Precision Drilling Corporation
Q3 2015 Earnings Call Transcript

Published: 23 Oct 2015

[Operator:]

All participants, please stand by, your conference is ready to begin. Good afternoon, ladies and gentlemen, and welcome to the Precision Drilling Corporation 2015 Third Quarter Conference Call and Webcast. I would now like to turn the meeting over to Mr. Carey Ford, Senior Vice President, Operations Finance. Mr. Ford, please go ahead, sir.

[Carey Ford:]

Thank you. Good afternoon, everyone. I’d also like to welcome you to Precision Drilling Corporation’s third quarter 2015 earnings conference call and webcast. Participating today on the call with me are Kevin Neveu, our Chief Executive Officer; and Rob McNally, our Executive Vice President and Chief Financial Officer. Also present is Gene Stahl, President of Drilling Operations. Through a news release earlier today Precision Drilling Corporation reported on the third quarter 2015 results. Please note that the financial figures are in Canadian dollars unless otherwise indicated. Some of our comments today will refer to non-IFRS financial measures, such as EBITDA and operating earnings. Please see our press release for additional disclosure on these financial measures. Our comments today will also include statements reflecting Precision’s views about the future events and their potential impact on the corporation’s business, operations, structure, rig fleet, balance sheet and financial results, which are forward-looking statements. We caution you that these forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from our expectations. Please see our press release and other regulatory filings for more information on forward-looking statements and these risk factors. Rob McNally will begin the call with a brief discussion of the third quarter operating results and a financial overview. Kevin Neveu will then provide business operations update and our outlook. Rob, over to you.

[Rob McNally:]

Thanks, Carey. I am going to comment on a number of items today including the quarterly results, dividends, and asset write-down, international contract awards, an amendment to our revolving credit facility and update on our 2015 capital spending planned in our initial 2016 capital spending plan. As this downturn persist and our visibility into 2016 is murky at best, deleveraging the balance sheet is becoming more of priority. While our balance sheet is very manageable with long date, senior unsecured notes and a strong liquidity position, we believe that it is prudent for us to reduce the net debt levels through this downturn. As of September 30, we had CAD439 million of cash on the balance sheet. During the quarter, we agreed with our lending group to amend our credit agreement to help ensure that we have access to the revolver as we move through the potentially extended downturn activity. Among other things, we removed the total debt to EBITDA covenant permanently, reduced the revolver size by US$100 million to US$550 million, reduced the interest coverage ratio to 2 to 1 until the first quarter of 2018. We believe that these changes will go a long way towards ensuring our liquidity position. Today, we declared a dividend of CAD0.07 per share, which is in line with the previous quarter’s dividends. Given the magnitude of the current quarter’s loss, which is largely driven by the asset write-down, we believe that it’s prudent to highlight the fact that our senior notes contain a restricted payments covenant that may prevent us from paying dividends in the near future, if we have continued losses and/or further asset impairments. Now, turning to the quarterly results. We reported third quarter revenues of CAD364 million and a net loss of CAD87 million. The net loss included an after-tax asset write-down of CAD75 million. Third quarter 2015 EBITDA was CAD111 million, which is 44% lower than the third quarter of 2014. The weaker Q3 results reflect decreases in North American drilling and C&P activity. EBITDA margins were 30% this quarter versus 34% in the third quarter of 2014. A relatively strong margin performance in the face of a significant industry downturn is a reflection of our variable cost operating model, proactive fixed cost management, and contract coverage on our Tier 1 rigs. Restructuring costs were approximately CAD3 million in the quarter, bringing the year-to-date total to CAD14 million. We expect annualized cost savings from these initiatives to be approximately CAD40 million. In the US during the third quarter, margins were up about $500 per day over the third quarter of 2014 due to stronger day rates and the impact of idle, but contracted revenue, partially offset by lower absorption of overheads and higher repair and maintenance costs. The impact of turnkey and idle but contracted rigs increased margins by approximately CAD2,500 per day year-over-year. Today, we have 46 rigs drilling or moving in the US and 10 idle but contracted rigs. In Canada, drilling margins improved by CAD500 per day year-over-year, driven by higher average data rates, partially offset by less overhead absorption, higher labor costs and rig mix. Drilling activity decreased by 44% over the third quarter of 2014. Today, we have 55 rigs drilling or moving in Canada. In our international drilling business, activity decreased by 1% and revenue by 7% over the third quarter of 2014. The decrease in revenue from the third quarter of 2014 was primarily driven by termination payment of $8 million that was received in the prior-year period offset by additional return deployments in Saudi Arabia and Kuwait. Our Completion and Production segment revenues were CAD43 million, down 49% over the third quarter of 2014. EBITDA in the quarter was $4 million versus $17 million a year ago, reflecting the highly competitive pricing and low activity levels in the C&P market. Let’s turn to capital spending. As detailed in our press release this morning, planned capital expenditures for 2015 are now expected to be CAD531 million, which is a decrease of CAD15 million since our last conference call. The expansion capital of CAD423 million is comprised of the total cost to build 18 drilling rigs, 4 for Canada, 13 for the US and 1 for Kuwait. All of the rigs are super-triple, either 1,200 or 1,500 horsepower. 17 of the 18 rigs have been delivered. The final Canadian rig will be delivered in the fourth quarter. As a reminder, all of these rigs are contracted. Our initial 2016 capital budget is expected to be CAD180 million. CAD120 million is expansion capital, which is primarily for the 2,000, 3,000 horsepower new build rigs that we announced for Kuwait earlier today. The CAD60 million of maintenance and infrastructure capital reflects upward down with activity levels. The significant decline in capital spending demonstrates our ability to conserve cash in an extended downturn. As a reminder, depreciation is calculated on straight-line basis The Q3 depreciation level likely marks the highest depreciation level we will have for the foreseeable future given our announced 2015 and 2016 capital plans. We will expect quarterly depreciation to decrease by approximately CAD8 million by the third quarter of 2016. While contract coverage remains solid, for the fourth quarter, we have 87 rigs under contract and have an average of 64 contracts in hand for the full year of 2016. In conclusion, we believe that we are very well-positioned not only to whether this downturn, but expect to grow market share because of our balance sheet, strong liquidity position, high quality rig fleet, strong operational performance and our portfolio of term contracts. With that, I will turn it over to Kevin for further discussion of the business and outlook.

[Kevin Neveu:]

Good afternoon, and thank you, Rob. Funding opportunities or highlights in this market is challenging. But let me begin with the contract awards for Kuwait. This is an important one for Precision. By early 2017, we will have five ultra-deep super-triples running in Kuwait. In a global oil market overshadowed by sub-$50 crude, establishing critical mass in Kuwait is a key strategic win and accomplishment for Precision. This is the right place for us to be deploying capital as we develop our international footprint. Our international activity [ph] becoming strong with opportunities in several countries, however due to the highly competitive environment, we do not want to comment on any of the specifics. But it’s becoming more possible that later in 2016, we will resume our previously guided organic growth rate of three to four rigs per year internationally and currently we have nine rigs running. The second bring spot, we have recently mentioned is a Canadian deep basin for gas and gas liquids development. Now, despite political uncertainty and continued weak commodity prices, Precision’s rig count in Northeastern British Columbia and North Western operative deep gas plays is the highest in the recent history. I am very pleased that the Montney, the Duvernay and the Horn River plays have unfolded, Precision has achieved significant market position with some of less traditional customers. But this should not surprising as Precision’s Super series rigs are typically the regular choice for resource development in Canada. So speaking more to Canada, for the winter, for Canada, looking forward through the fourth quarter and towards the drilling season, there is little less to be encouraged about. And while the weaker Canadian dollar which typically accompanies low oil and gas commodity prices, partially mitigates cost equation for our customers, the combination of the uncertainty to the tax and royalty issues and the low commodity prices are severely restricting our customer spending. And this is still more evident for our well service group, which is experiencing weak customer demand level, some 30% lower than we saw in the trough of the 2009 financial crisis. Rob mentioned, the well service asset write-down is earlier. And while Precision can easily absorb the depressed well service market segment, I remain most concerned for the thousands of field hands with little or no prospect for work in this very tough environment. For Precision, Rob mentioned 55 drilling rigs currently operating in Canada. This ties our high for second half of 2015. We currently expect the activity may increase slightly later in the fourth quarter, but we also expect an early Christmas shutdown or break period before the 2016 winter season begins. Looking at the Canadian winter drilling season, which usually begins in early January, the outlook is grim. I believe we will see 2016 Canadian E&P drilling budgets reduced anywhere in the range of 30% to 50% from 2015 levels or more. For Precision, we expect activity levels like last year will be buoyed by our super triples and we expect to sustain and possibly gain overall market share. But barring unforeseen catalyst, we should expect the industry's weakest winter drilling season since late 1990s. Earlier this year, we announced intentions to mobilize five super triples in the US to Canada, four of these rigs have been mobilized and the fifth will move up later this year. For now at least, we believe the demand for super triples has been satisfied, but we remain prepared to mobilize other underutilized US rigs should additional customer demand emerge. Generally. Precision remains poised and prepared to execute any opportunity for high-performance rigs in Canada. In the US, customer demand continues to weaken across all basins. Rob mentioned the current rig count of 46 rigs running and a further ten idle, but contracted rigs. I think notably, we have not experienced any further contract cancellations this quarter or for that matter, second or third quarters and just one in the first quarter. We believe the stickiness of our contract book demonstrates the desire of our customers to protect access to the Precision rigs we have contracted. We expected in the New Year reloaded 2016 budgets could lead to a slight increase in activity but in a sub-CAD50 WTI environment, we are not expecting any sustained relief as customer spending and demand for rigs will be substantially reduced year-over-year for the second year in a row. As we mentioned in the press release, we believe in the long-term fundamentals. We expect the cyclicality remains a feature of this industry and we believe a rebound is inevitable. We know that the efficiencies Precision has delivered to our customers as a result of our Super Triple rig technology and highly trained and skilled crews make us the driller of choice in all market conditions, in particular the resource play development drilling programs. Nonetheless, this downturn will persist into 2016. Visibility on the rebound is not existent today and rig demand will lag the commodity price rebound. Now, none of this would be a surprise to anyone, certainly not Precision Drilling. Rob described the restructuring Precision has already undertaken and the cost reductions we have achieved. Precision is a leaner and more focused company today than we were a year ago and we will continue to use our variable cost model to adjust Precision to whatever activity levels are present. I believe the torque in precision comes from our capital spending flexibility and the strong asset base. Between 2010 and 2015 we added 143 Super Series drilling rigs bringing our fleet to 236. Today we have over 150 Super Series rigs available and ready for this inevitable rebound in customer demand. We have leadership teams and resources available to re-staff these rigs and we expect minimal capital spending will be required to reactivate the rigs. Precision’s earnings torque in a rebounding market will be impressive. Equally impressive, though, is our ability to reduce capital spending in the down cycle. When this downturn began late last year we immediately suspended all discretionary capital spending, we cut long lead programs and focused on capital spending efficiency. As a result, our 2015 capital spend of approximately CAD530 million is down 48% from 2014 levels. Our planned spending level for 2016 of CAD180 million is a further reduction of 67% in 2015. I believe this clearly highlights the flexibility and responsiveness of our capital programs, in particular the down-cycle torque and this is how we sustain our business through the cycles. Let me finish off by thanking the thousands of PD employees for continuing to deliver excellent operating performance and efficiency for our customers. There is little of more importance for Precision than sustaining high performance, high value promised to our customers in these trying times. Now before I turn the call back to the operator, I’m going to firmly state that we will not be providing any market pricing commentary, nor leading edge discussions and those spot market pricing guidance in our prepared comments or during the Q&A segment. The competitive dynamics remain intense. Suffice it to say that customer demand continues to fall, a true spot market has yet to emerge. At Precision we remain focused on maximizing cash flow, not utilization. So with that comment I will turn the call back to the operator for questions. Thank you.

[Operator:]

[Operator Instructions] The first question is from Dana Benner with Altacorp. Please go ahead.

[Dana Benner:]

Good afternoon, gentlemen.

[Kevin Neveu:]

Hi, Dana.

[Dana Benner:]

I wanted to start with the renegotiated covenants et cetera. Was there a meaningful cost to have to do that?

[Rob McNally:]

No, we paid relatively small fees to do that and feel that the value that we got out of removing the total debt to EBITDA covenant and the ability to net cash against debt for calculation of fees more than makes up for the cost.

[Dana Benner:]

Sure. Secondly, with respect to the impairment charge you took, could you give us a bit more color? I understand that most of it is Canadian service rigs, but can you give color in terms of the number of rigs or anything or even the rental section or segments what that might have entailed?

[Rob McNally:]

Dana, it is primarily well service and rental items in the Canadian market. There is not really a lot more than I think we want to say there, Dana.

[Dana Benner:]

Okay. Thirdly, you gave some guidance on depreciation in terms of what happens by Q3 next year. I didn't quite follow. I know you referenced I think a fall of CAD8 million, but could you give us some more color on how that progresses?

[Rob McNally:]

As you know, it's straight line depreciation and now we've kind of finished the investment cycle for the time being and so we'd expect the depreciation now will start to come down and the reason that we gave the guidance is it seems that some are having a difficult time getting it modeled correctly, but it is fairly straightforward straight line depreciation that will start to decline now and the guidance we're giving is from this level by Q3 next year we'd expect depreciation to be about CAD8 million less than it was in Q3 of 2015.

[Dana Benner:]

Okay. So but it's by Q3, it's not - there's nothing immediate and it’s fairly obviously fairly linear.

[Rob McNally:]

Yes, fairly linear.

[Dana Benner:]

Okay. Two more quick questions. With respect to Q4, in the US, do you see a meaningful pull back even from these levels as operator budgets wind up or do you think we more or less stay at these levels?

[Kevin Neveu:]

Dana, it's Kevin. So I think we've seen the rig counts dripping its way down the past few weeks, no reason to believe right now today that's not going to continue through the balance of the year. Our rig count will be affected by that also if that continues. So I think the trend we've been on little reasonably is going to change.

[Dana Benner:]

Okay, just one final question. Are you seeing a meaningful diminishment of major client loyalty in the current market? I mean, obviously there is always some and you've worked hard to build the client base that you have, but is it - are you even starting to see cracks in those foundations in this market?

[Kevin Neveu:]

Actually not at all, Dana. I think customer loyalty right now is actually probably as strong as it's been even in the peak cycles. But what's happening is, our customers are trying not to put anybody out of business. So they are being loyal to the service space by trying to spread the work around and trying to do the best they can with very small budgets. They are honoring their contracts, the big rush of renegotiation request has kind of gone past us now. I'd say our customers are behaving as best they can in a very trying environment.

[Dana Benner:]

Okay, well, that's great color. I will turn it back. Thank you.

[Kevin Neveu:]

Thank you, Dana.

[Operator:]

Thank you. The next question is from Andrew Bradford with Raymond James. Please go ahead. Andrew Bradford, your line is now open, please proceed with your question.

[Kevin Neveu:]

Andrew, is your phone on mute?

[Andrew Bradford:]

That's the problem. Thank you very much for helping me figure out my telephone. I am wondering if there is, just had couple of questions around the Kuwaiti rigs. What are the differentiated features or design features on these rigs?

[Kevin Neveu:]

Andrew, this is a 3,000 horsepower, 15,000 psi BOP rigs, they are huge rigs, large substructures, heavy duty equipment, huge amount of public capacity, these are big, deep, big hole deep rigs.

[Rob McNally:]

And state of the art technology as well.

[Andrew Bradford:]

Is there anything you can say around the - as you indicated very clearly at the beginning of the conference call, you don't want to talk about pricing, but is there anything you can say around the term of the contracts or anything along those lines?

[Kevin Neveu:]

Yeah, these are five year contracts, the economics are in line with North American economics, the pay backs are consistent with what we expect to percolate. They do have features that allow for automatic renewals of performance sustained. And so if you think about 2017 deployments, they will be under the original contract in 2022. And likely into the - unless we really mishandle operations which isn't very likely, we could be out of the original contract in 2023 or 2024, very good contracts.

[Andrew Bradford:]

Okay. Just switching gears over back to the US for a second, can you provide any additional color beyond the disclosures about the schedule of contract rollovers?

[Rob McNally:]

What we’ve disclosed is an average of 64 rigs under contract in 2016. We also disclosed that we currently have 87, I believe it is, contracts for the fourth quarter of 2015 and what we've said in the past is that you can draw pretty straight line, there is not a cliff of contracts rolling off. So you can get a pretty good sense of what the exit of '16 needs to be just kind of straight lining through those two data points.

[Andrew Bradford:]

Okay. I would assume that the most recent rigs that were constructed will provide a floor to that straight line.

[Rob McNally:]

For sure. Yeah, it doesn't go on forever.

[Andrew Bradford:]

That's all I had. Thank you very much, guys.

[Rob McNally:]

Okay, thanks, Andrew.

[Operator:]

Thank you. The next question is from James Wicklund with Credit Suisse. Please go ahead.

[Jacob Lundberg:]

Hey, guys, this is Jake on for Jim. Thanks for taking the question.

[Rob McNally:]

Hi, Jake.

[Jacob Lundberg:]

Just had another question on the Kuwaiti rigs. Just kind of thinking about the international markets in general, are there particular geographies that you think are likely to be sources of demand in the future, specifically thinking about big Super Triple rigs like the ones you put into Kuwait?

[Kevin Neveu:]

For us, we remain probably most focused on the rig in Gulf as kind of our core area for international growth. So you can see, we like Kuwait, we like Saudi Arabia. We like the other bordering countries. We've got our footprint in Iraq Kurdistan that we like. So I think that's kind of our core focus and obviously those are all OPEC constituents and they are focused on continuing production. So I think that speaks highly of both our alignments and where we see the market is emerging. There is other potential in other places where we've always been a little less anxious about Latin America, but I think there is some possibilities there kind of longer term. But for now we will be focused on the Arabian Gulf.

[Jacob Lundberg:]

Okay. And I know early in the year, you've been taking about your strategy of defending your current contracts and not really giving price concessions, but just sticking with the current contracts. Any update on that? Is that continuing to be your strategy and are you continuing to have customers come back and request price concessions or has that gone away?

[Kevin Neveu:]

The intent actually around that discussion was really in the first quarter and really just the first couple of months. In fact, I made a comment I think in one of our conference calls that as soon as we got through earnings season, Q1 earnings season - sorry, Q4 earnings season in February most of that calmed down, but hear me loud and clear, we work closely with our customers. We’ve got a fair degree of operating flexibility and moving the equipment around for them and we’ve exercised strong pricing discipline, but we're finding ways to work with our customers and help relieve some of their distress, but not by renegotiating contracts.

[Jacob Lundberg:]

Understood. And then you mentioned kind of the investment cycle kind of going on pause into 2016. I was just wondering if you have any commentary on how we should think about your deferred tax liability as the investment cycle goes on pause.

[Rob McNally:]

There's a bunch of moving parts with that Jake. I mean, the guidance that I would give you is that the effective tax rate will be likely very low and potentially negative as we go through 2015 and then into 2016 because of where our operating earnings are likely to be and because of the NOLs that we currently have built. So I think you can model low effective tax rates and low cash tax rates as well.

[Jacob Lundberg:]

Understood. And then, one last one on the covenant amendments. So the change in the interest coverage ratio to 2 to 1 for first quarter of ‘18. I mean any color around how first quarter of ‘18 came about, should we read anything into that timeframe as it relates to your view on potential duration of the downturn for land drilling - or how is that determined?

[Rob McNally:]

No, I wouldn't read anything more than what the banks were willing to do was keep defer - keep a 2 to 1 ratio through 2016 and 2017. And then the first test that were expected 2.5 to 1 is that, the first quarter end of 2018. I wouldn't read anything more into that then what it is.

[Jacob Lundberg:]

Okay, got it Rob. Thanks a lot guys.

[Operator:]

Thank you. The next question is from John Daniel with Simmons & Co. Please go ahead.

[John Daniel:]

I missed one thing Rob on the contract cover, did you guys say you’re going to average 64 range in ‘16 or you'll exit ‘16 with 64?

[Rob McNally:]

We’ll average 64 for 2016 that's the contracts we have in hand today.

[John Daniel:]

Got it okay. Can you say where headcount is today versus where you were at year-end?

[Rob McNally:]

John, don't have those numbers at my fingertips right now. They were reflected in both our - those savings that Rob discussed. And field headcount is directly proportional to activity. But we're thinking that we’re just slightly over half.

[John Daniel:]

Okay. A bit of a sensitive question, but when you look at the prospect of, I think the number you used was, E&P budgets in Canada down 30% to 50% year over year and obviously it will be harsh down here as. Is the current organizational structure structured for that type of production or is there more to come?

[Rob McNally:]

I think that we are structured appropriately right now for the rig count we're winning today. If we’re seeing rig counts level out here, we’re in good shape, if they go down another step another more than 20%, we have more room to realign our business.

[John Daniel:]

Okay. And then last one a bit of forward-looking commentary or Kevin so I apologize, but just the outlook for your working rig count internationally next year is holding at nine rigs, is that a fair number?

[Rob McNally:]

We don't give a lot of forward guidance John, it could be nine, it could be ten, I don't think it goes much lower if we go a little higher. While we have nine running, we have four more right now that are ready to go back to work in short order and that could happen, it could happen, I wouldn't - tactically it could happen next month. But I wouldn't you know I think we’re not trying to guide forward to increasing or decreasing activity. We’re still looking at a CAD50 - sub CAD50 real world, it’s not constructive for rig count growth.

[John Daniel:]

But are all those nine rigs internationally, are they all contracted for the year?

[Rob McNally:]

They’re all contracted - I just can't recall for you, I'll go through the full-year but most do.

[Kevin Neveu:]

John, I believe they did do all run to the year.

[John Daniel:]

Okay that's all. Thanks guys.

[Operator:]

Thank you. The next question is from Sean Meakim with JPMorgan. Please go ahead.

[Sean Meakim:]

Just to talk a little bit about Canadian activity. I’m just curious what type of commodity price environment do you think we need to see in order to get a material step change higher and are you assuming at this point in your base case that’s likely a 2017 event?

[Rob McNally:]

Sean, we don't give forward guidance on commodity prices or on rig counts. I’ve given you as much as I can give by trying to get some sense of our customer's budgets. Now, if you asking me what commodity price do I think the Canadian E&P companies need to see increasing the activity, probably not dissimilar from the US. I think when we get into a range of 60, 65, 70 on oil, and if we get gas prices in the CAD3 to CAD3.5 range, I think that helps things out a lot. In Canada, it certainly increases our cash flow for our customers. And in Canada, generally our customers have to put back into the ground when they’re generating cash flow. So it's very or maybe a little quicker response in Canada than the US.

[Sean Meakim:]

Okay that's fair. And then I guess just wanted to just touch back on the senior note covenants that Rob was going through in the beginning. Just trying to understand the mechanics a little bit better. So there is a restricted payment basket and that could restrict your ability to pay dividends in the future, I think as Rob said earlier. And so, and in the release this morning that number was - the basket was 135 million and it’s impacted by net income and dividends. As you go forward, are there other opportunities to make adjustments or is that effectively kind of where you see things next few quarters and those are effectively the levers that will drive the decision making?

[Rob McNally:]

Sean, the basket is affected by net income positively, we’ll grow the basket but at CAD0.50 on the dollar. And then it affected negatively by losses at dollar for dollar and then it is affected negatively if we make any restricted payments which should be things like paying dividends or buying in shares. And we wanted to highlight that that was out there because we recognized that most of the investment world wouldn't be aware of that unless they’ve really done some digging in our filings. And because of the magnitude of the loss in this third quarter driven by the asset write-downs, it brings that basket down to a size that if we continue with operating losses or had additional write-downs, we could find ourselves in a position where we couldn't pay the dividend and so we just wanted to be transparent with the market about that. Q - Sean Meakim Got it, that makes a lot of sense. Thank you.

[Operator:]

[Operator Instructions] The next question is from Scott Treadwell with TD Securities. Please go ahead.

[Scott Treadwell:]

I wanted to ask about the international market. These are 3,000 horsepower rigs that are going here. I know in the past you guys have referenced opportunities to move US assets or North American assets into international but 3,000 horsepower is that a bit of a reach and would that probably point more towards new build where the 2,000 horsepower segment would be potentially open to transfers?

[Kevin Neveu:]

Hey Scott, I think the answer is little bit less clear than just 3,000 versus 2,000. But I would say is that for Kuwait particularly, likely any rigs that are going to Kuwait, will likely be new [indiscernible]. They have an expectation for frankly for 2016 technology; they want rigs that have the latest and most current technology and they pay for it. There are lots and lots of other markets where we have a handful of 3,000 horsepower rigs underutilized right now that could be deployed and a few more 2,000 horsepower rigs. So it's generally more customer specific than it is rig size specific.

[Scott Treadwell:]

Okay, perfect get that. Just wanted to verify on the maintenance capital sort of forecast for next year at 60. Can you - again I don't want to get you into a forward guidance sort of level is that sort of flat you know straight lining where utilization kind of is today or is there some sort of change in that methodology as you go into ‘16.

[Rob McNally:]

Scott, generally when we give our - when we transmit our expectation on maintenance Capex for the year, that’s - our forward guidance on our best guess at activity. So that would cause you to think that our current activity levels are what we’re guessing at in broad general terms.

[Kevin Neveu:]

Scott but there are always some one-off items in there that are not reflective of activity levels but just as a specific need of a backup BOP in the Middle East. There is some one-off items like that would affect the number.

[Scott Treadwell:]

Okay but plus or minus that directional sort of comment is relatively true?

[Rob McNally:]

Yes it is.

[Scott Treadwell:]

Okay, that’s good. The last thing and I'm pretty sure I know the answer to this. I just want to make sure, you guys went through the entire book of assets both tangible and intangible before you did this impairment, so sort of no stone was unturned before you did this and sort of at least in your eyes with no change, you guys have examined everything you should be examining?

[Rob McNally:]

Yes, and we will at year-end do our normal examination. We did the asset impairment tests on CGUs that we thought was an indication of impairment.

[Scott Treadwell:]

Okay, perfect that's all I wanted guys. Thanks for the color I appreciate it.

[Operator:]

Thank you. This concludes the question-and-answer session. I would now like to turn the meeting back over to Mr. Ford.

[Carey Ford:]

Wait there is one more question in the queue.

[Operator:]

I do apologize. Mr. John Daniel from Simmons & Co. Please go ahead.

[John Daniel:]

Hey, thanks for squeezing me in here guys. I don't know, if you are able to answer this. I have not on the numbers yet based off of the sort of the new covenant levels. But when you got [indiscernible] we typically get out of the banks ahead of time, if we thought there is going to be an issue to get the amendment rather than having to deal with the waiver down the road. Can you say when you're looking out and you saw of an issue with compliance and if so, which one of those covenants was the concern?

[Rob McNally:]

So John, the covenant that was the most concern that we have the closest to hitting our head on was the total debt to EBITDA covenant which is the one that we had removed. But I would say that look when you go to buy health insurance you can't wait until you’re sick to do it, you’ve got to do it ahead of time. So this really for us was an insurance policy. I don’t know that we’re going to ever need it but we needed to go and get it while we didn’t need it because it always turns out with these types of amendments that if you really need it then it's going to be a lot more painful if you can get it all.

[John Daniel:]

I agree it's not really - I hadn't run the numbers to see which one it was, that’s all, asking you to clarify.

[Rob McNally:]

Because we don't carry any real amount of senior secured debt, all of the debt is in the high yield bonds.

[John Daniel:]

Got it. Okay, thanks guys.

[Operator:]

Thank you. Again, there are no further questions registered. I would like to turn the meeting back over to Mr. Ford.

[Carey Ford:]

That concludes our third quarter 2015 conference call. Thanks for joining us today.

[Operator:]

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.