Ladies and gentlemen, thank you for standing by. And welcome to the Precision Drilling Corporation 2019 third quarter results conference call and webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator instructions]. Please be advised that today's conference call is being recorded. [Operator instructions]. I would now like to hand the conference over to your speaker today Dustin Honing, Manager Investor Relations. Thank you. Please go ahead, sir.

Thank you, Valerie. Good afternoon, everyone. Welcome to Precision Drilling's third quarter 2019 earnings conference call and webcast. Participating today on the call with me are Kevin Neveu, President and Chief Executive Officer; Carey Ford, Senior Vice President and Chief Financial Officer; and Shuja Goraya, Chief Technology Officer. Through our news release earlier today, Precision reported its third quarter 2019 results. Please note, these 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 news release for additional disclosure on these financial measures. Our comments today will include forward-looking statements regarding Precision's future results and prospects. We caution you that these forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from our expectations. Please see our news release and other regulatory filings for more information on forward-looking statements and these risk factors. Kevin will begin today's call with opening comments. Carey will then discuss our third quarter financial results, followed by Kevin's operational update and outlook. Additionally, Shuja will comment on Precision’s technology strategy and progress on key initiatives to-date. With that, I'll turn it over to you, Kevin.

Thank you, Dustin, and good afternoon. So before Carey provides our third quarter financial update, I would like to make a couple of opening comments. First off, I am pleased with our strong third quarter financial and operating results. We will have much more on that in a few moments. I’m also sure that everyone on this call today recognizes that investor interest in our sector is at an all time low. Macroeconomic concerns, political uncertainty and E&P capital exhaustion are all contributing to this loss of investor interest in our sector. Precision’s share price, and for that matter effectively the entire industry is hovering near multi-decade lows. This is deeply troubling for investors, for our management team and for our Board. You can’t imagine how frustrated I am as an investor and as Director and as a senior executive. While the share price is disappointing, these macro challenges are not new to the Precision organization. Precision was founded in depths of 1980s during the recession, a similar time period characterized by political uncertainty, macroeconomic concerns, and weak rig demand. Precision’s business systems and processes, the firm’s competitive strategy and core competencies were developed and built to create value of that challenged era. Those systems and processes in the minds of our people have been refined over numerous cycles over the last three decades and remains a core DNA of Precision today. And while some firms are just now adjusting for the second half slowdown, our deeply experienced team is managing our business in a constraint mode since November 2014. And we continue to manage and optimize every business owned and within our control and the results have been remarkable. Strong EBITDA growth, G&A cost reductions, strong cash management, strong operating cash flows, and debt reduction well ahead of plan. We are returning capital to shareholders. We achieved record market shares in all geographies, where we have first mover status on drilling automation technology. So, yes, while we’re deeply frustrated with share price, I know that as we follow our strategy, continue to execute, the strong results will follow. The share price will respond and reflect the true value of Precision Drilling. So, now I'll turn it over to you to brief us on the third quarter.

Thank you, Kevin. In addition to reviewing the third quarter results, I'll provide an update on our 2019 capital plan and management of our capital structure. Precision's strong 2019 financial performance continued in the third quarter with adjusted EBITDA of $98 million, 21% higher than the third quarter of 2018. The increase in adjusted EBITDA from last year is primarily the result of higher international activity levels, higher day rates in U.S., lower G&A costs and benefits from non-recurring items, offset by lower North American drilling activity. Additionally, the quarter benefited from the impact of IFRS 16 and lower share-based incentive compensation. In the quarter, we recognized a $2 million share-based compensation expense, compared to $8 million in Q3 of 2018. In the U.S. drilling activity for Precision decreased 6% from Q3 2018, while margins were up US$1,357 per day, positively impacted by higher day rates, partially offset by higher operating costs. Sequentially, day rates and margins, net of turnkey and IBC, decreased US$218 and increased US$106 dollars respectively. We expect margins to be down US$400 to US$800 per day in the fourth quarter. In Canada, drilling activity for Precision increased 20% -- decreased 20% from Q3 2018, while margins were down $702 per day in the prior year. Net of shortfall payments, margins were lower by $688 per day. Margins were negatively impacted by fixed costs spread across lower activity levels and the timing of certification costs. Last quarter, we gave guidance for Q3 margins to be down $250 to $750 per day year-over-year and we expect a similar year-over-year trajectory in Q4. Internationally, drilling activity for Precision was 12% higher than Q3 2018. International average day rates were up US$1,226 as a result of re-contracting rigs at higher rates and the startup of our six Kuwait newbuild rig…

Thank you, Carey. I'll begin with an update on our technology initiatives. As we mentioned on our press release, during the third quarter, we achieved a step change in customer acceptance of our PAC automation technology. In a moment I’ll turn the call over to Shuja Goraya, Precision’s Chief Technology Officer to provide a detailed update. But first, in my prior technology updates, we've been discussing field level resistance to change as a primary obstacle. I believe we've reached a tipping point of acceptance as our field resistance is quickly transitioning to active field support. To quote a drilling engineer on a recent multi-well pad drilled PAC, “Automation has significantly improved the operational performance and safety for the organization. It has consistently delivered top quartile connection performance, we're only scratching the surface of the system's future capabilities.” So I'm hearing more and more of these customer testimonials as we continue on this path of commercialization. By the end of this month, Precision will have drilled 1,000 wells utilizing Process Automation controls. The efficiency gains and the cost savings for our customers are becoming inarguable. So Shuja please share your thoughts with us.

Thank you Kevin and good afternoon everyone. The last time I spoke with you, it was a year ago. And I would say we along with our customers have learned a lot in these 12 months. Looking back, two of our key learnings are: One, the best way to improve drilling performance is using the ingenuity of our best drillers supported by the right insight and replicating it with consistency of Precision's PAC system. Secondly, automation starts to deliver measurable customer value when system utilization crosses 70% mark. Q3 was that tipping point for Precision. We now have everyone of these PAC systems well above that threshold and actually, most of them are running consistently above 90% utilization. As a result every single sequence we have automated so far is delivering 25% to 35% performance improvement with a corresponding reduction in cost for our customers. We have systematically applied all of these and many other learnings to our PAC service delivery process and as a result in Q3 we’ve doubled the number of our PAC paying customers. You can imagine, in this environment where every dollar is highly scrutinized, this is a great testament to the value of these systems, the value of these systems are delivering to our customers. One thing for sure, the adoption journey was not a straight line. We had customers who experimented with shutting down the system for one section, one well, even multiple wells to validate the performance gains and every single one of them is back to fully utilizing the system. In last few quarters I've made a point to see as many of Precision's customers as possible. In their drive to lower costs and industrialize performance, there are two major themes: One, access to and reliance on real-time data to make decisions…

Thank you, Shuja. So I'll remind the listeners that we see our automation technology as a key element of our competitive strategy. We believe PAC will drive drilling rig market share gains, while enhancing our revenue and margin growth as we continue to roll this technology across our highly standardized Super Triple rig fleet. So now turning to our regional update, I will begin with the domestic United States where currently our activities in the mid 60s, down a handful of rigs in the low 70s we reported in July. And while this is slightly lower than we expected when we provided guidance on our second quarter call, it should not been a surprise in light of the subdued customer tone around cash flow management and budget exhaustion. We expect our rig count will range in the low to mid 60s for the balance of the year. As our customers reload spending with 2020 budgets, we have several projected rig activations that may lift activity to low 70s early next year. Now I also know there’s a lot of concern and interest around leading edge rates and pricing. So since the end of the second quarter, we concluded eight term contracts, which includes two this month. For the Precision ST 1500 rigs, those rigs were and remain in the mid 20s. On the smaller Precision ST 1200 rigs the rates are a little lower in the $20,000 per day range. Turning to Precision’s well to well rigs, these are the rigs that don’t have locked in contracts, pricing remains in the low 20s for Precision’s ST 1500s and high teens for Precision ST 1200s. As we look around the market the Permian, the DJ Basin and the Marcellus are Precision’s strongest regions where we have 51 active rigs today. Our…

Thank you. [Operator Instructions]. Our first question comes from Kurt Hallead of RBC. Your line is open.

Appreciate that summary very insightful dynamics here. So I want to circle back with you, Kevin, on a couple things you mentioned. The first was in the context of the pricing dynamics in the U.S. and you kind of gave the varying ranges of your different kind of rate classes. And just wanted to kind of be certain on kind of understanding the dynamic to play. So you indicated that that's where pricing currently is, you didn't really kind of reference that there is any significant pricing pressure in sharp contrast to what you said about the shallow assets up in Canada. So just want to make sure I understand, are you saying there is pricing pressure in the U.S. or pricing is fairly stable?

You know, I think we answered that question right now. There's certainly some pricing pressure in the U.S. It applies more to the well-to-well rigs and any very remote new opportunities that pop up. On the rigs that are on renewals, I think we are working closer with customers on those renewal contracts and we’re achieving rates are kind of in line with previous quarters.

Okay, great appreciate that color. My follow-up…

Let me add one more comment on that point. We continue to see a high level of pressing discipline among the multi-basin U.S. drillers and it speaks to the still relative tightness of supply of the super spec or in our case Super Triple rigs. Our utilization has softened up a little bit but it's still in the upper 80s across the industry and certainly for us it’s in the upper 80s and that is not a loose pricing market. That's actually a tightened pricing market, a tight pricing market. And I see continued discipline among the drillers with those rigs.

Yes appreciate that added color. One thing I wanted to also follow-up on because you kind of made it a very important part of your strategy going forward is the automation and the apps and the software and so on. I think last quarter you indicated that you felt confident about the prospective incremental revenue generation and revenue per day generation. So with another quarter behind us and with what you see in the pipeline, can you give us an update on what you -- how you see the revenue model evolving? And what kind of revenue generation you think you can provide?

Kurt let me answer that question by telling you that our goal for the year was to be commercial, fully commercial, which really means we're being paid for every system and we're earning the expected returns by the end of the year. We didn't make that claim on this call. But expect some news from us shortly on that, okay? And then we'll provide kind of forward-looking guidance. We'll talk more about the next steps in the technology. And I think we’ll be able to provide concrete details of where the technology is out today and where it's going.

Okay, Kevin, fair enough. Thank you.

But all I can tell you is that we are very close and we're very encouraged and we're happy with where we're at.

Thank you. Our next question comes from James West with Evercore ISI. Your line is open.

Kevin, you mentioned you thought your U.S. rig count in the low 60s could go to the maybe low 70s here as budgets are reloaded. Are you having that -- is that a kind of a gut call or you’re having that number of conversations or active dialogue that suggests that that's something that more likely to happen?

So I’d say ultimately, we didn't confirm that we have signed contracts to take us there because there's still a lot of moving pieces. Not many of our clients have announced their 2020 budgets yet and I think they’re still -- I think they're going to get through these Q3 conference calls and see how the market reacts and they'll decide their 2020 spending. But there's a -- we have a high degree of ongoing conversations with customers in a number of basins, number of opportunities. There's a lot of anticipation right now around our PAC automation controls. So short of some further dislocation around certainty in the marketplace, I think we see the rig count industry wide move up a little bit. I think we'll benefit well and we'll gain some market share again that is driven by technology and efficiency.

Okay, got it. And then on the PAC automation controls, I think the number was double customers maybe number of systems quarter-over-quarter and being driven by the field now. What do you think spurred this change, this -- the resistance to -- or switch being resistance to a pull from the field level?

On Shuja's comments earlier, he commented that at 70% it's a bit of a breakeven for our customers. We crossed over that threshold on every single rig during the quarter. In fact Shuja commented that most of the rigs were running over 90%. I can tell you that that level they're making money on this and it's clear and it's apparent and the field is getting it. There's moving forward. Shuja also talked about some rigs where they would turn it off for a section of the well or for a well, those decisions were being made at the field. And that's turned for us now. So we feel quite good about our positioning and it's moving forward well. The technology is inarguable, it works and I'm pleased.

Thank you. Our next question comes from Sean Meakim of JPMorgan. Your line is open.

So Kevin, in Canada you're calling for a flattish activity enticing the high spec Super Triples. It’s pretty consolidated market and with historically pretty low levels of activity. Just I was curious if you could walk us through what you would perceive to be the flex points that could cause a significant deviation from that level in either direction?

It’s good question, really good question. I would say capital markets reaction to Q3 disclosure by E&P companies could have an impact. If for whatever reason the capital markets sell or on the -- further on the E&P companies in Q3, that could be a negative driver run in activity. If our customers continue to show good efficiency and continue returning value to shareholders, I think that supports a more positive year. So I think it really does depend on how good our customers are at delivering efficiency with their capital and showing their investors they can return capital.

Got it, I appreciate that feedback.

And then obviously the macro events can go either direction. If for whatever reason the WTI price firms up into the high 50s or low 60s that's very positive. If we see production flattening or declining in the Permian with reduced activity, that's a positive. So there's things that can happen that on the edge can make a big difference to demand for Super Triple rigs.

Right, that's fair. In the U.S. one of the large service companies had indicated a desire to become more asset light in North America. Historically you’ve had a constructive partnership in product lines like directional drilling with the same service company. Have you seen much of a shift in terms of kind of go to market strategy there and does that create opportunities for you, could we just something explore a little bit about how that could unfold over time and in fact Precision?

Yes, Sean. I would say that the success we are having with automation right now is gathering attention from the integrated service companies in general. And I think they will view our platform for technology delivery as a favorable platform. So I think that may create some opportunities but if we do create one of those opportunities we will be sure to announce and be clear when they're accomplished.

Our next question comes from Connor Lynagh of Morgan Stanley. Your line is now open.

I’m wondering if you could deep instruct the guidance a little bit here on the margin side. So on the U.S. it sounds like rates are holding up pretty well. So I’m just trying to bridge to, there's a little bit of margin pressure, it doesn’t seem like very extensive but is that more related to fixed cost absorption, what's driving that the pressure on margins there?

So it’s little bit of about, Connor, it’s a little bit of slight rig pressure and then if we have lower activity covering the same fixed cost base we will have a little bit of pressure on the cost side.

So do you think it would be fair to say it’s 50-50 or you know just the split of what's driving that?

I think that’s fair.

Okay got it. And then as we think about next year if you were to reach high 60s to low 70s type activity levels. Should we expect that to continue to trend lower or do you think the cost offsets any marginal mark-to-market lower rate, just kind think through leading edges versus what you are realizing today?

So we haven't given any guidance for the first part of next year. But I will kind of follow up on what Kevin said about where we're having conversations with customers. We're not having very many conversations with customers about adding rigs over the next two months. The conversations we are having about adding rigs in January and that is going to be -- like it’s going to be a different pricing dynamic in the spot market today.

Okay that’s fair. Maybe one last one here. We've seen some of your competition announce rig retirements and just broadly across service industry that seems to be a theme this quarter. How do you feel about your asset base, is there anything in there that you could view as sort of noncore or competitive in the current market?

Over the past seven years, we decommissioned about 200 rigs across our fleet. We have 22 rigs that are held for sale right now that we believe we will either sell or decommission by the end of the year and if you look at our utilization rates in both the U.S. and Canada they are right at the top of the industry in terms of our utilization percentage. So we think the thing we have is more reflective on our balance sheet and as obviously evident by the customer demand.

Our next question comes from Taylor Zurcher of Tudor, Pickering, Holt. Your line is now open.

If my numbers are correct on the CapEx budget, it looks like you budget about $5 million for Q4 and 2020s still $60 million to $80 million. So that’s obviously a lot of maintenance and some upgrade in there. Could you help us parse how much of that is maintenance and how much is upgrade in 2019? It looks like you're spending around $30 million in maintenance. So it seems like there is a decent wedge in there for upgrade. I'm just curious, what sort of upgrade projects are contemplated in that budget as it sits today?

Sure. So the maintenance spend is going to be driven by activity. That will be in the low end if activity is lower than this year. It will be in the high end if activity is a little bit higher than what we experienced in 2019. On the upgrade side, we will be looking at doing minor upgrades to rig. So, it might be increasing pump capacity or walking system. We wouldn't contemplate any major SCR to AC conversions unless the market improved a bit. We will also be -- Kevin and Shuja both talked a lot about the success we're having with our technology initiative and if we commercialize this year which we're confident that we will, we will likely be adding additional process automation control systems to our Super Triple fleets in 2020, and that will comprise some of the upgrade expenditures.

Okay. Got it. And I guess just to clarify on some of the pricing comments you made. It sounds like at least for the ST 1500s that are getting extended with their existing operators, the pricing pressure is really nonexistent or not that great. As you think about your rig count potentially ticking higher in Q1, I suspect some of those rigs might be trading hands into different operators and the pricing pressure there even if those are term contracts is going to be a little bit greater. And so I guess the question is, am I characterizing that correctly? And if so, at some point down the road do you think that delta between rigs getting extended with their current operators and kind of the new leading edge rate for 2020 startups conversions moving forward?

Taylor, I think it’s more complicated than just the current leading edge spot market rate becomes a starting point in a growth market or even in normal growth market. I think we demonstrated that with some of our renewals this quarter that we're still holding at the previous pricing range of mid 20s. My short answer is, it’s really hard to define price realization when rig counts are softening and drilling budgets are winding down and no new opportunities are emerging. When you enter a new market, which is a start of the new year with a new drilling budget and the activity is stable and likely rig count is moving up slightly, you have a bit of a growth market and pricing will be different. Utilization of those high spec rigs don’t range in upper 80s and this month has been quite strong across the top four drillers. So, I'm not going to give any hard pricing guidance on Q1 pricing right now, but we believe it will be constructive.

Okay. Fair enough. I'll try to squeeze one more in. I though the stat on the PAC system utilization breakeven at around 70% for your customers was pretty interesting. Just want to make sure I understand what that means. I assume utilization is just the number of wells are drilling with the PAC system during the quarter. But from a revenue perspective, to breakeven, are you using the full $1500 type day rate for the PAC system that come to that calculation?

Yes. So, what we find is that they use the PAC system on any given wells, 70% of the time, and we charge the full commercial rate. They will recover that at 70% utilization in savings on the rig. If they can use it at a higher percentage of the time -- so we get criticized for letting all the value on our technology flow through to our customers. We've been very disciplined here to make sure that we capture the value up to a point, and then sharing the value from that point forward.

Thank you. Our next question comes from J.B. Lowe, Citi. Your line is now open.

I just have a couple of here. Wanted to follow up on Connor’s question about the margin profile in 4Q. In the U.S. the $400 to $800 decline in margin, is there any offset there from revenue from the PAC systems or from app revenue like if absent those two things would margin be lower. Or how is the way to think about that?

So, Kevin and Shuja both pointed to us being confident that we're going to announce full commercialization before the end of the year, maybe within the next month or so. And at that point, we will start getting more significant revenue from the system, which will show up much more in Q1 than it well in Q4, but there's a little bit of an impact in Q4.

And then on the -- Kevin you’re mentioning that there's some tendering activity on the international side. I know you have some idle rigs abroad. If you weren't going to be able to put any of those rigs to work in 2020, you said you already on scale in the Middle East, would any of those idle rigs would be divestiture candidates?

We don't have any kind of a formal decision on those rigs whether we sell them or not. We did sell rigs in Mexico earlier this year, and that was a good transaction for us. The assets that we have in Kurdistan and Georgia and Saudi Arabia are excellent assets. For the right trade, anything is for sale.

Thank you. Our next question comes from John Watson of Simmons Energy. Your line is open.

A quick follow-up on J.B.’s question. Appreciate if we should hold tight and hear more later. But could you help us think about what the revenue uplift from the full commercialization of PAC might be in Q1?

So I can tell you with the guidance we’ve given before, there's $1500 a day on roughly 30 systems that would be commercial in the field. So you can think about that as having an impact in Q1.

And that's going from zero in Q4 or minimal in Q4 to that type of figure and 1Q is that fair?

So we haven't given any color on what that impact would be in Q4, because we haven't announced full commercialization yet.

Okay, understood. Kevin, you made some commentary on -- helpful commentary on the rate environment, and mentioned that well-to-well rigs are receiving lower rates relative to some others. Does the percentage of rigs that -- a percentage of precision rigs on well-to-well work, does that increase in Q4, is that part of the margin decline or not at all?

I don't have the tables in front of me. But essentially the contractor rigs are kind of holding steady and it's the well-to-well rigs, just been a little bit of pressure on rates. And rig counts come down a bit well-to-well rigs. I don't have the mix in front of me.

Okay, I was trying to think towards 2020 I’d assume you'd have more well-to-well type of rigs of in Q4 than you would in 2020 but that's fair.

So I think that's -- I think it's fair to think that we will have more well-to-well rigs in Q4. And certainly with all the uncertainty in the market customers have not been anxious to book up rigs for 2020 yet. We didn’t announce any contracts but I'd expect to see more contracts emerge in the first quarter.

Yes, right. Okay. That's where I was headed. And then last one…

Certainly after budgeting season, even this fall. It could be later this year.

Okay, lastly on the international front, you’ve deployed the incremental rig during the third quarter, should we be thinking about a margin uplift in 4Q since you won’t have that deployment type expense and you'll get a completely full quarter from that rig in 4Q which I think has a higher revenue per day relative to some of your other international rigs?

So John in Q2 we said that we would get a full quarter of EBITDA from the new rig in Q3. So we wouldn't expect to see an uplift in Q4. That's our sixth rig deployed to that country, the same customer and it's the same rig design. We didn't have any startup costs in the quarter that were unique to that startup.

Thank you. Our next question comes from Ian Gillies with GMP. Your line is open.

With respect to growth in the U.S. rig count as you head into the early part of next year, I mean do you expect that will be continued market share capture, do you think it’s part of a broader rig count recovery?

I think there's a rig count recovery, I'm not sure I'd call it broader but there will be a rig count recovery next year and I think it's really driven by our customers trying to drive some more smooth loading over the course of the year and -- but the point is that ramping activity after the first half and ramping it down the second half is very expensive way to drill wells. If you can level it all during the year that saves our customers money along with pad operations and technology and things like that. So I think you'll see the rig count tick up from the trough of 2019 into whatever the levels are going to be in 2020. So whether that's 30 or 40 rigs, it's hard to say. I would say that every single rig that gets added is a super spec or a precision Super Triple type rig. We've done quite well during the upticks in grabbing market share on those high spec rigs. So I think our gains will come through a slight uplift in the industry and some market share traction I think we'll gain.

Okay, deleveraging has obviously been an important part of the story over the last number of years. I mean when you look at Q3 actuals, I mean you provided some context around what Q4 looks like. I mean does that give you any pause that you may or may not be able to meet that $100 million to $150 million debt reduction targeted in 2020 based on what you've seen so far and if you’re at risk saying maybe it doesn’t recover in 2020?

We have a high degree of confidence that we'll meet our targets in 2020.

And Ian I could walk through a couple of numbers there. We gave guidance on interest expense which we think would be right around the 100 million, maybe a little bit less. Our CapEx is 60 million to 80 million and cash tax has been relatively low. We won't have much of change in working capital, activity is similar. So you're looking at some 170 million of fixed costs. So take whatever you have for your EBITDA estimate and the difference would be our cash flow. In addition to that if you look at our Q4 outlook, we've given a relatively low CapEx number. Our interest expense for the quarter in Q4 will be $30 million to $35 million. We should have another very good cash flow quarter in Q4 and we got almost a $100 million of cash on the balance sheet today. So all of those things taken together I think we're very confident we can meet or exceed our target this year and all the same next year.

Ian, I'll point out that we did add the word exceed our target this year in the disclosure this period.

I did note that, so. And then I guess, I mean following on the international piece that was asked upon earlier. I mean are you guys trying to just -- as you look at those, are you trying to carve out additional work if possible in areas that you currently operate in or would you be willing to step out of where you currently are for the right opportunity should arise?

I will give you bit of a sense of what we are looking at right now. So the rigs we have idle in the Middle East, we are looking to deploy likely somewhere in the Middle East in one of the countries we clearly operate. So I think that is a step out envisioned in the Middle East, rig in Gulf. But we are looking at some other opportunities that might evolve. We're deploying idle North American assets to Latin America.

Okay, that’s helpful.

And the scale would have to adequate for us to make that decision but we're exploring opportunities.

Yes. I would add that the sale would have to be adequate and the capital expenditure requirements would have to be relatively low.

And just one quick clarification there on scale. Should I be thinking about that from a dollar asset perspective or is it a number of rigs? Because obviously one rig in the Middle East is much different than one rig in Latin America.

Yes. I would think about it as number of rigs.

[Operator instructions]. Our next question comes from Jon Morrison of CIBC Capital Markets. Your line is now open.

Can you talk about the level of rig inquiry in the last four to six weeks and whether you see any meaningful change up or down in kind of that duration? Obviously activity has been coming down we all see that. But I’m just trying to get a sense of whether there is any heighten level of RFPs in the market that could be indicative of guys shopping around for price and perhaps getting ready to grind and contract renewals or do you believe that that's fairly representative of what they're actually going to need in the coming period?

Jon it’s pretty easy for our sales team to parse through the guys on the price discovery versus 2020 new opportunities. So I think that we’re pretty clear on which we're pursuing and most of what we're putting our energy into is around new opportunities in 2020 not price discovery.

Okay. Is it fair to assume that your rate of renewal or hit rate is fairly steady with what you've seen over the 6, 12, 18 months?

Well our rate of renewals slowed down this quarter. I mean I think this is a smallest quarter this year for bookings, for contract renewals. And no surprise to marketplace, nobody is looking to lock in a lot of rigs in the third quarter of 2019 but those people may be looking to do that late in the fourth quarter or early first quarter as they think about the full year drilling in 2020.

Apologies, I misspoke. I meant your win rate hasn’t really changed based on the number of things you are betting on.

I don’t look that closely at win rate. I’m pretty happy with the contracts we've achieved, the pricing we’ve gotten and I also know we’ve walked away from contracts because the pricing wasn’t adequate.

Just in terms of Canada, Kevin, some of your peers have been talking about cold stacking some of the heavy doubles in the market. Do you think that, that has a chance of actually improving pricing at the lower spec part of the market or that just kind of reduces some of the pressure that we're seeing?

Jon, some of my comments on the well service business applied to the shallower part of the drilling business too. The rates are too low for the industry, it’s unhealthy for industry. I think every drilling contractor that's stuck in that business is trying to find ways to tighten the market. Certainly, if our customers want a healthy supply business, they have to be a little more flexible on pricing, especially on the shallow rigs. It’s hard to maintain high-quality assets. The expectation for safety in Canada is quite high. The environment responsibility is quite high. It's getting tough on the contracting industry to the shallower rigs to do that at these rates. So, my message is quite loud and clear, our customers have to work with us a little more than they have in the shallower rigs. I can tell you the drilling contractors are doing all they can to try to ensure not wasting any of their operating costs, so they're contacting rigs, they are trying to be as smart as they can and the industry is quite resilient, but the rates are too low.

Okay. Kevin, you’ve talked about being open in terms of the well servicing consolidation in Canada in the past if it made sense for Precision to do it, you might not be the leader of doing everything on the platform. But are you surprised that we haven't seen more consolidation on market in the past 12 months, because the conversations we would have with the private operators would obviously highlight acute distress and I'm surprised we haven't seen more things happen today. Is that in line with your views?

Yes, I sort of have in my mind that by the end of Q3 or Q4 2019 the business we're been through, the ringer long enough to narrow some of that bid-ask spread. I don't think it has and I still think that enough of the rigs are controlled by companies like Precision that are probably doing -- we're doing a very good job, I think I was doing okay job. And it’s not strategic in a business, yet. But it will become strategic if it stays in this position. So, you can look at the active industry right now, let's say probably 40%, 45% of active service rigs are owned by drilling contractors.

Okay.

I'll finish up my point, though, Jon. I think industrial logic and the economic logic is getting closer and closer to making sense. I do expect that some things start emerging in 2020 in that space.

It always just takes longer than you would logically think for that to actually happen.

It does.

Carey, in terms of the CapEx guidance that you gave for 2020, would incremental inflation or deflation of those numbers just largely go in line with the number of drilling days you actually get in. Is there anything that would push it meaningfully above that in any scenario that you could perceive illogical?

If we're in a activity range that looks plus or minus 10% or 15% from this year, that's probably a pretty good range. But if we have a higher demand scenario, that will probably trigger some more SCR to AC conversions and the upgrade piece could creep up. But again, we would need the right contracts to spend that money.

And it’s difficult to come up with any scenario where we wouldn't pay down debt first.

Okay. So, basically the capital priorities, the right way to think about it is: One, you're essentially maintaining the marketability of the asset base. Two, you'll need at least the base debt reduction target that you put out but probably going to exceed. And three, you’re really only on the buyback, when you're very comfortable with the fact that you're going to achieve bucket one and two when you've got excess cash, is that the right way to think about the NCIB at this point?

I would also -- that is in general absent any upgrade opportunities, but if we have upgrade opportunities that provide us a good return on our investment, that would likely take the place of buying back shares.

And those would be line with your traditional metrics that you've talked about.

Correct.

Thank you. I’m showing no further questions at this time. I’d like to turn the conference back over to Dustin Honing for any closing remarks.

Thank you all for joining today’s call. We look forward to speaking with you when we report our fourth quarter results in February.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.