Total Energy Services Inc.

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00:43 Thank you. Good morning, and welcome to Total Energy Services third quarter twenty twenty one conference call.

Present with me is Yuliya Gorbach, Total’s VP Finance and CFO. We will review with you Total’s financial and operating highlights for the three months ended September thirty, twenty one and then provide an outlook for our business and open up the phone lines for questions.

Yuliya, please proceed.

01:07 Thank again, 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 driven activity in the oil and gas stream.

Actual events or results may differ materially from those reflected in Total’s forward looking statements. 01:30 Due to a number of risks, uncertainties, and other factors affecting Total’s businesses, and oil and gas industry in general.

These risks, uncertainties, and other factors are described under the heading Risk Factors and elsewhere in Total’s most recently filed annual information form and other documents filed with Canadian provincial securities authorities that are available to the public at www.sedar.com. 01:58 Our discussions during this conference call are qualified with reference to the notes to financial highlights contained in the news release issued yesterday.

Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars. 02:18 Total Energy’s financial results for the three months ended September thirty, twenty twenty one reflect improving industry conditions in North America, particularly in Canada and lower activity levels in Australia as compared to the third quarter of twenty twenty.

02:23 Higher North American activity and the reactivation of two drilling rigs in Australia contributed to a significant year over year improvement in Total’s third quarter financial results and our return to profitability with third quarter net income of four point three million dollars as compared to a net loss of four point six million dollars in twenty twenty. 2:56 Third quarter consolidated increased fifty one percent from seventeen point nine million dollars in Q3 twenty twenty to twenty seven million dollars in the third quarter of twenty twenty one.

03:10 Excluding COVID-nineteen relief funds, third quarter EBITDA increased one hundred and fifteen percent on a year over year basis. Total’s geographical diversification continued to be a stabilizing factor for our financial performance.

Geographically, as the year over year industry activity levels in Australia declines, activity levels in North America continued to recover from the historic lows experienced during the second quarter of twenty twenty. 03:39 This is evident by North America contributing eighty two percent of consolidated revenue in the third quarter of twenty twenty one, as compared to sixty eight percent in the third quarter of twenty twenty.

03:51 Within North America, the recovery in Canada was more pronounced compared to United States, with a relative contribution from Canada to consolidated third quarter revenue increase in fifteen percentage points compared to Q3 of twenty twenty. 04:07 Third quarter revenue contribution from the United States decreased by two percentage points on a year over year basis and Australia's contribution declined by fourteen percentage points as compared to twenty twenty.

By business segment, Contract Drilling Services was the largest contributor to consolidated revenue, generating thirty six percent of twenty twenty one third quarter consolidated revenues, followed by Compression and Process Services at thirty two percent, Well Servicing at twenty one percent, Rentals and Transportation Services contributing ten percent. This compares to Q3 of twenty twenty when CPS contributed forty two percent of consolidated revenue, Well Servicing thirty percent, Contract Drilling Services twenty one and the RGS segment eight percent.

04:52 While third quarter twenty twenty one consolidated revenue increased by fifty four percent as compared to Q3 twenty twenty. EBITDA increased by one hundred percent after adjusting to exclude COVID-nineteen relief refunds and an unrealized foreign exchange gains from translation of intercompany working capital balances, resulting in adjusted quarterly EBITDA margin of nineteen percent as compared to fourteen percent in the third quarter of twenty twenty.

05:22 The four point five million dollars of COVID-nineteen relief funds recorded during the third quarter of twenty twenty one, reduced cost of services by four million dollars and SG and A by zero point five million dollars. This compares to seven point four million dollars of COVID-nineteen relief funds in Q3 of twenty twenty, which reduced cost of services by six point four million dollars, and SG&A by one million dollars.

05:49 Consolidated third quarter gross margin, excluding COVID-nineteen funds was four percentage points higher as compared to twenty twenty. This was primarily due to modest price increase in North America, necessary to offset rise in labor and material costs.

Excluding COVID-nineteen relief funds, gross margin percentage of revenue improved to twenty five percent for the third quarter of twenty twenty one as compared to twenty one in Q3 of twenty twenty. 06:18 Selling, general and administration expenses for the third quarter of twenty twenty one increased by one point six million dollars or twenty seven percent, compared to Q3 of twenty twenty, as employee compensation was reinstated to your pre-COVID level and the contribution of COVID-nineteen fund decreased by zero point five million dollars or fifty percent, compared to the prior year comparable quarter.

06:43 The improvement in North America drilling activity and the reactivation of two Australian drilling rigs contributed to an over three-fold increase in total operating drilling days in Total’s CDS segment. This resulted in two thirteen percent increase in consolidated drilling utilization during the third quarter of twenty twenty one, as compared to prior year.

07:09 Despite a fourteen percent decrease in revenue per operating day, as a result of lower North American dairy and changes in the geographic revenue mix, high activity resulted in a sixty eight percent year over year increase in third quarter CDS segment revenue. 07:29 Third quarter CDS segment EBITDA increased two sixty three percent, compared to twenty twenty as a result of cost management and changes in the mix of equipment operating in North America.

07:42 An increase in Canadian drilling activity, resulted in a two fifty four percent increase in third quarter operating days in Canada, compared to twenty twenty. Recovering industry conditions and market share gains contributed to a three eighty percent year over year increase in third quarter United States operating days, which in turn drove a four six percent year over year increase in third quarter U.S.

drilling revenue. 08:12 Third quarter operating days in Australia increased thirty four percent compared to twenty twenty as two drilling rigs returning to service following the completion of recertifications and upgrades.

08:25 One Australian rig was removed from operation during the third quarter for recertifications and upgrades and is expected to return to service in the first quarter of twenty twenty two. 08:37 Improving industry conditions and the commencement of several major projects in Canada that were previously delayed contributed to eighty six percent increase in third quarter equipment utilization, within RGS segment as compared to twenty twenty.

08:54 Third quarter RGS revenue increased one hundred and seven percent on a year over year basis, which in turn drove an eighty two percent increase in segment EBITDA. EBITDA increased at slightly slower pace than revenue due to the mix of equipment operating, cost inflation have been fully offset by price increases and lower year over year COVID-nineteen assistance have been received.

09:24 Third quarter revenue in Total’s CPS segment increased eighteen percent, compared to twenty twenty. And this segment saw fourth consecutive quarterly increase to its fabrication sales backlog, which was one hundred fifty eight percent higher on a year over year basis.

09:43 High and natural gas prices also provided support for CPS segments, parts and service business, and utilization of the compression rental fleet continue to improve for the third consecutive quarter, increasing eighteen percent from December thirty first of twenty twenty. 10:02 Operating income for the third quarter of twenty twenty one increased twelve percent on a year over year basis, primarily as a result of ongoing cost management, an increased overhead absorption with a higher production activity.

10:16 Third quarter revenue increased ten percent in our Well Servicing Segment compared to twenty twenty. While service hours increased fifteen percent during the third quarter, revenue per service hour decreased four percent, due primarily to the geographical revenue mix and lower price in Australia.

10:41 Continued strength of oil prices and increased well abandonment activity in Canada, contributed to a substantial increase in North American activity. That was partially offset by lower utilization in Australia.

This segment's EBITDA margin decreased seven percentage points in the third quarter of twenty twenty one, as compared to the same quarter last year, due primarily to cost inflation in North America that was not fully recovered through price increases. 11:12 Total Energy's financial and liquidity positions remain very strong.

At September thirty, twenty twenty one, the weighted average interest rate on outstanding bank debt was two point eight percent as compared to two point eight five percent at September thirty, twenty twenty. This lower interest rate combined with lower outstanding debt balances contributed to a twenty percent year over year decrease in third quarter finance cost.

11:41 Total net debt position at September thirty, twenty twenty one is the lowest since we completed the acquisition of Savannah in June of twenty seventeen as we remain focused on continued repayment of debt. 11:56 Total Energy exited the third quarter of twenty twenty one with over hundred and forty five point six million dollars of liquidity, consisting twenty five point six million dollars of cash and hundred and twenty million dollars of available credit under the company, revolving in credit facilities.

Total Energy's bank covenants consist of maximum senior debt to trailing twelve months bank EBITDA of three times, and a minimum bank defined EBITDA to interest expense of three times. 12:26 At September thirty, twenty twenty one, company's senior bank debt to bank EBITDA ratio was one point six and the bank interest coverage ratio was fourteen point four five times.

12:39 Thank you, Yuliya. Improving North American industry conditions underpinned a significant year over year improvement in total energy's third quarter financial performance, while industry activity levels remain below pre-COVID levels in all geographic regions where total operates, continued efforts to manage operating and overhead costs in response to challenging industry conditions were effective in restoring corporate profitability.

13:07 Total’s diversified business model has proven resilient once again and has allowed us to generate significant free cash flow even during the most difficult of times. For the first nine months of twenty twenty one, after funding capital expenditures, capital lease and interest obligations, and working capital requirements, Total Energy generated forty four point two million dollars of free cash flow or one point one dollar per share outstanding at September thirty, twenty one.

This free cash flow was directed towards continued debt repayment and share buybacks. 13:46 Notwithstanding continued strength in commodity prices, many oil and gas producers have been hesitant to substantially increased capital budgets.

At current commodity prices, Total Energy expects that oil and natural gas drilling and completion activity will continue to moderately increase led by private producers not under the same pressure to curtail their capital investment programs. 14:11 Demand for equipment and services provided by our CPS segment continues to strengthen as investment in global energy infrastructure recovers from the pandemic collapse.

Total Energy's track record of fiscal discipline and maintaining a sound financial position allows us to respond to opportunities that are arising in a recovering energy services market. 14:34 In response the increasing demand for drilling rigs and compression rental equipment, our Board of Directors has approved a six point five million dollar increase to our twenty twenty one capital budget, which now stands at thirty three point two million dollars.

We intend to fund the remainder of our twenty twenty one capital budget with cash on hand. Enhancing shareholder returns, including through debt repayment and share repurchases remains a corporate priority.

15:05 As we look forward to better times for our business, I would like to take this opportunity to thank all of our employees for their perseverance and dedication over the past eighteen months. Together, we worked to get through a severe industry downturn and a global health pandemic and came out a stronger and more innovative organization.

15:27 I would now like to open up the phone lines for any questions.

16:02 Hey, good morning everyone.

16:04 Good morning Cole.

16:06 Maybe to start, so, obviously good rebound in earnings, the balance sheets in pretty good shape and getting more active with the buyback, but how are you thinking about other capital allocation priorities namely M and A and resuming the dividend?

16:21 The same way, we've always thought about allocation of capital. We'll deploy capital to the highest risk adjusted opportunities.

16:33 I guess, maybe phrased in a different way, do you see just the returns from debt and share buybacks just being much higher than M and A and dividend at this point?

16:47 Certainly, our share buyback is an extremely compelling investment in this market. There's zero integration risk and you've got a fairly good idea of what your earnings capacity is go forward.

So, that certainly ranks high. Debt repayment, again, we continue to be methodical in bringing down the total debt on a net dent basis, so net of working capital, we're now at the point where it's certainly going to invite other thoughts and discussions, but those will be at a board level.

17:31 On the M and A front, we see a lot of different opportunities, but we rank those against share buybacks and it's difficult to make a lot of those work.

17:46 Okay, perfect. That's helpful, thanks.

So, Contract Drilling look pretty strong overall, but the U.S. Business in particular had a lot of market share capture.

Can you just talk about some of the drivers behind that? And what you see is the near term outlook for that business?

18:04 First of all, our U.S. Drilling group has done a wonderful job in capturing market share through providing quality equipment in a safe and efficient manner.

I think what we're seeing in the U.S. and I expect we'll see it up in Canada is a move towards lighter more efficient rigs as opposed to bringing the biggest rig possible to the well side and I think there's a number of drivers for that, but not the least of which is operational and move efficiencies.

18:41 And so, we have three triples in the U.S. and those are all working, but definitely, our quality fleet of doubles and singles is enjoying some strong utilization.

18:58 Okay, great that's helpful thanks. And so, one of your compression peers cautioned on margins over the next few quarters due to pricing pressure and supply chain issues, I mean, do you see some of those same margin risks for Total’s compression business?

19:16 Well, certainly, we're in an inflationary environment. We're seeing that in all divisions.

One of the benefits that our CPS segment had coming into this rebound is significant inventory of major components and so both from a cost inflation and a procurement risk physical supply risk perspective we feel quite comfortable in where we stand in the marketplace.

19:50 Okay, that fell for me. I’ll turn it back.

Thank you.

19:54 Thank you.

20:04 Hey, good morning.

20:05 Good morning.

20:06 Cole sort of asked a couple of my questions, but I guess just when you look across your platform, as diversified as it is, and with a view to probably a pretty tight market in Canada in Q1 and maybe a tightening market in the U.S. through the next few quarters, which business lines do you see the most optimism in and where do you think there might be challenges in terms of capacity of the industry to meet demand?

20:40 I'm optimistic on all four divisions for various reasons. And I think, we're certainly going to see, particularly in Canada in Q1 what the true capacity of our industry is, both from an equipment and personnel perspective.

And I'm not sure, time will tell, but I'm not sure the market fully appreciates the limited supply capability on the service side and as we ramp up in Q1, we'll find out together what that means, but the capacity that exists today is not even close to what it was five years ago. And I would say that's across the board.

21:30 Okay. That's helpful for sure.

21:32 And I just don’t see an environment where you're going to see capital come in and try and increase that capacity.

21:42 What are you seeing from a labor standpoint, any challenges there?

21:47 Labor’s tight. Again, I think more on the field services front, but we always find a way to get the job done.

So, I'm pleased with our various divisions and their efforts to procure labor. And at the end of the day, we tried to carry as many through a tough time as we could, have to make some tough calls, but feel quite comfortable with how we position ourselves coming into this recovery and the fact that we're able to invest capital to ensure that our employees and our customers have the best equipment fit for duty and ready to go to work and that's part of it, you know, providing your employees with the proper equipment and good safe operations.

So, we'll find a way, but I think it's definitely going to be a little more challenging, certainly more challenging than a year ago.

22:49 Okay. In particular on the rentals business plan, maybe there was a comment on the MD&A that just said that pricing increases haven't kept up with cost inflation.

In the tightening market, you see that – see pricing starting to overcome cost inflation in the coming quarters?

23:06 While, we're certainly hoping so. You know the directive to all of our divisions is to, we're not going to hopefully see margins contract in an eighty dollar oil environment.

23:20 Yes, I would hope not.

23:22 No, we're in a bit of an adjustment period here winning ourselves the industry winning itself off of COVID assistance. Again, you still have a pretty modest North American rig count and an Australian rig count for that matter.

And we're finding equilibrium, but my sense generally speaking to producers, they understand that how the service sector pricing is not sustainable and most reasonable customers are willing to work with you to come up with something that's fair that works for both sides.

24:02 With oil prices in the mid-eighties we’re starting to see activity outside the Permian accelerate, is that helping to tighten of some of those business like U.S. rentals?

24:16 Certainly yes. You know, the rig count drives all four divisions.

Ultimately, it's a good leading indicator. So, a recovery across the board in all basins in the U.S.

is positive for all of our divisions.

24:33 Okay. And then last one for me.

I was just wondering if you could talk to the progression in some of the, I guess, energy transition or non-traditional end market business lines and opportunities that you're seeing?

24:46 So, we're at the front of that. The reality is it's not a big component today, but we're in line and if and when those opportunities become significant, we'll get our fair share.

We take a pragmatic approach to those opportunities, you know at the end of the day, it's really not complex to a lot of the engineering and design are off the shelf technologies. The reality is, capital has to flow in a significant way into those opportunities and when it does we'll be ready to get our fair share.

25:31 Is the U.S. rental as you build that out in terms of compression, are you looking at electric at all?

25:38 Very much so. We've been doing electric for twenty years.

25:45 Okay.

25:48 [Indiscernible] We've been doing electric drive compression for twenty plus years.

25:54 Okay. I just wanted to get some details from the [indiscernible] competitors around it, just curious what your stance was and that’s helpful.

26:01 Those were, at the end of the day, a lot of it depends on, a lot of it depends on your sources and availability of electricity. A good example is one of our heavy AC doubles is drilling actually fairly close to the city of Calgary and we tried to put it on high line power, but there is insufficient power in the grid to power the rig.

So, that goes to the reality of trying to transition too quickly. The grid is simply not capable of providing enough electricity to power a double drilling rig.

So, we generate the electricity through diesel power generators, but if we could, we could plug it into highline.

26:51 Interesting. I’ll turn it back.

Thanks.

26:54 Thanks.

27:02 Good morning, Dan and Yuliya and congratulations on a nicely improved quarter. Three questions for me.

The first one is, on the service business, are you seeing a pickup in the abandonment programs where people are taking advantage of the program that expires in twenty twenty two or is the focus more on getting volumes up so they're looking at more of recompletions? And maybe any idea you have of, you know do you think in twenty twenty two would that be busier, while the funds are still available?

27:33 So, Josef, we've seen a pretty significant increase in the abandonment work over the past year. The reality is the government of programs were announced, probably close to two years to go in for the first nine months, nothing happened, and just as oil prices were recovering, funds started falling.

So, I would say what you're seeing is a competition now between abandonment and production work. 28:04 Such that, we probably skewed more towards the production side than the abandonment, but there's good strong demand and frankly, we have more work than service rigs, crude service rigs right now.

So, that's a challenge.

28:23 Okay. Does that help in margins and pricing going forward?

28:28 It better.

28:29 Is better.

28:30 It better help. [Multiple Speakers]

28:35 Are competitors not as tight as you and therefore the pricing is still a problem?

28:40 I think it depends on the area and the specific competitive landscape, but at the end of the day when you have more demand and supply over the medium term that will drive pricing.

28:56 Second question for me is, debt is, net debt is now at sixty four million down from one hundred million at December, is there a target in your mind to get that down to zero before you start looking at alternatives, do you have a number in mind for net debt?

29:12 So, we look at our debt kind of there's two components. One is our mortgage debt, which [thoughts] would be to myself personally would be kind of permanent debt.

And then there's the line that revolving credit facilities, which on a gross basis was one hundred and thirty five million net basis is what about one hundred and ten or so. So, we're quite comfortable keeping the mortgage status permanent debt, we roll a fifty million dollar mortgage, we picked up seventeen million dollar mortgage when we bought Savannah.

To us, that's kind of permanent. It'll keep ruling.

We're focused on the revolving side. 29:57 As that comes down, we'll likely contract our facility.

We don't pay for things we don't need. And certainly, as we – you know, when you have no debt left to pay, you look at other options, but I won't steal the board’s thunder.

Certainly, I'm personally a fan of the dividend. I know our board is and at some point when it's the right time, I would expect that we will revisit that.

30:27 Okay. Super.

Last one for me, this was kind of a crazy one. The COP26, we heard that they're going to be cutting off funding and countries have signed up for international energy investments.

With your Australian operations, does that affect the financial capability of your clients? And is that something that you guys are concerned about in terms of working in the international environment?

30:54 Well, I think last, I checked, Asian LNG prices were north of thirty dollars in MCF. For the financial capacity of our customers there, which are all major LNG participants from what I can tell fairly solid.

We'll see how this plays out. The reality is, we're going into the winter in the Northern Hemisphere and you're seeing some energy crisis playing out at the end of the day, food, clothing, and shelter are fundamentals and shelter includes a warm shelter.

31:33 I'm reasonably bullish on natural gas. I think in the medium to long-term it has a very bright future, particularly as we realize the limitations of the current accelerated attempt to displace it and physics and economics ultimately prevail, and I'm quite comfortable playing in the natural gas space, which is primarily the market for us in Australia.

And at the end of the day, I think there's no doubt that capital will be restrained, but that just further reinforces my views on supply and demand both within the production side and the service side, which is part of the reason why we're quite focused on paying down debt and like we have been for twenty five years, we've not really ever been dependent on equity markets to fund our business. It's been [cash flow] [ph].

32:32 Yeah, good. That does it for me.

Thanks very much and again congratulations on a nicely improved quarter.

32:37 Thanks, Josef.

32:46 Thanks. And again, congrats on a strong quarter.

I just have two, the first one kind of leads on what Cole was asking, maybe asking a different way. So, I’m just wondering if you could speak to margins that are currently churning through your system, which I'm guessing were kind of signed early in the pandemic versus maybe new orders signed today and how they may differ, and maybe just keeping the fact that you have a fairly large inventory out of the equation.

33:13 So, one thing that hit our margins in the CPS segment in Q3 was we took an eight hundred thousand provision. So, if you back that out, basically our margins were fairly flat year over year despite reduced COVID funds.

And so, what we're seeing and certainly your observation on timing of the order versus completion is correct. 33:39 We are moving into an inflationary environment and certainly, I know all divisions including CPS are cognizant of that and as you are pricing new bids, you're certainly factoring that in.

So, I would say generally, I have high degree of confidence in our CPS management to price appropriately. And obviously, it's a competitive marketplace, but the end the day, it's a commodity and low cost gets the best margins.

34:14 So, as much as you focus on price, we also focus very much on manufacturing efficiencies, overhead efficiencies, and the like. I think one of the other things that hopefully will play out to our advantage here in all of our divisions is this part of our kind of restructuring during the last two years.

34:36 We really made an effort to displace least facilities with owned and we're almost done that for the most part as leases came off and for example in our CPS segment, we had the opportunity to vacate lease premises and relocate into owned, as we were converting say RPS branches into CPS branches likewise are putting two groups in one buildings. So, we're being fairly innovative in trying to keep our costs under control and pull through cost management and price strategy continue to maintain and ultimately grow margins.

35:20 I don't know if that answers your question, John.

35:23 No it does. Appreciate the answer.

The second one for me and you've obviously benefited from various COVID relief programs as has everybody, I'm just wondering if you could maybe put some specific [global surround] [ph], what you expect to receive in twenty twenty two?

35:39 At this point, zero.

35:42 Okay, Great. Again, congrats on the quarter.

I'll turn it back.

35:49 Thanks, John.

35:58 Yes. Thanks.

Good morning everybody.

36:01 Good morning, John.

36:01 Good morning.

36:02 I just wanted to focus on CPS for a second. Obviously, the backlog growth pretty meaningful in Q3.

Broad brush, can you give us a sense of kind of where that came from either geographically or product wise?

36:19 Hesitant to do that for competitive reasons, but we [indiscernible] the world John.

36:27 Okay. Okay.

Fair enough. I wouldn't push on that one any further, but looking at the numbers, it still looks like U.S.

is obviously skewed more rentals, Canadian market to sales, any signs of that's changing given capital allocation with your customers or is that, kind of a trendier factoring on here as you move forward?

36:52 Sorry, didn't quite get your U.S. rentals skew…

36:56 Just within CPS, looking through the numbers it looks like rentals are a bigger component in the U.S. versus [indiscernible] Canada?

37:06 Yes, I think generally, part of it is just much, much, much larger market. Certainly, there's, I think culturally and economically different reasons to ramp versus own.

But we're seeing good demand for the rental steady redeployment we had. It was Q4 last year of bankruptcy of a U.S.

customer that resulted in a fairly significant return of equipment. 37:36 We're steadily putting that back to work and our expectation is going into Q1.

We should see a reasonable pickup in compression both sides of the border as particular, Canada where customers are wanting to put on a winter drilled wells on production before breakup. So, seasonally, Q1 is usually a fairly good time for rental demand, so.

38:11 Okay. That's helpful.

Thanks. And then just [Multiple Speakers], yeah, that’s helpful.

Sorry, go on.

38:19 I was just going to say it is throwing darts at a dart board though. Demand for rentals could be very unique and it sort of comes when it comes and again we're not into the, I think some of our competitors are in the boom market.

Ours are dry rentals.

38:43 Right, right. I appreciate it, that's helpful.

Just looking at Australia, it looks like you were able to put the two upgrade rigs to work in the third quarter, sequential uptick and activity things looked a little flatter on the Well Servicing side, just wondering if that trend has continued through the fourth quarter, kind of what you're seeing in that market right now?

39:07 I think generally Australia lagged North America by a year, nine months to a year, So, we saw the rig count come off. We had some company specific issues as you just noted taking two out of the five rigs out of service.

We're currently operating four out of five and the fifth is out of service for upgrade and certainly it'll be back in service in Q1. 39:34 Certainly, on the Well Servicing side, similar to the overall rig count in Australia, we saw a bit of a pullback, you know in part though due to weather, they've had quite a wet spring and going into the summer, but overall, I think just like North America, producers are cautious, but the flip side is enjoying a fairly significant increase in commodity prices there.

39:34 So, we'll see how it plays out, but we feel reasonably comfortable with our market position in both in drilling and Well Servicing there.

40:16 Okay. I appreciate the color.

That's it for me. Thanks for squeezing me in.

40:21 Thanks, John.

40:36 Hey, good morning everyone.

40:37 Good morning.

40:38 I had a question on the Rentals and Transportation Services. We noticed that the revenue went up substantially compared to the same time last month, last year.

However, I noticed, among all these segments this one has a lowest utilization, even though that it's doubled compared to the same time last year. What in your our opening is a good utilization rate, and is there any plans to right size the assets further to get to that number?

41:14 Good question. I think historically, full utilization in that division would be sixty percent to sixty five percent, just the nature of the assets you constantly have assets moving back and forth jobs being cleaned repaired.

So, sixty percent to sixty five percent utilization would be peak utilization. So, it's not the same as a drilling rig that sits on a well, just constant.

41:42 A lot of this stuff is used to contain solids; liquids has to be cleaned repaired. So, you're never going to see the utilization in that line of equipment as you will on other divisions.

So, certainly last year with the collapse and the North American rig count you had extremely low utilizations. You know, historically, we needed twenty percent to twenty five percent utilization to generate pre-tax income through our restructuring and basically, we shrank our footprint in Canada fairly substantially.

42:24 We've lowered that utilization threshold to achieve profitability significantly such that Q3, we came quite close to pre-tax profitability, again at a pretty low utilization. And that's just simply the leverage we have to activity.

You have a high fixed cost structure in that business relative to your other ones. And once you kind of get over your fixed costs, you get pretty significant drop down to the bottom line.

42:59 So, we ran just looking at the number here for eleven percent, pardon me, ten percent, thirteen percent overall North American utilization, and we were pretty close to pre-tax profitability. Whereas that number historically have to be kind of twenty percent, twenty five percent.

So, we're excited to see what happens as we hopefully get busier there.

43:30 Okay. Thank you.

Also, I think you briefly touch based on this, but can you talk a little bit about opportunities at OPSCO and how you see that business line going in the future?

43:45 So, OPSCO’s been around a long time since the sixties. They've been involved in conventional oil and gas, as well as some fairly interesting emerging opportunities.

OPSCO is originally involved in the construction of the original Carbon Trunk Line in Alberta. The first CO2 capture, major project in Alberta quite a few years ago.

44:12 So, I think our prospects there are both to your conventional oil and gas infrastructure, but also emerging opportunities, whether it's carbon capture, hydrogen, biogas or what have you. At the end of the day, gas is gas, the chemistry is a little different for each type of gas, but we build things to handle gas of whatever nature.

44:40 So, OPSCO and Bidell certainly give us good exposure to any significant infrastructure investment, globally in some of these alternative energy opportunities.

44:58 Okay. Thank you.

That’s it on my end. Have a good day.

45:01 Thank you. You too.

45:12 Thank you all for participating in our conference call and look forward to speaking with you after we release our year-end results. Have a good day.