Luke Lemoine: Hey, good morning. Kevin you kind of loosely touched on it with Kurt’s question, but you’ve previously mentioned that maybe make some idle U.S. works to Canada. Can you just update us on that maybe how you’re thinking about industry equipment demand in Canada shaping up with the trends on pipeline expansion in Coastal GasLink?
Kevin Neveu: Yes. Luke, it’s interesting there’s a supply and demand for us in pulling opposite directions. No question. The E&P base in Canada, United States, Kuwait, anywhere would rather see the market oversupplied. And I understand that because they want to have oversupplied rig supply, so that that keep rates as low as possible. We need — as a drilling contractor we need to have the market tightly supply. We need the rigs to be fully utilized the day rates generate returns that exceed our cost of capital. So it’s incumbent on us to be really careful about not oversupplying the market. I do expect that as these projects start to function and operate as the Coastal GasLink starts running as the Trans Mountain pipeline starts going.
I expect rig demand will increase. I do think there might be a potential to bring up one or two more rigs in the U.S. depending on customer needs. But we’ll be very careful not to set us up for returns on these assets that are less than our cost of capital.
Luke Lemoine: Okay.
Kevin Neveu: Not much of an answer, but we’re going to manage the market carefully.
Luke Lemoine: Yes. All good. And then on the U.S. side, you talked about at the current crude price maybe increasing activity in the second half of the industry. And you just provided some details there around like what type of customer you think or indications from basins or what you’re just kind of seeing from incremental demand into 2Q?
Kevin Neveu: Yes. Look it’s interesting. So our bid volume really hasn’t changed much in the past couple of years. So, lots of bit of activity going on. Lots of drilling departments looking at rigs lots and lots of drilling departments looking at upgrading rigs and high grading rigs. So that’s — that activity remains strong. That’s a good indicator. We’ve got a bunch of M&A activity right now that hasn’t cleared yet. And these consolidation transactions on the E&P side need to clear the dust needs to settle and the drilling programs need to be established kind of post transaction. So it’s just really hard to time how soon the market gets clear. I don’t think the problem is $75 or $76 crude. I think the problem is volatility in the crude price that maybe you can go into the $60s maybe you can go to the $50s.
I mean, who knows when does the risk on low price declined to the point when an operator feels comfortable increasing rig count by one or two rigs. So that’s kind of the negative side of things. On the positive side of things, we are watching DUC counts. We’re watching U.S. production kind of ramping up unreasonably high compared to rig count. So there’s certainly some optimization going on. It’s probably our view that rig counts need to move up at least modestly to sustain production levels anywhere near this level over time. So I think we are expecting over time the rig counts ease their way up. But if you had I don’t know say 20 of these transactions are finalized and take 20 rigs out of circulation and then 30 companies add one rig, we’re still up 10 rigs.
Luke Lemoine: Yeah. Okay. Got it. Yeah. Appreciate it. Thanks Kevin.
Kevin Neveu: And those numbers I gave are just a random decision, nothing we see right now points to rig count declines or for that matter imminently rig count increases.
Operator: Our next question comes from Waqar Syed with ATB Capital Markets. Your line is open.
Waqar Syed: Thanks for taking my question. Good afternoon guys. Great quarter. Kevin in the US market some of your major competitors have guided to activity going up slightly quarter-over-quarter. I think your comments say that maybe rig activity could be a little bit down. What you attribute that to? Is it just some gas versus oil or customer mix still? Or is it some of the M&A that you talked about that’s happening in the industry that’s contributing to that?
Kevin Neveu: Yeah. Waqar, I think there’s a few things. So I mean, if I have your question correctly, you indicated that some of our peers have guided to rig counts modestly moving up, I did comment that we expect our rig count to modestly move up a little bit from the current 39%, but maybe a bit more in the second quarter, but again, very modest movements. There’s no question, that we’re still transitioning from being very gas-focused a couple of years ago, which served us quite well during the pandemic to pushing more into West Texas more into the oilier basins. And it’s tough when there’s, not a lot of new opportunities popping up. So we’ve got to be very good. We’ve got to have a good value proposition, great technology.
And it’s still a one rig at a time game. No question it will be a little tougher for us to do that than somebody who’s got 50 or 60 rigs already running in the Permian Basin. So I think we’re pushing uphill a little bit. But our guys understand that and are working hard. And they’re doing a really good job.
Waqar Syed: Great. And then on automation, do you think that’s going to develop into a trend that type of equipment on drilling rigs in Canada? Or is it still very early stages to see more of that type of equipment on drilling rigs?
