CES Energy Solutions Corp

TSX:CEU

Earnings Call Transcript 2019-Q4

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the CES Energy Solutions Fourth Quarter 2019 Conference Call. [Operator Instructions]I would now like to turn the conference over to Mr. Tony Aulicino, Chief Financial Officer. Please go ahead.

[Anthony Michael Aulicino, Chief Financial Officer]

Thank you, operator. Good morning, everyone, and thank you for attending today's call. I'd like to note that in our commentary today, there will be forward-looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our fourth quarter MD&A, annual information form and press release, all dated March 12, 2020. In addition, certain financial measures that we will refer to today are not recognized under current general accepted accounting policies. And for a description and definition of these, please see our fourth quarter MD&A. At this time, I'd like to turn it over to Tom Simons, our President and CEO.

[Thomas J. Simons, President, CEO & Director]

Good morning. Thank you, Tony. Well, thank you to listeners for joining today's call. As is customary, we'll talk about the quarter and operations at CES in quarter 1 to date. But more importantly, we'll talk about the oil crisis and COVID-19.At CES, this management team is battle-tested. Our balance sheet is strong. CES is certain to survive. On the call, we'll provide a financial update, including specific details around the significant working capital harvest that we anticipate will happen for the business in the phase of the drilling and completion activity collapse. This working capital harvest is what will save the business in the face of a tough environment for oilfield service companies. We'll update listeners on the different business lines, and we will talk about during the update, how we would operate those business lines in the face of a reduction of customer spending. Our drilling fluid business will face greater pressure than our production chemical business. We'll talk about CapEx for 2020, which will be modest and very flexible. After Tony gives the detailed financial update, we'll take questions; we'll give a short summary; and then we'll conclude the call.We do want to do justice to Q4 and Q1 to date. COVID-19 and the oil crisis will pass. We want shareholders to have confidence in our standing with the North American shale and the oil sands. We're of the view that North American energy production is here to stay. It will survive these 2 crisis, and we want to demonstrate what our position is within that market.Our working capital harvest will far exceed our bank line draw. And prudent management of the company during a crisis will ensure we generate enough free cash flow during trying times for industry to meet our obligations, which mainly will be servicing the bond, modest maintenance capital and a reduced dividend. CES will survive as will shale and the oil sands. We see our job as needing to get the company through this, so our shareholders and employees can reap the benefits of a recovery later.I'll now get on to the OPs updates and go-forward plans for each business line. I'll start with AES, our U.S. drilling fluid business. AES had a tremendous fourth quarter, and overall, made a great contribution to the company in 2019. It generated significant free cash flow, and it started creeping up in market share in the fourth quarter. AES averaged 104 jobs through Q4. To date, in Q1, we've averaged 116. We've done that by adding new accounts, primarily in the Delaware Basin and a bit in the Midland Basin. We've achieved this high market share in the Permian at 20%, at 14.5% overall in the U.S. to providing customers superior technology and execution and better infrastructure in the right places that have added up to AES having almost 15% market share in the U.S. drilling market. As we've operated and grown AES coming out of the depths of 2015 and '16, we've risen from as low as 40 jobs when the industry was running 400 rigs to 120 earlier this week. Activity is concentrated geographically with a diverse customer list. We've staffed the field by design with 50% consultants. So as we have to adjust headcount to match lower activity going forward, we can do that fairly easily through reducing use of consultants. Also as listeners that are familiar with oilfield service companies going back 8 or 10 years now, there was a class action lawsuit against service companies alleging unpaid overtime. The fallout of that class action suit was that many field workers for service companies are now paid by the hour versus a monthly wage plus a day rate in a vehicle. So our field pump for our employees is highly variable because of that change. So in a market where there would be reduced activity, initially, we could reduce headcount in the field with less use of consultants. And then if there's less work to do by paid employees, those people would trip less overtime, lowering G&A. So our point is that we can adjust with activity while maintaining our culture and looking after our customers on the way down. We operate less locations than we did in 2014. So rightsizing will now mean Oklahoma gets mothballed. We streamline elsewhere as required to service our customers without losing money. We're confident AES can protect its culture and ability to be the leading technical mud company in America, while also turning in modest cash flow.I'll go on to U.S. production chemicals. Now remind people, this business treats existing production. So oil, gas and all the associated water. Customers will protect this with their lives. It's what will save their businesses, along with new drills to hold leases.Our vertical integration, decentralized leadership, novel chemistries and application techniques, all add up to give JACAM catalyst, the third largest production chemical business in the U.S. land market. Our infrastructure can support growth as water cuts rise and treatment rates increase. You heard that right, as the wells age, they require greater treatments because the water cut comes up risking the integrity of the well.StimWrx, our stimulation chemistry group, experienced growth during low oil prices in Canada. It's a low-cost way for an operator to improve production from old tired wells. This down market may be a catalyst for StimWrx in the U.S. to expand. Low dollar spend when applied properly to the right wells can be highly accretive. The spends in the range of $10,000 to $50,000, so way less than a new frac or drill. Going into a period where oil prices are uneconomic, COVID-19 threatens to shutdown society and operators must run their businesses from within cash flow having a recurring production treating business across the U.S. will let this oil drilling guys sleep at night.I'll move on to Canada now. Canadian drilling fluids ran 56 jobs on average in Q4 and 100 in January and 103 in February and has 66 running today. We have managed to lap the field in Canada in market share, far better execution, correct technologies for deep long reach wells, superior technology and execution in SAGD, and importantly, a culture that attracts the best-in-class employees, adds up to a great business line in Canada. We're hopeful we can hold our customers work through this crash. We believe we can hold our A team of people and not have that be a drag financially on the company.Canadian drilling fluids has a great Q1 in its pocket and will be sustainable through this crash. In a recovery for oil prices and LNG build-out, we expect good financial contributions from Canadian drilling fluids going forward.PureChem is our Canadian production chemical business. Under new leadership, a little over a year ago, PureChem has really stepped it up for the company. Through improved supply chain decisions, rationalized management costs, Ken, who started the business with me 19 years ago now runs Canadian drilling fluids and PureChem with Dave Burroughs. Dave managed to grow market share while improving bottom line percentage results materially. This part of the Canadian business will help CES get through the upstream crash. I'll add that StimWrx in Canada is part of PureChem. And I think that can be a low-cost way for customers to hold production as they reduce new drills and fracs. We found that in previous low oil price environments, and we saw that with curtailment.Sialco is our reaction chemistry business in Vancouver. It continues to generate free cash flow on its own P&L while making significant technology and supply chain contributions across our entire platform. Clear continues to tread water. Gavin and his team are working hard to create value around water management and disposal technologies, and we remain committed to that business. Before I turn it over to Tony for a detailed financial update, I want to assure shareholders, employees and customers, our working capital harvest ensures our company's survival. We will operate the business mindful of our customers' needs without spilling too much red ink and hurting shareholders. Even more, we'll maintain our decentralized sales and service culture and be thoughtful about employees and their needs. But without a company, we can't help anyone, investors, customers or employees. We think our plan and execution will strike a proper balance.I'll now turn it over to Tony.

[Anthony Michael Aulicino, Chief Financial Officer]

Thanks, Tom. Our financial results for 2019 and for Q4 represent consistent alignment with our key areas of focus, including free cash flow generation, working capital optimization, prudent CapEx, stable margins, debt reductions and superior returns. We are very pleased with the financial pivoting demonstrated during 2019 and believe our resilient business model, strong balance sheet, prudent capital allocation and unique culture have prepared CES for the current downturn while weathering the storm, and ultimately, thriving.CES generated $316 million of revenue in the quarter and $39.7 million in adjusted EBITDAC, representing 12.6% of revenue; and record annual revenue of $1.28 billion and adjusted EBITDAC of $167.1 million for the year, representing 13.1% of revenue. U.S. revenue increased by 7% in 2019 compared to 2018, generating $906 million or 71% of total revenue for the company. Strong U.S. results were underpinned by CES' completed investments in key infrastructure and capabilities, achieving 13% market share in our drilling fluids business, despite falling industry rig counts in the second half of 2019 and increasing activity in production chemicals, primarily in the attractive Permian and Rocky Mountain regions.Canadian revenue of $371 million or 29% of total revenue for the year represented a decrease of 12% year-over-year. This decrease is primarily attributable to the persistent industry challenges, which resulted in a decline in drilling-related activity. However, year-to-date, Canadian drilling fluids business has succeeded in maintaining market share of 36% in very difficult industry conditions. Further, despite government-mandated production curtailments, PureChem's production chemical business model proved resilient as Canadian treatment points decreased by less than 0.5% year-over-year. And as Tom mentioned, the division continued to realize operational efficiencies throughout the year.In Q4 2019, CapEx spend was $14.8 million, which represented a 26% reduction from the investments made in Q4 2018. CES continued to be disciplined on CapEx in 2019, resulting in a 44% reduction in CapEx from $87 million in 2018 to $45.3 million in 2019.With infrastructure build-out largely complete and given the current environment, we currently expect CapEx in 2020 to be well below 2019 levels as we assess market conditions, honor our maintenance CapEx requirements of $20 million to $25 million and reassess any expansionary CapEx needs. CES exited 2019 with total debt of $408 million, which represented a 17% reduction from total debt of $489 million at December 31, 2018. Excluding the impact of incremental debt in 2019 as a result of IFRS 16 adoption, CES' total debt would have decreased by closer to 20% year-over-year. And as such, total debt-to-EBITDAC was reduced from 2.9x 1 year ago to 2.4x at the end of 2019. As at December 31, 2019, we had a net draw of $76.7 million on our senior credit facility, representing a 53% reduction from $161.5 million on December 31, 2018. Excluding the senior notes repurchased in Q4, that net draw would have been closer to $68.2 million and would have represented a reduction of $93.3 million year-over-year.In November 2019, we opportunistically repurchased and canceled $9 million of face value of senior notes at a discount for a total of $8.5 million. This repurchase resulted in an annualized interest expense reduction of $300,000 per year. The decrease in net draw was primarily driven by strong operational free cash flow generation in 2019 as we delivered on stable EBITDAC margins, disciplined CapEx and working capital optimization and was partially offset by opportunistic share repurchases through our NCIB program and repurchase of senior notes.Working capital optimization continues to be a key focus area throughout 2019 and resulted in a working capital harvest of $55 million in the context of relatively flat revenue. This was achieved through operational, financial and information systems focus in each and every one of our divisions, resulting in an 11-day improvement in cash conversion cycle from 122 days in Q4 2018 to 111 days in Q4 2019. The surplus free cash flow generated in 2019 allowed us to execute on our capital allocation plan, including reducing debt, repurchasing senior notes and buying back shares. In 2019, we repurchased 5.8 million shares at a weighted average price of $2.27 per share for a total amount of $13.1 million. Year-to-date, in 2020, we've purchased 2.3 million shares at a weighted average price of $2.07 per share for a total of $4.8 million. Most importantly, we have the ability to purchase an additional 13.6 million shares under our current NCIB, which expires on July 17, 2020. And we may seek to increase and/or renew our plan to prudently deploy surplus capital in this low share price environment.As mentioned by Tom, we are adjusting our capital allocation strategy in light of this low oil price environment by reducing our dividends to $4 million annualized from $16 million to maintain balance sheet strength while enhancing our ability to opportunistically further reduce debt and repurchase shares. Given the expected downturn in the industry activity levels, we believe this dividend amount will represent the prudent and responsible payout ratio while representing a nominal dividend yield at current share price levels. The new dividend level will allow us to prudently redeploy an additional $12 million on an annualized basis, and we intend to be guided by a 70-30 split on debt reduction and share buybacks, respectively, with the opportunity to revisit that strategy as market conditions evolve. We believe that the efforts, areas of focus and strong results achieved in 2019 have effectively positioned CES to execute, and ultimately, thrive through this period of uncertainty. Our 2019 enhanced focus on working capital efficiencies, including accounts receivable and inventory strategies will complement our countercyclical balance sheet and lead to significant working capital harvest in a declining revenue environment.Our CapEx-light model completed infrastructure spend and stringent CapEx spending hurdles will allow us to support prudent maintenance capital levels and avoid unnecessary expansionary CapEx. Our credit facility has a capacity of approximately 280 -- CAD 238 million equivalent and matures in September 2022. Our current $95 million draw represents net senior debt to bank EBITDA of approximately 0.8x versus the 2.5x covenant. This draw is very likely to significantly decline in a lower revenue environment as was evidenced in the last downturn during 2015 and '16, during which the line was paid out.Our $291 million in outstanding senior notes has a 6.375% coupon and doesn't mature until November 2024 and continues to trade in the 90-plus range, demonstrating the strength of the view of the company by the debt markets. We are very proud of our financial focus that has led to these 2019 results and current strong position, and we will endeavor to maintain that focus as we execute through this period of uncertainty.Operator, at this time, I'd like to turn the call over for questions for Tom and I.

[Operator]

[Operator Instructions] The first question is from Aaron MacNeil with TD Securities.

[Aaron MacNeil, Analyst]

I know that you're probably not going to give any segment margin guidance. But I was hoping that maybe if we look back to 2016, could you remind us how the segments performed on a margin basis? And maybe highlight any differences you see between that time period and now?

[Thomas J. Simons, President, CEO & Director]

We're not going to break segments down. We didn't then, Aaron. I'll tell you that our #1 sort of parallel activities in the business today are being focused on AR, and then working with our customers, same as we did in '14, we proactively went to our drilling fluid customers to know where we would stand in terms of their activity, but also to be with them on pricing rather than hide from it and hope they'd ask for less than we would have given. Drilling fluids is going to take price pressure, frac fluids is going to take price pressure and production fluids may take some price pressure, but it's going to become an essential service for the operator. If companies go bankrupt, that AR gets paid because it's an essential service. And if it's not done while the business is in the hands of a receiver, they wreck the assets. So we're going to focus on collections and working with people, but I think you're going to see less to give from service companies that in '14 and '15 and '16. We're in a little better position than most because backward integration of our products has helped us rebuild margin, but there's probably 5% to 10% discounts that are going to happen in the upstream businesses. And I think in the production space, they would be quite a bit less than that.I think you can expect, Aaron, volume reductions and margin pressure, same as what happened in '15, '16. That is why we did not delay with the dividend. We could have afforded $1 million and change a month for a couple of months in case they strike a deal down the road. But in case they don't, our priorities are to preserve cash and reduce debt. And we can do that best by getting our receivables paid and by working with the customer to minimize the damage to margin, and it only happens one on one, and the ask, of course, is if you're going to go to a loss position, Mr. Operator, on what you're doing, we'll support you while you're losing. But when oil goes up, we need to come back and ask for that relief back. None of that's going to be contracted, Aaron, for anybody despite what they might say. It's all going to be a handshake, and it's going to be -- it's going to test the relationship and show if it really is a kind of a silent partnership.

[Aaron MacNeil, Analyst]

If I remember correctly, there was a lot of pressure on pricing in 2016 due to -- like high inventory levels in some of your businesses and some undisciplined pricing from your competitors. Do you see that happening again? Or do you think it will be different, given the focus on generating returns?

[Thomas J. Simons, President, CEO & Director]

That's a great question, and it's one we have been all over for weeks to refresh people's memory that aren't as familiar with the story. In '14, you've got 1,000 drilling rigs. More? 1,000, 1,200 rigs running. I'm looking at Tony for the rig count. But every rig in America had its mud tanks and storage tanks on location, full of oil-based mud. And the whole world's going up and to the right. So people, our competitors were loose with inventory. When the rig count collapsed and went all the way to 400, there was more of that oil-based mud in the field than anybody's yards could store. And so big mud, the big integrated service companies gave that stuff away in exchange for getting work after that was used up. Schlumberger backed out of doing that quickly. Halliburton did it throughout the crash and ended up getting up to half of the U.S. drilling fluid market that way. They've been actively working to try to raise prices coming out of the crash, Aaron. That's been part of why we've picked up some share in the last year.The nuance here is that there's not rigs spread across the U.S. as badly as before. People have learned from that lesson and not letting inventory -- have not let inventory get us carried away. But the big difference is those Delaware Basin wells. The build section of those wells is largely being drilled with water-based mud called direct emulsion, instead of oil-based mud. So we're not sure of exactly the numbers, but we don't think that's going to be as big of a problem because people smartened up from a previous mistake, and there's less oil mud in the ground as a percentage on the rigs that are working than there would have been in '14, and it would be meaningful. Almost everything in that Delaware Basin is drilling the build section with somebody's version of direct emulsion. I'm happy to note more of ours than anybody's. That's why the market share gains in that market. We've got a more robust system, that at the end, you can actually break the system apart and recover the diesel and the brine, which we probably will be doing some of as people lay rigs down and don't want to take that stuff to a disposal well. We can turn it into something they can use after if we store it for them.

[Aaron MacNeil, Analyst]

Okay. So maybe just to go back to the first question, what I was trying to get at was more that maybe 2016 might not be the right way to look at margins in this context, given some nuance there. Is that fair?

[Thomas J. Simons, President, CEO & Director]

I think it's going to be just as bad for services now as it was then and arguably worse because the operators are obviously only spending their own money. And back then, there was probably still some hangover effect that you could get money from Toronto and New York. And obviously, that ship has sailed. So I think this is going to be tougher. I think that there'll be companies go down that didn't go down before. We're not going down. We're going to have this business positioned to react to the recovery and let our shareholders and employees benefit from that. But I think it's going to be painful, Aaron. We're very, very happy that we paid all that bank debt off last year. Beyond share quarterbacks, we thought we were being too cautious and should start buying a lot more shares and get the share price moving or raise the dividend. We're glad that we were cautious. This team remembers what happened only 3 or 4 years ago. And those of us in Calgary, we haven't got out of the penalty box. So I think margins will be hit for all service providers, and volumes are going to go down. And perversely, the faster that happens, the faster we'll recover the working capital and be able to prove that we're going to get through this. We want to be on the other side of this with our A team, our infrastructure that's already built and the wherewithal the support people as they put rigs back to work.And I'll add, Aaron, that we thought we were going to be able to beat our chest that we got into 3 of the super majors in 2019, and that was one of our objectives as a company was to diversify beyond the big independents and PE-owned companies, anticipating that there'll be consolidation by those guys because they waited longer to go with shale. And now they've got a cost of capital benefit. Maybe this creates some consolidation, and I'm pleased to say we're on location for all of the big integrateds except BP in the -- between Canada and the U.S. So if they buy people, we're already working for them and possibly could actually benefit from that.

[Aaron MacNeil, Analyst]

Okay. Moving over and maybe I -- just to make sure I heard you correctly. You'd mentioned that the Oklahoma facility would be mothballed. What would the financial impact be? And are there other potential facilities that you could look to close if a potential downturn drags on? And then as a second question, maybe, are there any asset sales that you might look at, including land or real estate?

[Thomas J. Simons, President, CEO & Director]

So in 2014, we had 14 mud plants working, so that meant a warehouse that sacks, drums, totes go in; pull barns that stuff sits under; and then there's a way to emulsify brine and our refined oil and make inverter oil-based mud. We mothballed half of those in '15, '16. Our expectation is that the facility in Clinton will get mothballed, but there's no cost. We'll have somebody, it's like doing rig watch, keep an eye on that place, while it's closed. We'll move inventory out of it over time, but we had a couple of deep rigs running in that market that are going to shut down, and that was the basis for running that place. So we don't anticipate any of our mud facilities going below the amount of volume it would take to justify them. We fixed that last time. And I'll add, Aaron, that we went into '15 with an employee headcount of 6 people for every drilling fluid job we had, and we got it back to 4 in the crash. That's what it took to get it back to breaking even at 40 rigs and making money at 50 mud jobs in the states.Today, we remain at 4:1. The sort of above that would be contractors that can be reduced quickly. The people that are long-term contractors, try and give them a few days a month so they stay in the industry. But there'll be no cost to us to mothball Clinton, and we would just reallocate the key people in Oklahoma to go do fieldwork in other places, so they can stay in the industry that we can keep them.

[Aaron MacNeil, Analyst]

And on the potential for asset sales, anything?

[Thomas J. Simons, President, CEO & Director]

The opposite. I think we'll look around for things we could buy for $0.10 on the dollar and try and take advantage of it. We're $20 million a year of maintenance capital. We can probably squeeze that a little bit and just put a few more miles on trucks. But it's kind of a pay me now or pay me later thing, and we will not do harm to sort of our assets or their reliability or safety. And then the $25 million or $30 million of growth. We're only spending that money if we get pricing that justifies the capital, probably be an opportunity to take some work that others kind of lease when they go down, but our infrastructure can support sales of somewhere around $2 billion. Our trailing's 1:5, so we don't have to spend any capital to grow the business. And we -- so we'll have the $25 million or $30 million that likely doesn't go out the door. And maybe we'd spend a little bit to buy other people's assets if they're distressed. I don't think there's anything we need to get rid of, that we could get fair money for.

[Operator]

[Operator Instructions] The next question is from Michael Robertson with National Bank Financial.

[Michael Storry-Robertson]

Just a couple of quick ones for me. You noted in the press release, expected downward pressure on margins, given the weakened North American activity levels and likely softer pricing. On the flip side of that, are you seeing any help on raw material input prices, given that the fallout of coronavirus is taking a chunk out of demand for a lot of things other than just oil?

[Thomas J. Simons, President, CEO & Director]

100% and we are all over our own supply chain. We cook commodity chemicals, turn them into intermediate chemistries and then formulate with those intermediates. Demand for commodities is down. So we're doing what our customers are about to do to us. We're asking for relief on price. And a lot of our production chemicals get finished or blended with methanol or with solvents. And those will go down in cost. So there may be a way to set off the discount you need to give to someone with supply chain improvements. What you can expect is that the inventory dollar amount we carry can come down a lot because most of the inventory we carry is for the drilling businesses. It's the contingent products for when you take losses, kicks, get stuck in the hole, have sloughing, lubricant -- torque and drag problems beyond what you anticipated. The production chemical business, we only make things because we know they have a home to go to. So that is a working capital-efficient business. The one that's about to get slower is where all the money gets tied up.

[Michael Storry-Robertson]

That's great color. Last one, you spoke about the variability of the CapEx structure. And you noted in the release that you would adjust planned capital expenditures as required. You noted the $20 million-ish in maintenance relative to what you spent in 2019. Just how far down could you go from there on the growth side? Even in today's lovely macro backdrop, are there things that you know you're going to need to spend on or already have, like just sort of ballpark estimate?

[Thomas J. Simons, President, CEO & Director]

It could be 0, but something will make sense to do. We don't know what. That's why we've given it a wide range. This thing could be resolved in a week. It's probably not going to be, but we're keeping all of our options open, but growth capital in theory could be nothing.

[Anthony Michael Aulicino, Chief Financial Officer]

Yes. To be clear, we're 5 days into this crisis, and we've acted very decisively and swiftly. We'd like to be pleasantly surprised a lot sooner than we think, but we're planning for being able to hunker down when it comes to CapEx in general. Up until a few weeks ago, we were looking to disclose the same thing we did last year, which was an expectation to spend $50 million or less. And as Tom said, we will absolutely honor our maintenance capital requirements to run our business, keep our assets healthy and keep our people safe. That said, if we do see opportunities that require incremental expansionary CapEx because we are picking up some more work with some very attractive customers, there might be large customers that require a bit of expansion CapEx, we will absolutely pursue that. But the number is going to be significantly smaller than we even thought it was going to be a few weeks ago.

[Thomas J. Simons, President, CEO & Director]

And one of the nuances on maintenance capital because we went through this a handful of times as management and employees. If we have less people in the field, every one of those people drives a pickup. If that pickup gets parked in the yard for 3 months and someone else's truck miles out, they take that truck that was mothballed, so we may be able to keep people moving safely and reliably and the $20 million can become $15 million, eventually it kind of normalizes. But we will be -- we're working managers. We're going to watch every penny around here. Preserving cash is the most important function in the business sort of tied with looking after your customer and respecting each other's coworkers around here.

[Operator]

The next question is from Elias Foscolos with Industrial Alliance Securities.

[Elias A. Foscolos, Equity Research Analyst]

I've got a couple of questions. First one is heading back to the last downturn. It looked like you liberated about $70 million of working capital. Do you think that it might be possible to do that this time around, given how lean you're operating? Or if you could add any color on that?

[Anthony Michael Aulicino, Chief Financial Officer]

Yes. It's impossible. It gets predicated on our forecast, but I think it's very safe to say it's going to be a big range, but it's very safe to say that based on what we think the downturn could look like over the next year, that working capital harvest will be bigger than that number. And it will be a big range, but it could be in a range between the mid-80s to the low 100s.

[Thomas J. Simons, President, CEO & Director]

$0.30 of every dollar of revenue is required for working capital. So that's kind of the back of the napkin math, most of that's weighted to drilling. So as it contracts, it's a onetime recovery, but it comes back to the house. That's why we're focused on AR. Obviously, all that works out if people pay us. We only have one customer over 10%. They are very blue-chip, and then our customer mix, we have 50 places sort of tied for #2. So we're comfortable with AR recovery and $0.30 on the dollar.We hoped it wouldn't be this soon. If we had paid the line out by now, we'd be in a very strong position. But when we're done recovering all this, we will allocate it so that the business is not at risk. And we'll watch the bond market and the share price as money comes in. And we will quarterback. Our fingerprints will be all over the allocation. We will be all over how many dollars go to the line first before you start creating the mathematical value with shares and bonds, but we're going to make sure that the company survives. And there's enough recovery that the bank won't be calling us.

[Elias A. Foscolos, Equity Research Analyst]

Great. One more question that kind of leads on to the last comment, Tom, which is if I take your accounts receivable or your revenue base, however you want to look at it and I pretend it to pie. If you wanted to carve that pie into credit quality and I realize you might not have sort of the numbers on the fly. But think of it as investment-grade clients versus non? Or maybe you can think of them as super majors versus independents. Is it possible for you to get sort of a color on that pie? And if not, specifically, can you talk about how it's shifted in the last year?

[Anthony Michael Aulicino, Chief Financial Officer]

Yes, I can start off with that, Elias. As we articulated in Q2 of last year, we spent a lot of time trying to understand why it was. We were increasing market share beyond some of the customers that were typically at or a little bit higher than us. And that work allowed us to take a good look at our customer base. Our customer base today, we would argue is an even higher quality than it was back in 2015. And when you cut through the numbers that we're comfortable sharing with you, when we look through our top 50 public companies, and we looked at all the revenue that was generated from them, about 50% of the revenue generated from all of those companies comes from companies that have market caps between $10 billion and $200 billion. So that's the snapshot.The other thing that we did real quickly with Tom and the divisional presidents and the finance teams a week ago is got even smarter on all of our AR. We put in place a very comprehensive database, looking at our top 50 customers and ranking them all from highest to lowest total AR, then taking a look at aged receivables in the different categories, current, 30 days, 60 days, over 90 days. And then we layered that on to industry available information like liquidity, leverage levels, covenants and free cash flows, all publicly available information. And depending on where you guys sat on each of those key attributes, we compiled a watch list that's tracked every Tuesday morning by the finance teams and every couple of weeks by the senior management team. So we're able to track that, but to give you the other piece steps relevant for you in your question, we went back and took a look at aged receivables when we were going into the 2015 downturn and took a look at it, measured by percentage aged receivables over total receivables. That number -- that percentage today is less than 50% of what it was back then. And back then, through that downturn, we only wrote off $2.7 million of AR.

[Elias A. Foscolos, Equity Research Analyst]

Okay. That gives me a pretty good handle on qualitative quality, I guess, of your customer base. One last question and maybe I heard this wrong, but I'm going to ask it again. The number of jobs in the U.S. so far this quarter, did I hear the number 160 or was it 116?

[Thomas J. Simons, President, CEO & Director]

116.

[Elias A. Foscolos, Equity Research Analyst]

116, okay.

[Thomas J. Simons, President, CEO & Director]

And it's topped out of -- it topped out ironically earlier this week at 120.

[Elias A. Foscolos, Equity Research Analyst]

120, okay. So that does give me a pretty good indication of market share, at least up to this point in time.

[Thomas J. Simons, President, CEO & Director]

I'll maybe add a little color to the receivables question because we are also concerned. In the event of a bankruptcy by an operator, production services are deemed essential. The receiver pays those vendors. Often people move through that so quickly, you hardly even notice the change on location. If half of our revenue is production related, then kind of half of the AR is pretty safe. We are watching AR like a hawk on our drilling and production chemical or completion chemical businesses. We kind of have a red circle around one customer. The number is only a couple of million. It's not $20 million. Their rate of payments or timing has not changed. We'll manage accounts like that with some finesse, like quick pay discounts, things like that.But in some cases, I've observed that even the drilling fluid provider is deemed essential, depending how management and the receiver of that company look at things. So -- and in the U.S., you can lean stuff much longer after it's been drilled than in Canada. So we think we've got a pretty good handle on it. We're going to get stung by somebody, but it's not going to be enough to take us down.

[Operator]

The next question comes from Keith MacKey with RBC.

[Keith MacKey, Analyst]

Just a question around the revised free cash flow allocation? And just thinking it would be helpful to get a little bit more commentary on why you chose to go with 70% to debt repayment for free cash flow, whereas you're targeting 80% before if the main goal in this terrible time is to keep the business safe and essentially derisk the business, as you say, Tom. So a little bit more color on that would be helpful.

[Anthony Michael Aulicino, Chief Financial Officer]

Yes, I can start off. In a nutshell, our free cash flow before dividends will be higher partly because we will have decent but positive EBITDA and operational free cash flow, and we're going to have a significant working capital harvest. So as a result, that 70% that we're going to be allocating in our different models get us to or through paying out the line entirely within the next 12 months based on some of these current forecasts. And again, we're in very early stages. And we very deliberately increased the 30% or the focus on potential equity repurchase just because of the levels that we're trading at and the amount of bang for the buck that we can get. But in a nutshell, that 70%, less than 80% will be off of a free cash flow before dividends that's going to allow us to pay out that line.

[Keith MacKey, Analyst]

Got you. That's helpful. And then you touched on it a little bit in a prior comment, but do you foresee any issues with managing your liquid mud inventory as jobs come out of the field?

[Thomas J. Simons, President, CEO & Director]

Because so many rigs in the Permian are running direct emulsion instead of invert and because some of our competition started to run their business more efficiently as investors and other companies demanded that those mud businesses contribute, I think it's going to be less than before, Keith, but we can't absolutely predict what competitors will do. We're already talking with people about price concessions for drilling fluids. We don't know how much others will blink. But I don't think the industry will be a wash oil-based mud to the same extent it was the last time.What we are seeing, anecdotally, is that people are saying, we're going to shut the rig down, but we're going to keep the consumables on location because we don't know when it's going to come back to work. If the oil company intends to get rid of that rig forever, then everything gets sent back to town, but it's a little bit like breakup, where everyone is okay, stop because we're coming back later, except nobody knows when later is. So that could keep that inventory in the field. It keeps you on the rig, keeps people talking about the rig, but obviously, no way to predict if that's entirely how it plays out because we don't know how long it goes. But there's less oil mud floating around than there used to be because there's less of it as a percentage in use. And the competitors have -- had to wake up to the fact that there's a cost to working capital.And I can tell you that we are not a wash in it. And if someone wants to kind of pressure test that claim, we'll look at how much we tightened working capital last year.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Tom Simons, President and CEO.

[Thomas J. Simons, President, CEO & Director]

Okay. Well, to summarize, we're going to focus on preserving cash in this business. So that means working with our customers on their AR, working with them on their drilling fluids and frac fluids pricing, what their volume will be, what we can afford to give, how it would go as oil recovers later whenever that is. We're going to, as Tony said, go with 70-30 allocation, 70% gets us. And we've obviously built in a little cushion for ourselves here for maybe a little bad debt. But that will get this business to extinguish its line, depending how long the activity collapse lasts. We're going to be long-term focused with capital allocation beyond that 70% to pay out the line. So whether it's bond buying at a discount, whether it's buying shares, we're going to run the production business, mindful that we need to generate enough free cash flow to cover our bond and to pay the modest dividend that we have in place. We're going to work hard to position this company so that shareholders in this company and employees of this company benefit in the recovery. With that, we're going to conclude the call, and well, thank you for your time.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.