Kevin Neveu: I have to promise everything with macro. The macro can affect everywhere all the time. But assuming the macro doesn’t have some massive shift like a pandemic or another war. But we’re dealing with the Canadian market as it sits today with Trans Mountain pipeline coming on and the Coastal GasLink project and then likely follow-on approval of Phase II for LNG Canada. So if we’re running 30 rigs today, that could be as much as mid-30s three or four years down the road, could even be low 30s just by the end of next year. So we could see that recount go from 30% to 32% or 33% next year. And up beyond that could be 35% or it could be 40 rigs kind of down the road. I don’t think we’re building new rigs. I think we’ve got opportunities to upgrade existing rigs like we did for the 1 rig moving into Canada on January 1.
To give you a sense of the capital needs for that, we could probably upgrade one of our older SCR rigs to a full super spec for the rate of $10 million to $15 million, far less expensive than building a new winterized rig. So I don’t think we need a ton of capital to her rig count in Canada go up quite a bit if the LNG projects continue as they look, and heavy oil continues to remain strong.
Kurt Hallead: That’s right. Perfect color. Thank you.
Operator: Our next question comes from Keith Mackey with RBC Capital Markets. Your line is RBC Capital Markets. Your line is open.
Keith Mackey: Hi. Good afternoon. First question is just on the US, Kevin, we know that your rig count over the last year or so had been more private company weighted and you talked about adding 6 public companies this year and increasing your share with two. Just curious, what do you think is the right customer mix for PD in the US in terms of public, private, et cetera? And what do you think needs to happen in order for you to get there?
Kevin Neveu: Yes. Keith, I think that sort of changes with time a little bit. I do think that as US LNG exports start to ramp up in 2024 and 2025. We might be a little less worried about private equity style E&P companies that they’re drilling for gas, if there’s a stronger LNG export market. So if I look back at FY 2020, FY 2021, having that private company exposure and gas exposure was excellent for Precision. Now, at this point in time today, having more public company exposure, having exposure to the majors, super majors having more oil exposures, what we’re targeting, and we’re delivering on that. It’s not — we can’t make these changes in a week or two. It takes a quarter, two quarters, three quarters but our customer mix at the end of this year will look vastly given at the beginning of the year, and I’m really pleased with the progress our sales team is making on that.
Keith Mackey: Yes. Got it. Appreciate the color. And maybe one for Carey. What are you seeing in terms of maintenance CapEx per rig or maintenance CapEx per day? I guess more specifically on your US fleet? Has there been much inflation from that, 1,500 a day level that we used to always quote? Or where are things trending there?
Carey Ford: Yes. So there has been inflation. We have quoted on prior conference calls that the many capital cost per day was trending closer to 2,000. Now it’s closer to the mid-2000s. But I would point out that that includes drill pipe replacement. And in a lot of cases, we are getting customers to pay for excess wear on drill pipe. And so we’re — it’s showing up at a higher cost in maintenance CapEx, but then we’re recouping it on margins.
Keith Mackey: Got it. Okay. So drill pipe and some other things. What are besides drill pipe? What have been kind of the big drivers in terms of the maintenance capital number increasing?
Carey Ford: So it would be mud pumps, pump maintenance, engines, top drives, all the critical components on the rigs, the repair cost of balance. If you think about R&M, you’ve got consumable components when you do repairs, which have a little bit of inflation in them and then you have labor and labor up across the board and then subscribe it.
Keith Mackey: Yes. Got it. And just one last one. On any activations that you might see in the US, is there — are we talking about any substantial capital requirements to bring any of those rigs back or they all pretty warm still?
Carey Ford: Likely not much maintenance capital. We might have a little bit of operating expense and if there’s upgrades associated with the reactivation there’d be some upgrade capital. But you make the correct point that, a lot of these rigs were working six months or a year ago, they’re not going to be the same type of reactivations that we had to put forward at the end of 2021, beginning of 2022.
Keith Mackey: Okay. Thanks very much.
Operator: Our next question comes from Cole Pereira with Stifel. Your line is open.
Cole Pereira: Afternoon, all. I just want to start on the margin front in the US. So it sounds like some of the costs there were going to reoccur in Q4. Is there anything transitory that is in both Q3 and Q4 or in the event that the rig count in the US doesn’t increase? Is that kind of a reasonable run rate going forward? Just as from your last call, I mean, your rig count in the US is down a little bit, but the margin outlook is quite a bit lower.
Carey Ford: Right. So I think that they will — the cost will trend down a bit more in Q1, regardless of whether we increase our rig count. There — if you think about it, if you have a lower rig count, you’re absorbing a bit more fixed costs, but also if you have a high maintenance cost on a rig, if you have critical funds that need to be replaced, it just shows up more is more prevalent in the average operating cost if you’re running your rigs. And so we’ve got a few of those where we just had higher R&M post on a particular rig. And it just shows up a little bit a little bit more in the daily operating costs because of it. We do think that some of — there’s a bit of transitory costs in there, and we should see it trending down a bit more
Cole Pereira: Okay. Got it. And then coming back to shareholder returns. You talked about it a little bit, and there’s obviously a few different ways that activity can go next year, but free cash flow should be pretty strong in any reasonable scenario. I mean, from your standpoint, is that you may be thinking about paying down, call it, $150 million of debt or something in that range. And should have a lot left over and then you think about growth CapEx and kind of put the rest in the buyback?
Kevin Neveu: Yes. So we’ll put forward our capital allocation targets to the beginning of next year. I think in general, you’re thinking about it right, correctly, Paul. The — we will continue our debt reduction schedule. We will have capital allocated towards share buybacks. And then I would look at our growth capital the same way that we’ve always looked at it. We’re going to look for opportunities to spend upgrade capital match the contracts where we get that capital paid back and to the extent that there’s opportunity to do that in the market, we’ll pursue it.
Cole Pereira: Got it. Thanks. And you’ve done a few of these bolt-ons now. How do you think about further consolidation just as part of the overall PD strategy?
