Trican Well Service Ltd

TSX:TCW

Earnings Call Transcript 2023-Q1

[Operator]

Good morning, ladies and gentlemen. Welcome to the Trican Well Service First Quarter 2023 Earnings Results Conference Call and Webcast. As a reminder, this conference call is being recorded.

I would now like to turn the meeting over to Mr. Brad Fedora, President and CEO of Trican Well Service Ltd. Please go ahead, Mr. Fedora.

[Bradley Fedora, President and Chief Executive Officer]

Thank you and good morning, everyone. Thank you for attending the Trican Q1 2023, quarterly results call.

First, Scott Matson, our Chief Financial Officer, will give an overview of the quarterly results. I will then provide some comments with respect to the general operating conditions and the outlook for the rest of this year, and then we'll turn the call over for questions. Several members of our team are in the room with me here today, and we’ll be available to answer any questions that may come up.

I'll now turn the call back to, Scott.

[Scott Matson, Chief Financial Officer]

Thanks, Brad. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements and other information based on current expectations or results for the Company. Certain material factors or assumptions that were applied in drawing conclusions or making projections are reflected in the forward-looking information section of our MD&A for Q1 of 2023.

A number of business risks and uncertainties could cause actual results to differ materially from these forward-looking statements and our financial outlook. Please refer to our 2022 Annual Information Form and Business Risk section of our Q1 2023 MD&A and our MD&A for the year ended December 31, 2022 for a more complete description of business risks and uncertainties facing Trican. These documents are available on our website and on SEDAR.

During this call, we will refer to several common industry terms and we use certain non-GAAP non-IFRS measures, which are more fully described in our Q1 2023 MD&A. And our quarterly results were released after close of market last night, and are available both on SEDAR and our website.

So with that, let's move on to our results for the quarter. Most of my comments will draw comparisons to the first quarter of last year, and I'll provide some general commentary about our quarterly activity and our expectations going forward.

Trican’s results for the quarter were significantly improved compared to Q1 of 2022, industry conditions were quite strong, which led to solid activity levels across our business lines. Inflation is somewhat moderated, leading to a more sustainable margin profile and that resulted in improvements across all major financial categories.

Revenue for the quarter was $297 million an increase of about 36% compared to the same period of last year. And adjusted EBITDA came in at $81.6 million, a significant improvement over the $38.9 million we generated in Q1 of 2022. I would note that our adjusted EBITDA figure includes expenditures related to fluid end replacements, which totaled $2.3 million in the quarter and were expensed in the period.

Adjusted EBITDAS for the quarter came in at $82.9 million or 28% of revenues, a significant improvement compared to the $42.0 million and 19% we printed last year. To arrive at EBITDAS, we add back the effects of our cash settled share-based compensation, to more clearly show the results of our operations and remove some of the financial noise associated with the changes in our share price as we mark-to-market these items.

On a consolidated basis, we generated positive earnings of $46 million in the quarter, or about $0.20 per share. Trican generated free cash flow of $69.5 million during the quarter, as compared to $30.4 million in Q1 of 2022, and our definition of free cash flow is essentially EBITDAS less non-discretionary cash expenditures, which include maintenance capital, interest, cash taxes paid and cash settled stock-based comp.

CapEx for the quarter was about $19.5 million split between our maintenance capital program of $11.2 million and upgrade capital of $8.3 million. The upgrade capital mainly dedicated to our ongoing Tier 4 capital refurbishment program, which Brad, will touch on later. Balance sheet remains in excellent shape. We exited the quarter with positive working capital of approximately $181 million, including cash of $25 million.

And finally, with respect to our return of capital strategy, we were quite active with our NCIB program during the quarter. We repurchased and canceled about 9.8 million shares at an average price of $3.31, equating to approximately 4% of the Company's issued an outstanding shares based on the share count at the beginning of the year. We've remained active as we moved into Q2 and have repurchased another 1.7 million shares or so since April 1.

As we reported yesterday, the Board of Directors declared a dividend of $0.04 per share to be paid on June 30 of 2023 to shareholders of record as of close of business on June 15, 2023. And I would note that these dividends are designated as eligible dividends for Canadian tax purposes.

So with that, I'll turn things back to Brad, for some comments on our operating conditions and our outlook.

[Bradley Fedora, President and Chief Executive Officer]

Thanks, Scott. With respect to Q1, the quarter, we're very happy with how it went and it basically went exactly how we had planned. It seems like every year we have a slower start than we anticipate. So, I think that's basically a trend that we're going to have to factor into our budgeting. We were lucky this year in that, we didn't have any weather delays in March and we were able to work right to the end of the month. And so, even though we did have a bit of a slow start, the quarter basically unfolded from an activity and financial perspective exactly how we had planned.

We're still like, Scott was saying, there's still inflation in the system and its -- but the rate of change has slowed considerably. It’s things like sand, chemicals, third-party trucking, etcetera, are main source of third-party purchases, and we do have ongoing labor inflation within our Company. So, all of that adds up. It's significant.

We haven't seen any -- now that commodity prices have come down a bit, of course none of that was factored into our suppliers pricing, and where they can. I think the whole value chain is trying to operate at a reasonable level from a return perspective. So, I don't anticipate the inflation or costs are change anytime soon.

Pricing has been very stable basically since last summer. We're fortunate that our customers have allowed us to pass on inflation, has been occurring, but it also basically pricing has been flat. It's just changed, it just fluctuates with inflation, which has been actually somewhat modest in the recent time.

On the fracturing side, the market is very much balanced. There's about 32 staff fracing crews operating in Canada, and with two to 225 drilling rigs running, basically those 32 crews are operating close to capacity, but we're not in an undersupplied situation as of yet. And I don't expect that will change anytime soon.

Trican is still operating seven frac crews, which we've been operating now, I think for the last year and a bit. And as we won't add crews into this market until activity levels rise. And certainly, we have the equipment ready to go. We still have about five parked crews, which represents a fairly large percentage of the idle capacity in Canada, but we'll just play it by year and if there's demand for an additional crew, we will put it in the field, and if there isn't, we'll continue operating with our seven crews, four of which are the Tier 4 technology.

We're very happy with the cementing division. Fracturing represents about 70% of our revenue and cementing is about 20% and coiled the remaining 10%. So, the cementing divisions are very significant to this business, and I think we've done a lot to improve that even though it was running very well. We've done a lot to improve that in Q1 and we actually went from about 17 crews to sort of 21, 22 crews in Q1 allowing us to better service our customers and maintain our market share in the deep more technical areas of the basin. We still operate with about a 30% to 40% overall market share in Canada, but we're about a 50% market share in the Montney and Deep Basin, which is where we think we have most value and we can differentiate our product offering.

And we will, again the same with cementing as in the fracturing, if activity lifts we'll try to bring on more units to make sure we minimize the latest that we experienced in late 2022. But as with any kind of labor in the oilfield services sector, it can be a challenge adding -- getting incremental workers, but we'll stay focused on making sure we're operating efficiently in each of our divisions.

Coil has been fairly steady. We operate seven coil units in Western Canada and we don't expect that to change anytime soon. So, just the outlook for the second half of this year, I know everybody is nervous with where gas prices are and are sort of wondering if it has significantly impacted our forecast for the second half. And certainly, we don't -- we're not naïve. We keep a very close eye on natural gas prices in particular condensate prices at what drives the economics of plays like the Montney and the Duvernay etcetera. We're not seeing a big pull-back in activity at all actually.

And I think there is a bit of a disconnect between the general market and what's happening here in the oil patch. And certainly it's something we're watching but we expect the second half of the year to be fairly busy. We're now in a situation where our customers are spending less than 50% of cash flow, very disciplined programs, very long-term thinking, it all feels quite thoughtful and well planned out. And when you're spending less than 50% of your cash flow on drilling and completions, inherently there's a bit of a shock absorber there.

We obviously had a very warm winter both in North America and Europe and that has a huge impact on gas prices and we expect that, that will level out as the year goes on and it feels like we're going to be reasonably busy for the next few years. And I've said this before probably never felt this good about the industry from a long-term predictability perspective. The pressure pumping market is quite balanced, any increase in activity that may occur late this year and next year would tighten up the supply and demand balance and may even require more crews coming into the market, but it sort of feels steady as she goes here for the next little while.

We're obviously excited about the fact that, some of the issues in Northeast BC with First Nations have been started to get worked out, and more well licenses are being issued. And of course, that's all very LNG focused drilling big wells, multi-well pads, very fracturing intensive, very meaningful to our business. And I think I've been getting questions about, if certain of your customers are focusing efforts in Northeast BC, are they pulling work away from other areas. And the answer is, you never know and it changes from quarter-to-quarter, but it feels like the increase in activity in Northeast BC will be incremental to the overall industry activity. I don't think its comes at the cost of something else at this stage.

And of course, it's a very tight labor environment. We're doing all we can to make sure that we have good crews for our customers, and our people are operating in a safe and efficient manner. We take great pride in our staff and the work that they do. We're focused on training particularly safety training. We're fortunate that our people are committed, and are looking for more and more training all the time. We have an excellent safety record and without the dedication of our people, we would not be able to operate as efficiently and safely as we now. And we've taken an incredible amount of costs out of our business in the last few years. It's quite significant and it's enabled us to maintain decent or reasonable margins.

There is some issues with the supply chain. It's not -- nothing really has changed there and I don't expect that that's going to go away. The biggest one is sand supply. Every time we sort of go into quarters like Q1 or Q3 and there's a big ramp up in activity. It really stresses the logistics end of the sand. And there's lots of sand available, but there isn't lots of rail and trucks available. And so, we are expecting the summer to be pretty tricky. And then, we're going to be making sure that we manage that appropriately, and are looking six weeks into the future at all times, and we're very fortunate that our logistics group and our supply group here at Trican seem to -- no matter what, seem to get that figured out, and allowing us to provide service for our customers.

From a corporate strategy perspective, nothing really has changed. We're very bullish on the industry in Canada. We believe that Canada will play a very important and growing role with respect to providing the world with clean, reliable and sustainable energy, particularly natural gas. China LNG demand will recover. We won't get warm winters in Europe forever. I think more and more Canada is going to be a key supplier to the world with respect to providing our clean sustainable natural gas. And certainly, we've got now three LNG or four LNG projects coming on in the next few years.

The first one being LNG Canada, which should be active in 2025, and place like the Montney, whether it's Northeast BC, Alberta, the Deep Basin will play well into or will be feeding that facility with natural gas, and that we’ll make sure that there is an ongoing demand for our services.

I would say frac intensity on a per well basis is still increasing, larger sand volumes, more stages. We are seeing or starting to see a trend where some of the customers that we're doing ball-drop systems are looking at going to a plug and perf style of completion, which is more factoring intensive, more sand going into the wells. So, we will keep a close eye on that. That's generally I would say beneficial to us, as long as we can manage the logistics of sand supply.

Our strategy is still to differentiate and modernize our business, and while maintaining a conservative balance sheet. And we're focusing on state-of-the-art equipment, making sure the systems are keeping up allowing us to make good decisions, predict, use data to make predictions. We're very focused on ESG and indigenous partnerships. And it's all about building a sustainable business that will thrive in Canada for the years to come. We base our business on a guiding principle of clean air, clean water.

Our Tier 4 technology has replaced diesel with natural gas, much lower emissions, less particulates into the air, etcetera. Our chemistries allow for more use of produced water and recycled water. So there's less need to take fresh water out of the lakes and rivers. The oil and gas industry doesn't take much water or doesn't use much water especially compared to other industries like the agricultural business. But still, we're always looking for ways to reduce our footprint, reduce our impact on the environment. And, I think we've got a great start to building a sustainable business.

Our Tier 4 fleet came into service late Q1. So, now we are out of the seven crews that we're operating for them are Tier 4. So they're brand new fleets, and I know this industry is plagued with under investment just much like our customers, but we really stand out with respect to having almost a brand new fleet operating today compared to two years ago, and that allows much more efficient operations, less maintenance and repair costs. The people are excited to work on the new latest greatest equipment and technology. The customers are excited to use it to reduce their emissions, reduce their fuel costs.

So, I think our strategy has played out well. We've got a great start to having the most technically advanced fleet in Canada. We don't foresee that changing anytime soon. And just along that, since the beginning of 2021, we've displaced 28 million litres of diesel with our Tier 4 technology. That's really meaningful, and we're using natural gas for the most part right from the pad. So, our customers are happy with it. The public is happy, that means less fuel trucks on the road, less emissions. I think it's a win-win for everybody.

We do expect that this will be the standard technology going forward. But, I think we've done a good job of staying one step ahead, and as we've been building our Tier 4 technology, we've also just recently brought in what we call an electrified backside of our frac spread. And really what that means is, we've electrified the blender, the chemical unit, sand storage and delivery equipment and the data van. And so it used to be with our Tier 4 technology that we were displacing about 75% to 80% of the diesel usage on location. With this new electric equipment, we're now up to 85% to 90% diesel displacement.

So again, less emissions, less fuel cost and more importantly, it's all electronically controlled from the data vans. So, we have no people in the hot zone, or what we call the hot zone, which is the danger zone of a natural gas spread. It's all operated from the data van. So, we're very excited about this something our customers are basically getting in-line to use. So, we will continue to differentiate our product offering going forward and we're completely agnostic with respect to technology, as long as it provides a benefit for our customers and provides a return for our shareholders, we will continue to evaluate all the technologies that are out there and put in-place what we think is the best one for the Canadian operating environment.

On the return of capital strategy, I think, Scott touched on this. We have a diversified return of capital. We believe in share buybacks, dividends, a modest sustainable dividend. We've purchased 11.5 million shares since year-end. We've purchased 38% of the outstanding shares since we began the buyback program back in 2017.

So, very happy with how that's going. We expect to maintain the dividend for the years to come. And I think we're going to be probably more opportunistic on our NCIB going forward. I think we will definitely fulfill our full 10% by the end of the program, which gets renewed in October. Certainly, we'll look for down days to be to be more active on buying our stock back.

And lastly, just before we go to questions with respect to the forest fires that are burning in Alberta, we haven't had any effect on our operations materially as of yet. Its breakup May is without a doubt our slowest month of the year. We're not all that active. We had to evacuate a few locations, ban in some equipment on location, but so far so good. Nobody's been harmed. None of our equipment's been burned. We don't expect us to have any significant impact on our quarter assuming we get control of these fires.

Q2 is probably more impacted by rain than anything. And as always with our quarter, it’s very June back end loaded, which happens to be the rainiest month of year in Alberta. So, we're actually more concerned about getting a bunch of rain at this stage than anything. But I think in general our Q2 should be very, very similar to last years.

I think I'll stop there and we'll go to questions I will pass it back to you.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. First question comes from Cole Pereira of Stifel. Please go ahead.

[Cole Pereira, Stifel FirstEnergy]

Good morning all. So it sounds like Q3 is looking pretty good. Obviously, there's always a couple of different ways it can go, but can you talk about how you see that quarter playing out relative to Q1 and whether there could be an opportunity for margin expansion through either a, better economies of scale or b, higher net pricing?

[Bradley Fedora, President and Chief Executive Officer]

Yes, I think Q3 will be similar to probably be when you look at last year's Q3 and Q1, take an average of those two, it's probably where it's going to wash out. But again, it's early. This is an interesting time of year because our customers are reviewing budgets and plans for the second half of the year and of course natural gas prices are not cooperating. But yes, the Board is full for Q3. So we expect that we're going to have a decent quarter. We think pricing is going to stay flat. We don't expect any sort of expansion or degradation of margins. I think we're sort of at a stage here where the market is fairly balanced. And I think pricing will stay pretty similar to what it was in Q1 in the second half of last year.

[Cole Pereira, Stifel FirstEnergy]

Got it. Thanks. And this kind of a difficult question to answer, but from your perspective, how much white space was there in Q1 across the basin or how much do you think drilling activity needs to rise before you need another frac crew in the basin?

[Bradley Fedora, President and Chief Executive Officer]

Generally, if you were to add a frac crew, I don't think any of the companies in the pressure pumping business would do so without sort of at least a year of visibility. We would need an incremental growth of sort of 5 to 7 drilling rigs on an annual basis to add additional frac crews like there's lots of white space. That's normal. There's travel days, set up rig up days, there's scheduling conflicts, white space is just part of the game and it's never going to go away. It's more making sure that if we have drilling rig growth in Northwest Alberta, Northeast, BC, that looks like 5 to 10 rigs on an on-going sustained basis you might see another frac crew come in. But I don't -- I'm not the one to be able to answer as to how much white space our competitors are dealing with. I would assume their schedules are fairly similar to ours. But I don't think you're going to see that this summer or the addition of a frac group.

[Cole Pereira, Stifel FirstEnergy]

Got it. So, I mean, you paid off your debt, been active with the buyback, paying a nice dividend now. The business should continue to grow in Canada just from LNG, Blueberry. But how do you think about growth beyond that by M&A either in Canada or the U.S.?

[Bradley Fedora, President and Chief Executive Officer]

We're always looking. And I think probably the biggest hurdle to M&A at this stage is just the multiples that are being assigned to the industry as a whole. The average fracturing multiple or the average pressure pumping multiple in Canada and the U.S. is less than 3%. We're fortunate we get a premium multiple, but the willingness to transact at those levels is low. And regardless whether it's cash or shares, I know you can say it's really irrelevant as long as if you're doing a share deal, but just psychologically, it's tough to transact when you have a two times EV to EBITDA multiple.

[Cole Pereira, Stifel FirstEnergy]

Got it. Okay. That's all for me. Thanks. I will turn it back.

[Operator]

The next question comes from Waqar Syed of ATB Capital Markets. Please go ahead.

[Waqar Syed, ATB Capital Markets]

Thank you for taking my question and good morning. Scott, just a housekeeping question. The 1.7 million shares that you've bought quarter-to-date, what was the average price, purchase price?

[Scott Matson, Chief Financial Officer]

Good question, Waqar, you got me on that one, but it will be between $3 and $3.25.

[Waqar Syed, ATB Capital Markets]

Okay. And then Brad, you've got five crews you said that are parked right now. Would those be Tier 2 diesel or Tier 2 dual fuel or?

[Bradley Fedora, President and Chief Executive Officer]

Diesel.

[Waqar Syed, ATB Capital Markets]

There are diesel? Okay.

[Bradley Fedora, President and Chief Executive Officer]

Yes. I mean, it depends on the day, but generally they'd be older diesel equipment that would require fairly significant upgrades before we brought them into the field.

[Waqar Syed, ATB Capital Markets]

And then Brad, I noticed that the coil tubing revenues has been like still while flat to down. What's the rationale for that? How do you -- what's your outlook as well for that business?

[Bradley Fedora, President and Chief Executive Officer]

Well, the rationale is that we're not doing a good enough job of our coil division. Something that need that is getting more focused and attention here. We have made some moves with people and brought people in to help us build that division up. And I think it's a little early to make predictions on how fast that division grows at this stage. We're kind of doing a bottom up sort of review of the business.

[Waqar Syed, ATB Capital Markets]

Okay. And we've seen a trend on the U.S. side and something that companies are offering integrated services, whether that's frac sand logistics or mining or even fuel at the well site, or wireline, for example. Is that something that you would consider?

[Bradley Fedora, President and Chief Executive Officer]

I mean the answer is yes, we would consider everything. We look at -- particularly with respect to sand logistics, we're always looking at ways to make our operation -- our logistics operations more efficient. We do expect tightness in the market and again it's not because of the amount sand out there. It's the industry's abilities to move it from A to B when you need it. It's quite a process obviously to bring sand from Wisconsin to Northeast BC. So we're always looking at the potential to make investments to better serve our customers. But again, we don't spend money unless we can get a return on it. And sometimes that's difficult to do.

With respect to sort of integrated services, we tend to somewhat shy away from those situations, particularly wireline because eventually the customer just wants it for free and we're not -- we can't have a sustainable Company with giving away products and services.

[Waqar Syed, ATB Capital Markets]

Yes. Makes sense. And just one final question test on BC and utility growth that could happen there with canned LNG. Given the very stringent environmental regulations that are being implemented there, from a pumping perspective and again from a supply chain perspective there, what do you think is going -- eventually going to be the best answer there? Is Tier 4 going to be the best answer, DGB or is it going to be e-fleets? Or how are you thinking about that marketplace and the growth there?

[Bradley Fedora, President and Chief Executive Officer]

Yes. Our thinking about that market continues to evolve all the time. And as new information becomes available, we factor that information and process it accordingly. It's a tough operating environment. They're remote. There's no power lines certainly not with the amount of electricity that would be required to run a frac spread. So even though our goal is 100% natural gas. And when we look at all the technologies out there, we want to get to the stage where we are burning 100% natural gas as a fuel no diesel being consumed on location at all. And we're sort of 90% of the way there, give or take our Tier 4 engines and our electric equipment that runs off a natural gas generator.

So we hope that we can adapt our existing equipment, but we don't at this stage, given the cost of an electric fleet there's just isn't a willingness by the customers to pay more for their pumping services on electric and e-fleet is, I don't know, $70 million to $75 million Canadian, you could never justify the economics of that type of investment. And the other thing is, it would be a totally different way of doing things. You would need different mechanics, different operators, different procedures, which that's fine. But it's just something to consider when you think about totally changing your equipment designs and technologies.

The system is frankly isn't sort of set up for that stage, but it's the transition of our backside to run off electricity given what I just said was actually quite easy and has worked really well so far. So we think we'll be buying more of that. It's like I said, lower maintenance, less people, less fuel costs. We just got to make sure that the equipment eventually pays out at a reasonable time.

[Waqar Syed, ATB Capital Markets]

Well, thank you very much for your comments. Appreciate that.

[Bradley Fedora, President and Chief Executive Officer]

Thank you.

[Operator]

The next question comes from Aaron MacNell of TD Cowen. Please go ahead.

[Aaron MacNell, TD Cowen]

Good morning and thanks for taking my questions. Brad, to sort of follow-up on Cole’s M&A question, you obviously mentioned prevailing valuations for Trican and your pressure pumping peers and sort of that unwillingness to transact. But aside from chipping away at the NCIB, which sounds like you're going to do, why not take a bigger swing with an SIB?

[Bradley Fedora, President and Chief Executive Officer]

Yes, we think about that all the time. And I think certainly something that needs to be thought through carefully because I would tend to agree with you given the -- you're basically using that as your M&A strategy by buying yourself back, which is great. So I tend to agree with your thinking.

[Aaron MacNell, TD Cowen]

Sort of leverage would you take on to do that?

[Bradley Fedora, President and Chief Executive Officer]

We haven't worked our way through that yet. We're -- as you know, we're debt adverse, but we're not afraid of debt, at reasonable levels of debt. So I couldn't sort of get to the specifics at this point. But we would be comfortable with a little bit of debt for sure given our work -- our non-cash working capital surplus, which is fairly significant as you saw, that obviously is a protection against leverage in the downturn, but we're still pretty conservative. It's just our nature around the table. That's not going to change anytime soon.

[Aaron MacNell, TD Cowen]

Makes total sense. You sort of mentioned it in the prepared remarks but how should we be thinking about further or incremental investments in the dynamic of gas blending engines beyond what you've sort of articulated?

[Bradley Fedora, President and Chief Executive Officer]

Well, we've got our fifth spread coming this year and we're basically of the mentality that we want to modernize the fleet in its entirety. And at the same time though, we don't want to be over committed to one type of technology unless we really feel that it's going to provide 100% natural gas solution down the road. We've been very happy with how the equipment has been running and effectively operates at 100% utilization. It's very well received by the customers. It's a significant part of our ESG plan. But we're always looking like I said, we're agnostic to technology. We're -- if something better comes along tomorrow, we would switch but in general, we don't -- as part of our annual capital budget, there would be sort of at least one fleet upgrade, I would say.

[Aaron MacNell, TD Cowen]

When do you have to start ordering stuff for 2024 capital budget?

[Bradley Fedora, President and Chief Executive Officer]

A very long lead time on equipment now. I mean, I'm looking at Todd, but it's over a year.

[Todd Thue, Chief Operating Officer]

12 months.

[Bradley Fedora, President and Chief Executive Officer]

Yes.

[Aaron MacNell, TD Cowen]

All right. Appreciate the time.

[Bradley Fedora, President and Chief Executive Officer]

Thanks.

[Operator]

[Operator Instructions]. The next question comes from Keith Mackey of RBC. Please go ahead.

[Keith Mackey, RBC]

Hi, good morning. I'm hoping you can talk a little bit more about the trend in pads size in Western Canada that you're doing? How many wells per pad would you say your equipment is working on average and how is this trended over the last year to two?

[Bradley Fedora, President and Chief Executive Officer]

Trend is definitely more wells per pad. I don't have the exact numbers handy, but probably our average pad would be four to six wells.

[Todd Thue, Chief Operating Officer]

Yes.

[Bradley Fedora, President and Chief Executive Officer]

Just looking at the other people in the room here. We do see 10 well pads, but they're not common place for us yet. And we certainly we think it's going there sooner than later. And that's great because anytime you can sit on location for a month plus makes for very effective use of the equipment and the people, the staff love it, right, when you sort of you rig in and you just sort of have your manufacturing facility that runs every day.

So I know I'm not really answering your question, but it's definitely trend -- the number of wells per pad has definitely trended up, but it hasn't ended up as fast as I thought it would. And I think once you get more sort of targeted LNG development, you will see additional wells on a pad.

[Keith Mackey, RBC]

Okay. Got it. No, that's helpful. Maybe just to turn to the electric ancillary equipment. Can you just talk about what percentage of your sites or crews are working with that type of equipment now? And how high do you think that can go. Can it be fully electric on the back end on all of your fleets or will it be a mix of some kind?

[Bradley Fedora, President and Chief Executive Officer]

We just brought our first set late Q1. So it's still very early days, so far so good. And we do have another set on order that we'll be operating in the second half of this year. So we would imagine all of our equipment would get there. Certainly, that equipment that sits on the pad it may not be practical in a cardium situation where you're on and off in a very short period of time. And you need room for the generator, etcetera. So -- but it's something I would assume would assume all of our sort of Montney deep basin fleets would get eventually.

[Keith Mackey, RBC]

Yes. And what's roughly the cost to outfit a fleet with that type of equipment now?

[Scott Matson, Chief Financial Officer]

$5 million Canadian.

[Bradley Fedora, President and Chief Executive Officer]

$5 million. So, it's not insignificant and we can't spend money unless there's a return. So we think quite carefully about that situation.

[Keith Mackey, RBC]

Yes. And I guess on that like what is the business proposition for it? Is it charged out on a percentage of fuel savings or is there a higher rate that you can charge for providing electric ancillary equipment?

[Bradley Fedora, President and Chief Executive Officer]

It's based around the fuel savings for sure. I mean it's different in every situation. But it's generally – yes, there's less emissions, less – and it's fairly significant fuel savings. So, first less people on location. So our costs, our people and our repairs and we expect that this equipment is going be quite reliable especially with respect to the blender. And blenders can often be the source of the majority of the breakdowns on location.

So part of our motivation for this equipment was not just the electrification, frankly, it was also finding a more reliable blender. So we think we'll get our returns with the combination of all of those.

[Keith Mackey, RBC]

Got it. Okay. Thanks very much. I'll leave it there.

[Bradley Fedora, President and Chief Executive Officer]

Thank you.

[Operator]

And there are no more questions on the phone lines. This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Fedora for any closing remarks.

[Bradley Fedora, President and Chief Executive Officer]

Thank you everyone for your time and your interest in our Company. And if there's any follow-up questions the executive team will be available today and Monday to answer any questions you may have. Thanks again.

[Operator]

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