Dave Strohm: Just want to start: you’ve got a lot of new contracts come up that seems structural and strategic. I just want to get your sense on where you think the big sticking points are going to be again on those contracts over the finish line. Is it going to be the payback provisions? Is it going to be mostly great pressure terms, added services? Just would love to hear your thoughts around how you think the negotiating table is going to be.
Anthony Gallegos: Yeah, I think it’s going to start with is your rig capable. And that it sounds obvious, but if you think about what’s happening in the industry, with M&A and stuff like that, you’re seeing and hearing more discussion around longer laterals, obviously, everybody wants to be more efficient. It’s just a function of where we are in US shale today and the maturation that’s occurring. So I think it starts with what your rigs capability. Obviously, they want to understand your performance. That starts always with HS&E safety, but also just operational performance. We only have one 300 Series rig left in our inventory. That said, that’s probably the next rig or the second rig that gets contracted by the end of the year.
So that when we look at the last couple to get us to 21, they don’t have to be converted to 300 Series. They’re 200 Series rigs today. In fact, we’re in pretty advanced discussions around an existing 200 Series rig, one-year type situation, Permian Basin opportunity. And obviously, if we can secure that contract at a reasonable day rate without having to invest the capital and punt that upgrade three or four quarters out, that’s what we were going to do. But I think, to answer your question, is going to start with your technical capability around your rig and your rig specification. And that’s why you’ve heard us to pounding the table, really over the last year, year-and-a-half about the need to continue to have more exposure to the 300 Series market.
Because as we think about where things are going on in US shale, it’s going to be the 300 Series spec. Our investors should be pleased to know we’ve got a very obvious and relatively easy and relatively cost-effective pathway for gaining more of that exposure.
Dave Strohm: Understood. That’s very helpful. One more if I could, with it’s all the new tech initiatives that you’ve been rolling out, is there any difference in capabilities between the 200 and 300 Series rigs on what kind of tech they can operate there, or is it pretty homogenous?
Anthony Gallegos: Not on the software side. Things such as back to bottom sequencing, the oscillation, stick-slip, mitigation that that is deployed on both our 200 and 300 Series rig. Where you will see a difference is in the high torque capability. So think about the high torque drill strings, certainly the longer laterals, the hard toward top drives that we need to be able to put all that torque at the end of the three-mile lateral. That’s where you see the difference. And that also is what drives that day rate differential that we talked about earlier in the call of anywhere from $2,000 to $3,000 a day.
Dave Strohm: That’s perfect. Thank you for taking my questions and good luck in the fourth quarter.
Anthony Gallegos: Thank you, Dave.
Operator: Next question today comes from Jeff Robertson with Water Tower Research.
Jeff Robertson: Thanks. Good morning. Anthony, you mentioned — the refinance window on the notes opening up late next or I guess fourth quarter of ’24. How does that play into your thoughts around being able to remarket 300 Series rigs and contract duration for those both in the Permian and in the Haynesville as you look to trying to be in a position to maximize EBITDA looking into 2025 when you’re trying to consider doing something with the notes?
Anthony Gallegos: Great. Thank you for that question, Jeff. When we think about it, we want to put ourselves in a position to be able to maximize the opportunities as we enter that window. And that starts with having the 20 or 21 rigs running. Day rates are a bit softer than any of us would like. We talked a lot about that on this call, that we want to go relatively short. Keep them short so that as we approach what we think will be more demand for super-spec rigs in the back half of 2024 throughout 2025, then we’ll have the opportunity to get back to ratcheting rates up in the way that we did in the last upcycle, so that we’re in the best position possible to be able to evaluated many alternatives as there are available, to address the debt that will come due in 2026. Long way off. But as you know, you’ve got to be taking measures today to be able to make sure you put the company in the best position possible to address that. That’s how we may–.
Jeff Robertson: Thanks. You mentioned I believe at year-end 2023, that 75% of the fleet working will be plus 300 Series capability. If you skip forward to the fourth quarter of ’24, is there a case where you’d expect 100% of the of fleet to be 300 Series?
Anthony Gallegos: It’s probably in the 90% — of the remaining 200 Series to come out, all but one are the same. And we’re working on some engineering around that one. It already has a high torque top drive on it, so it has that and we can put the iron roughneck, the tool, on it, we just need to make sure we understand the pathway toward the mast and substructure upgrades, in a way that we’ve completed that upgrade on the other 200. But it’s upwards of 90%. And yes, there is a path there, a scenario where they’re all at 100%. But look, if we can contract our 200 Series rigs without having to make that investment generate what we think are appropriate returns, there wouldn’t be a need to do that. So there’s not a hard-and-fast rule. We haven’t said to ourselves, it’s not about ego. We haven’t said 100% has to be 300 series. But we do feel that, as we continue in this cycle and US shale, that that’s where things are going.
Jeff Robertson: Thanks for taking my questions.
Anthony Gallegos: Mr. Jeff, thank you.
Operator: Next question today comes from Don Crist with Johnson Rice.
Don Crist: Thanks for letting me back in, guys. Anthony, I wanted to ask a more macro question, and I fully admit that this may not have a direct answer. But as you look at the market today and surveying the guys who are depressing prices on the private side, any sense as to how many rigs that may be? And once those rigs are soaked up with incremental demand, do you think that pricing just rebounds towards that mid-30s level, given that the larger companies have held pricing as well as they have?
Anthony Gallegos: Yeah, I don’t think it’s as much as people think, Don, and the reason is: think about how much the requirements from our customers have changed since COVID, right? The laterals certainly are getting longer. The M&A that’s happening around us is — there’s a lot of drivers to that. But certainly, the ability to put together more contiguous acreage on the part of our customers is a big driver, which again, is going to drive that need for the ability to drill the longer laterals, more setback capacity, on and on and on. And when you survey the smaller contractors and installers, it’s not just them. Like I said, I think the big three are really doing a great job at it being very disciplined in the market. And as you’ve read into that, what you all, but certainly of the smaller contractors that are out there, there’s not as many of those types of rigs in those fleets.
In fact, for a couple of them, they’re essentially 100% utilized today among what we would consider to be 300-like type rigs. So what you just described is what I think is going to happen that in the first couple of quarters of next year, what excess capacity there is in this 300 Series market held by the smaller guys that is going to get snapped up, which is going to set the fairway for the big three to come in and do what they do. Because they’re going to have, at that time, what will be remaining big rig capacity. So yes, that is part of the thesis and how we see this playing out over the next 12 to 18 months.
Don Crist: I appreciate the color. Thanks a lot, guys.
Anthony Gallegos: Thanks, Don.
Operator: Next question today comes from Dick Ryan with Oak Ridge.
