing improvement is not likely to occur in the near term. Should activity levels accelerate more rapidly than we anticipate, pricing improvement will be a necessary part of a rapid return to higher activity levels. In Canada, the third quarter was unfortunately volatile in terms of activity levels. While July and September were strong months, client schedules and delays removed almost all the activity from the August calendar. This impact is reflected in the financial results resulting in approximately 500 basis points of margin erosion for the third quarter. The third quarter ended with strong utilization for Calfrac's Canadian Division, a trend that appears perhaps to continue for much of the fourth quarter, potentially driving modestly, improved activity overall. Looking into 2021, our marketed equipment is essentially fully booked through the first quarter of the year. Our core customers are generally messaging increased activity in 2021 compared to the second half of 2020. Some shift towards gasier resources than we have seen in the last number of years will also take place. I'll take a minute now to cover Calfrac's international operations. In the third quarter, Calfrac's operations in Russia exceeded our expectations for both revenue and profitability. The improvements were due to our main customer completing a larger percentage of horizontal multistage conventional well, as well as the avoidance of the operational disruptions that have been a regular occurrence over the last number of years. Our Russian management team has also optimized the business for current activity levels further improving margin performance. While activity levels could remain elevated through the fourth quarter, the onset of winter in Western Siberia is expected to impact our operational tempo at some point in the quarter. As well the switch to higher cost winter diesel and the need to run engines at all times when equipment is outside will impact margins in the fourth quarter that is typical. Forecasted work volumes for 2021 appear to be similar to those experienced in 2020. And improved access to new operating fields -- to a new operating field should reduce the risk of unforeseen idle periods throughout the year. Operations in Argentina were shut down in late March by government decree in response to COVID-19 and did not recommence until the middle of June. The restart was a slow process and large scale fracturing operations in the Neuquén region were among the last to start backup. While results were materially better than the prior-quarter, we were not able to deliver positive operating income in Argentina due to the low levels of activity. Looking ahead, we expect further significant improvement in our results in Argentina, and a return to positive operating income in the country in the fourth quarter as almost all operations will be back to pre-COVID levels. Our outlook for 2021 appears robust today, with development incentives rolled out by the Federal Government in Argentina expected to drive increased activity in unconventional resource drilling and completions. Finally, to touch on our Recapitalization process. The statutory appeal process launched by Wilks Brothers, after the ruling of the Court of Queen's Bench approving Calfrac's plan of arrangement on October 30 is moving ahead. The Alberta Court of Appeal has agreed to hear the appeal on an expedited basis with the hearing scheduled for November 25. Calfrac will vigorously oppose the appeal, and is confident that the evidence before the Court of Appeal supports our position. Calfrac will continue to update stakeholders with all significant developments as the process continues, and is continuing preparations to close the amended recapitalization transaction as quickly as practical following the upcoming appeal hearing. One final note of thanks to our employees for all of their efforts, day in and day out, I'm proud of the work that they do. And excuse me, and I'd also like to thank everyone for joining us today. And I'll now turn the call back to the operator for questions.

[Operator:]

Okay, thank you. [Operator Instructions]. Your first question comes from Waqar Syed from ATB Capital Markets. Your line is open.

[Waqar Syed:]

Thank you for taking my question. First question, Lindsay, what would be the magnitude of any legal fees that Calfrac may incur because of the recap and other issues?

[Lindsay Link:]

Well, Waqar, as part of our public disclosure, we don't get into just the legal fees. But we do talk about transaction fees in total. And it's around $19 million right now, it's our current forecast. Some of that has already been incurred as we were going through the process and some of that will be on the close of the transaction here hopefully in the late fourth quarter.

[Waqar Syed:]

No, is that capped at $19 million or the process taken longer than expected? Is it going to increase from here?

[Scott Treadwell:]

Waqar, it's Scott. I don't think we'll give you any color there. I mean, to the extent the process is extended, or there's loose ends to tie-up. If there's material incremental costs we'll certainly give some color around that. But at this point, we won't give you anything incremental there.

[Waqar Syed:]

Okay. Then just if demand for equipment increases in the U.S. and Canada, what will be the kind of reactivation cost for an addition crew in those markets?

[Lindsay Link:]

So, for the U.S., generally speaking of fleets especially, the first couple of fleets will be less than a million dollars apiece. We have equipment that is basically ready to start-up; we don't have the people there. So you have some time. In Canada as far as Canada goes, we would be looking for more increased utilization rather than increased horsepower being brought into the country.

[Waqar Syed:]

Okay. And then you have, I believe you now have five crews active in the U.S. What basins are they kind of focused on and going forward, what the focus is going to be in which basins?

[Lindsay Link:]

I mean we're -- our geographical footprint is in the Northeast. And that will continue to be a focus, the Bakken which is still a focus. We're in Western Colorado. And we have West Texas coming out of our New Mexico base. We probably will have some work coming out of South Texas operation in San Antonio. It's possible. There is fair amount of moving pieces right at the moment, Waqar; potentially we could get the couple of fleets, additional fleets running in Q1.

[Waqar Syed:]

Okay. So, right now your market share in the U.S. looks to be around 3.8% or so. Do you think you can maintain that market share if activity continues to increase throughout 2021?

[Scott Treadwell:]

Yes, Waqar, it's Scott. I think, the short answer is yes, I think we're certainly positioned if frac activity was to go up by 50%, 60%, 100% given our geographic footprint, we -- I think it absolutely maintain pace with that. But I want to caveat that to say we don't run our business based on market share. And so if the activity is growing, but the economic returns aren't there, I don't think you'll see us lose too much sleep over where our market share trends. But by the same token, the right customer and the right approach might see us outgrow some basins as well. So, I think we're -- will be in the ballpark, but I wouldn't say we'll slavishly stick to it.

[Waqar Syed:]

Now, some of your competitors, both in the U.S. and Canada have mentioned that there is increased customer demand for dual fuel fleets. And some of the companies, some of your competitors are investing in dual fuel as well convergence and even Tier 4 engines and all. Where do you stand with that? And how is Calfrac positioned, if you're seeing those trends as well?

[Lindsay Link:]

That's a great question, Waqar. We're continuing to add to our dual fuel fleet, both in Canada and in the U.S. In Canada, probably with this latest increase in our dual fuel that we've just started on, we'll have them at least the majority won't be a large majority, but a majority of our units will be dual fuel capable. And in the U.S., we're continuing to add customer demands kind of make it economically feasible to do so. So we're on that trend, we're not on the trend of replacing the existing engines with Tier 4 engine, that's a larger value that a person would have to put into a unit and I think we would pursue dual fuel over that for now.

[Waqar Syed:]

Okay. And just one, maybe two questions last, what portion of your fleet right now is dual fuel capable in Canada and the U.S. and then how many fields do you have active in Argentina? That's all for me.

[Scott Treadwell:]

Well, as Lindsay said, we're -- once we're done this, it'll be a little over half in Canada. I think we were running. We were a little over a third prior to this engagement. In the U.S., it would be less than that. But again, I think part of it goes back to footprint and I guess the in-basin logistics capability. So we don't want to get too far ahead of that. I think what I could tell you is that we don't feel like it would be a stretch to any of our divisions to add dual fuel as customers demand it and as logistics infrastructure supports it. And then in Argentina, right now we're running, running one large frac spread in Neuquén and then probably three to four smaller spreads in the Southern part of the country across a couple of districts.

[Waqar Syed:]

And how does that number compared to the second quarter in Argentina?

[Scott Treadwell:]

All significantly better. We were running, if you wanted to round it, it was probably close to zero for parts of the second quarter. We probably exited Q2 running two small fleets and no large fleets. There's still a little bit of excess capacity there for us. But we certainly have the potential to put, most if not all of our frac equipment to work in Argentina, probably within the next three to six months, it's kind of going to depend on some customer programs, but we see the demand there for sure that that utilization can continue to move higher.

[Waqar Syed:]

So if I understand correctly, in the third quarter, you only had three to four smaller units working and now the addition in the fourth quarter would be the one larger fleet, is that right?

[Scott Treadwell:]

Essentially. Yes, there'll be some pluses or minuses around that, but the big step will be the large fleet in Neuquén.

[Operator:]

The next question will come from Andrew Bradford from Raymond James. Your line is open.

[Andrew Bradford:]

Hey, thank you. Just so I understand maybe finish-off in that line of questioning is your current budget contemplate more conversions to dual fuel?

[Lindsay Link:]

That's correct. Yes, in both the U.S. and Canada.

[Andrew Bradford:]

Okay. Okay, thank you for that. Are we in an environment and you're speaking specifically to the North American fracturing fleets, are we in an environments where we're watching that demand is rising slowly. But are you at a point now where you contemplate me getting into additional customers? Or there's some fluidity of the customer base between providers?

[Scott Treadwell:]

Yes, I think there's always a little bit of that. I would say, in Canada, we've seen maybe less fluidity, there's always some changes. But I think our -- certainly our core clients, and the core clients of most of our peers are relatively sticky. In the U.S., there's definitely clients that are sticky and that have certainly in the Calfrac context, maintained their relationship with us. But we have certainly seen the opportunity to bid on programs that, I don't want to say we wouldn't have bid on in the past, because I think we're always looking at opportunities. But when the bid comes in, you sort of think that the color might be that this is more of a box ticking exercise rather than an actual search for new providers. But there has been some turnover, notably in the U.S. that always gives us -- gives you hope that there's opportunity there. But I don't think it's marked a change for us. I don't think we're more aggressive or more concerned about any of that. I'd say it's -- we've observed it, but I don't think we'd necessarily noted as hugely material.

[Andrew Bradford:]

Sure. Do you think competition over new work increases, as demand starts rising?

[Scott Treadwell:]

It's going to be interesting, right because I think the way this is going to play out is you've got underutilized equipment, which economics would tell you as little to no marginal cost. And so, absolutely, you're going to see irrational pricing on the face of it, to see that go to work. And we've absolutely seen that both sides of the border. But I don't know that that's a very large piece of the fracturing market in either country. And so I would suggest that, with a quarter at kind of this activity level, or maybe slightly higher, there won't be much underutilized equipment, and you'll have to reactivate assets to get them to go to work. Now, for us some of that will be relatively low cost but for the first few, for others, it might be the same, it might be more. And so that should hopefully inform where pricing needs to go and hopefully gets rid of the irrational bidding. Now, that being said, I think we've all been proved wrong for a number of years about faith in the rationality of pricing in our market. So we're certainly not hanging our hat on that. But that kind of informed why we've said, we don't think pricing moves significantly in the near-term as we think there's still a little bit of underutilized capacity in North America.

[Andrew Bradford:]

Sure. So sufficed to say, then, that you get improved economics simply through improved utilization within your existing customer base that would give you enough operating leverage to get higher returns on the marginal -- on the incremental crews is that right deal, it's not?

[Scott Treadwell:]

Yes.

[Andrew Bradford:]

Thank you. The plan isn't necessarily predicated on pricing increases?

[Scott Treadwell:]

No, no. I think for us, the other part of it is the work we've done on cost reductions, primarily at the district and divisional level, where adding a fleet can be quite accretive to our margins. I mean, it always is. But I think it's even more powerful. Now you've seen the results in the North American businesses particularly in Canada, on a significantly reduced revenue base. And so we think that there can be a fair amount of pass-through of cash from the field to the bottom line. But as I said, part of that equation when you're looking at reactivation is where the market is, and there is an outlay of capital, even though it's only a million dollars, it's still something that has to be accounted for and that's going to be our decision making process.

[Lindsay Link:]

I think, also Andrew, we're always probably a quarter behind on the pricing. So, Q1 is I have no doubt; we'll have a number of fleets' start-up in our industry. But that pricing is basically being secured by the customers today. So I think what we had put forward that if it goes beyond what we expect, then we will have to, I think even as an industry, but for sure on our company, we would want to have an increase in pricing. But what we're projecting here, it doesn't have an increased price improvement yet.

[Andrew Bradford:]

Okay. Not to press the point too much here. But you would be happy, I assume you would also start a crew, not necessarily you didn't get an increase in pricing. But if you had certainty that your contract might provide or certainty in terms of its utilization over an ex period of time, that would be sufficient, can you answer that?

[Lindsay Link:]

No, we get one or two customers that that are planning to start-up that whether they're very efficient, they know how to do their work, and we can count on them to give us more than 20 days in a month, we'll end up with 30 days and larger pads and so we get both volume and efficiency all at the same time.

[Andrew Bradford:]

Okay. That's what I was driving. Thank you very much.

[Lindsay Link:]

Yes.

[Operator:]

And your next question will come from Stan Manoukian from Independent Credit. Your line is open.

[Stan Manoukian:]

Hi, thanks for taking my questions. Well sort of continuum to Andrew's line, obviously, you have been able to stick with the revenue per fracturing job, both in the U.S. and Canada pretty well, which implies that you're being very disciplined in terms of bidding for -- non-bidding for profitable contracts. But I assume, as you just mentioned, that there are bidders willing to accept lower pricing. And that depends on their sort of a location of their fleets and other considerations, but complex, sort of considering what do you think are those sort of bids coming for the spot contracts or for long-term contracts with majors?

[Scott Treadwell:]

I think it probably runs the entire gamut. I mean, to the extent that there's an underutilized active fleet, you're probably not bidding that into a three-year contract with a major because you might not have the capacity, you'd be contemplating an incremental fleet. But I think the thought process is, unfortunately, the same, our industry for a lot of years is focused on EBITDA and that comes from a time when fracturing wasn't that capital intensive, and so EBITDA is a very simple financial measure for people to understand. Unfortunately, it's not necessarily reflective of the health of the industry today. And so I know certainly at Calfrac, we focus on -- we'll call it cash engines, operating income or EBITDA lesser CapEx. That's what our divisions need to run their business to. And that's how we hold them to account. I don't know that that's necessarily the case, across the industry. And if it is, the results would suggest some people might not fully understand that equation.

[Stan Manoukian:]

At this point, it sounds clear whether you'll start seeing more activities from the spot market or from the contract market in the first quarter. And to the same question, have you started talking about the first quarter utilization with your clients or not yet?

[Scott Treadwell:]

No, I think well certainly in Canada, I think we've got a decent amount of visibility on Q1. And as Lindsay said, the utilization on the three marketed fleets we have looks quite high. I think in the U.S. on the fleets we have working today, I think again, the line of sight is pretty good. To Lindsay's point, there's still some moving parts that could see some incremental demand for fleets in the first quarter. But, we're certainly not definitive on that yet. But again, it has to -- it all has to come together the economics and the visibility on work, and the partnership with the customer. If that works, if that all, those boxes all get ticked, then there's potential for more activity. But again, we're not messaging that as a done deal today.

[Stan Manoukian:]

And the new balance that you guys will have, is it kind of based on your perception of today's sort of market environment or improved market environment? I mean, the break-even point is as of today, or as of lawyer pursuit of activities. How do you sort of, how do you explain -- not explain, how do you, can you tell me a little bit about the rationale that you had when you guys put together this new balance sheet in perspective? And what's the cash flow break-even point? And how does it correlate with the number of fleets that you will be utilizing?

[Scott Treadwell:]

Well, Stan, I won't go through chapter and verse on sort of the rationale. I'll point you to all of the official disclosure, the public disclosure that we've got on that. Suffice to say, I think we said a number of times, given what happened in the COVID part, in Q1 and the slowdown; it became pretty obvious that, we couldn't just wait for things to get better; we had to take action on our balance sheet. And we've done that. In terms of the cash break-even, I think we've said a number of times that the interest reduction is just over $50 million, depending on your FX, in Canadian dollars. We think that's significant. I think we've also said a number of times that capital allocation to debt reduction is still on the table. I mean, the Board approves the budget every year and approves the allocation of capital and every year, I'm pretty sure, Michael, nod when I say he's going to put his hand up, that we should be reducing debt, the operations guys are going to want to invest in the business, and the people of the business, and it'll be about striking that right balance. So I think we've done good work. But I certainly wouldn't say the job's done. But I wouldn't point you to any specific targets that we're going to set incrementally. It's all about capital allocation in our business, and we'll try to do our best on that going forward.

[Operator:]

[Operator Instructions]. I do have a question from John Gibson from BMO Capital Markets. Your line is open.

[John Gibson:]

Can you just talk a little bit more specifically about your CapEx reduction for this year, just what exactly is driving this decrease, and if you could maybe provide some geographic details on where you're allocating lower capital compared to your prior plan?

[Lindsay Link:]

It really is coming from our maintenance capital for the most part. Our guys have done a phenomenal job in, I think getting better life out of our capital assets. And probably the budget was set based upon a certain utilization level and historic numbers and they're coming in lower than expected, that has taken place on almost all four geographies, they've all given up capital. To the same extent, if they need some -- some capital, we have given them some capital; the dual fuel is a good example of it. It's a reallocation number that you were maybe we didn't have it in the plan, but we may not have been able to utilize that. And it especially happens in the second and third and now the projection on the fourth quarter. The first quarter was fairly intense for capital spending not on there, John. I think Canada's probably the one that has been the most successful on reducing their capital needs this year so far.

[John Gibson:]

So it's fair to say that it's more a function of, I guess increasing efficiencies as opposed to a softer outlook for the remainder of the year?

[Lindsay Link:]

Yes. I think the outlook for the year is actually, for the rest of the year, is better than what we've had in the prior part maybe not Q1, obviously, but then in the other quarters, it is not indicative of a reduction in workload. In fact, the North American side is we have the expectation of increased revenues in both U.S. and Canada and Argentina, for that matter.

[John Gibson:]

Okay, great. I guess then going forward to 2021, you probably don't want to give guidance, but I'm just wondering if the same sort of rationale will apply in terms of just lower overall spending for next year despite maybe a slight uptick in activity?

[Michael Olinek:]

Hey, John, it's Mike. Yes, it's a bit early to be talking about 2021 guidance on capital, but certainly we're incorporating the trends that we're experiencing today and that will feed into the decisions on how we look at CapEx next year.

[John Gibson:]

Okay, great. [Indiscernible] just given the status of your recap, are you handcuffed somewhat in terms of making capital allocation decisions or has this not really impacted things so far?

[Scott Treadwell:]

No, I would say that the process is relatively unchanged, the divisions have their apps and they interface with the Executive Group here in Calgary to come up with an answer. And that's put in front of the Board, who makes a decision. And I don't think that's changed. To Lindsay's point, there were -- there is capital allocated to dual fuel conversions. That wasn't in the original plan. So it certainly speaks to us having capital flexibility, at the highest level. I don't think in this market, you would spend on an unrestricted basis to try and get ahead of things, you would spend prudently and I think that's what we're doing. So no real change there.

[Lindsay Link:]

The backdrop, of course, John, as you can see, there's what $12 million, $14 million less capital than what we planned. So we haven't had lots of apps to do either.

[John Gibson:]

Okay, great. Just last one for me, just in terms of your cost structure, just wondering how much cost structure improvements, how much incremental activity could your organization handle, before we start to have to add back sort of significant fixed cost to your business?

[Michael Olinek:]

Hey, John, it's Mike on that again as well. We really took a hard look at our cost structure and obviously in Q2 with what was going on. With the advent of the new ERP, that's allowed us I think to have a different platform, as far as scaling-up and scaling down administratively than what we've had in the past. So that's going to be helpful going forward. I mean, really, I think what we're looking here is that incrementally; it's going to be mainly field staff that gets added. Obviously, then you're going to have mechanics and such that are going to get added if the equipment footprint increases significantly. But I think really large scale reductions and scalability; I think we've done a good job organizationally, of right sizing. And then I think being able to manage the peaks and valleys a little bit better than what we've done in the past.

[Lindsay Link:]

And I think we're in all the markets that we want to be in at this time. So there's no, it's not like a district reactivation that would drive that fixed cost up. So even some of the district overhead like Mike's talking about with the mechanics that's directly related to the fleet to start-up that we actually have. So I think we're in a pretty good position. I think we're quite happy with the way our operations and the support groups have taken cost out. And obviously, given especially where we're today, we're not going to be too fast to add those back in and they know that as well. So everyone is trying to be, if there's a need, we'll definitely look at it. But it will get a lot of scrutiny before it actually happens.

[Operator:]

[Operator Instructions]. At this time, I have no further questions. I'll turn the call back over to presenters for closing remarks.

[Scott Treadwell:]

Thanks, Michelle. Thanks, everybody for joining us today. As we said, we'll keep the market updated with any developments from our Recapitalization process. And outside of that, we look forward to talking to you in the New Year with our fourth quarter results. Thanks very much.

[Operator:]

Thank you everyone. This will conclude today's conference call. You may now disconnect.