Trican Well Service Ltd

TSX:TCW

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to the Trican Well Service Second Quarter 2018 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. Dale Dusterhoft, President and Chief Executive Officer of Trican Well Service Ltd. Please go ahead, Mr. Dusterhoft.

[Dale M. Dusterhoft, CEO, President & Director]

Thank you very much. Good morning, ladies and gentlemen. I'd like to thank you for attending the Trican Well Service conference call for the second quarter of 2018. Here is a brief outline of how we intend to conduct the call. First, Robert Skilnick, our CFO, will give an overview of the quarterly results. I will then address issues pertaining to current operating conditions and near-term outlook. We'll then open the call up for questions. I'd now like to turn the call over to Rob to discuss the overview of the financial results.

[Robert Skilnick, Chief Financial Officer]

Thanks, Dale. Before we begin, I'd like to point out 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 were applied in drawing a conclusion or making a projection as reflected in the Forward-Looking Information section of our MD&A. A number of business risks and uncertainties could cause the actual results to differ materially from these forward-looking statements and financial outlook. Please refer to our 2017 AIF dated March 29, 2018, and the Business Risks section of our MD&A for the year ended December 31, 2017, for more complete description of business risks and uncertainties facing Trican. Our second quarter results were released this morning and are available on SEDAR. We experienced typical second quarter seasonal declines in activity relative to the first quarter as evidenced by the sequential 21% decline in total proppant pumped to 383,000 tonnes from 484,000 in the first quarter. Good contract exposure resulted in a relatively strong April and May and a modest ramp in June activity, with some customers deferring projects into July and August. Q2 2018 revenue improved to $172 million from $137 million in Q2 2017 because of a full quarter of operational results from Canyon, the acquisition of which was closed on June 2, 2017. The decrease in adjusted EBITDA to negative $1.5 million from $12 million in Q2 2017 is primarily a result of $3.5 million of expenses for stainless steel fluid ends, which were capitalized and depreciated in 2017, the previously disclosed wage rate inflation from job bonus increases in Q3 2017 and severance cost of $1.1 million. These items, combined with a loss on the company's investments in Keane of $8 million, contributed to a Q2 2018 net loss of $0.10 per share. Pricing for our services remained stable relative to the first quarter pricing levels, although we did see competitive pricing for single wells in the second quarter, which is not uncommon during the seasonally slow second quarter. Pricing for our hydraulic fracturing services averaged $560 per horsepower on the approximate 207,000 average working horsepower. The reduction from the $665 per horsepower last quarter is not a reflection of pricing reductions, but a change in job mix, with jobs weighted to customers who supply their own proppant. Overall margins in our fracturing business remains seasonally strong as our gross margin in mid-service line, calculated as revenue minus nondepreciation cost to sales, was 7%. This margin includes a deduction of approximately 3% for fluid end expenses. Year-to-date, our fracturing service line gross margin was 18%, which includes a deduction of 3.5% for fluid end expenses, equivalent to a 21.5% gross margin if fluid ends were capitalized rather than expensed. We reaffirm the guidance provided in February that fluid end expenses will be in the range of $25 million to $30 million for the full year of 2018. Activity in cementing, industrial and pipeline and fluid management service lines remain seasonally strong as all these service lines generated positive adjusted EBITDAs. Nitrogen, coiled tubing and acidizing services, however, experienced negative adjusted EBITDAs during the quarter. We remain in a strong financial position, with roughly $70 million of debt and a working capital balance of $158 million. During the second quarter, the company retired approximate $20 million of senior notes, which retirement was primarily funded through the settlement of a currency hedge, with the next maturity of senior notes not until 2021 and only $38 million in total repayment obligations remaining on the senior notes. We're investigating various debt financing options that will improve our cost of borrowing and provide maximum covenant flexibility, given the inherent volatility in pressure pumping cash flows. We feel it is prudent to undergo this process now that the early repayment costs on the senior notes are more moderate and during a period of relatively stable cash flows. Our modest debt position and low utilization of our credit facilities will allow the company to invest beyond our operating cash flows into our current NCIB program. Since the inception of our program in October 2017, we have invested $88 million into our NCIB program. We're allocating an incremental $70 million towards our NCIB program between now and the beginning of November. The current NCIB program expires October 2, 2018, and we anticipate investing $30 million before that time, which would result in full utilization of the program. Subject to TSX approval of a new program, we would then anticipate making an incremental repurchases under a new NCIB program, commencing October 3, 2018. At current share price levels, we expect to make significant repurchases on commencement of a new program. Remaining active with our NCIB program remains the most effective and immediate way to repurchase the company's shares. However, given share repurchases present the best opportunity for investment of our cash flows at the current time, and is in the long-term best interest of our shareholders, we will continue to evaluate alternatives and how incremental shares could be repurchased. I'll now turn the call over to Dale, who will provide comments on operating conditions and strategic outlook.

[Dale M. Dusterhoft, CEO, President & Director]

Thanks, Rob. The second quarter of 2018 was a typical spring breakup. Modest negative adjusted EBITDA is a reflection of seasonally strong pad contracts through April and May, offset by a more typical ramp of June activity, relative to Q2 2017. High oil prices did not result in urgency from our customers to increment nor get second half capital programs activated early. While we believe a moderate start to activity in July is an industry phenomenon, a proxy service line has become busy in mid-July with all of our crews active. Our cementing service line also increased later in July as the industry rig count started to slightly surpass last year's levels. As mentioned, our coil tubing and nitrogen service lines were weaker in Q2, and we were -- we are focused on improving revenue and profitability from these lines going forward. Higher oil liquids price has not yet translated into increased activity, but we do expect that strong oil liquids prices will eventually contribute to an increase in fracturing activity toward the end of 2018 or in 2019, and thus we continue to progress on our plan to activate an additional fracturing crew. This crew is scheduled to be deployed through our existing client base and will not be entering the spot market. And we therefore do not anticipate a disruption of industry pricing in what appears to be a balanced market. We were in the process of hiring and training new personnel, and based on our normal schedule of 3 to 4 months to get a crew running, we anticipate this crew to be added in late September. In a market that is flat to slightly down year-over-year, we remain focused on further optimization of our businesses. As disclosed in prior quarters, we have seen inflation on certain of our direct input costs, including labor. This dynamic, combined with a flat pricing environment, requires us to remain focused on ways to improve margins. These improvements will be focused on a combination of modest investments, which we had previously discussed in relation to our coiled tubing service line and other optimization of our operating processes which will reduce field level costs. Longer term, we will continue to improve our maintenance program, which will reduce the amount of equipment that we -- that will be in our maintenance cycle. As previously disclosed, we estimate approximately 20% of our fracturing pumps are in a maintenance cycle at the present time and we would like to see this drop below 15%. Q3 has largely evolved as we have previously messaged in May, and we do not expect to see the record operating profits that we saw in Q3 of last year. We have already seen a shift to oil liquids activity, and in particular, increased activity in the East Duvernay and fully expect this trend to continue. This trend has lowered our average fracturing fleets utilization as our customers continue more exploratory single and small pad well activity in the liquids-rich plays, rather than high-efficiency multiple well pad activity that we experienced on a number of gas wells in Q3 of 2017. Last year, we also experienced good weather conditions throughout the quarter, and this July has experienced more typical Q3 weather patterns. At present, all of our crews are fully utilized and it looks that we will be -- we'll remain fully utilized for the remainder of the quarter, albeit at lower utilization than last year for the reasons I have just mentioned above. Our capital expenditure program remains unchanged and given our prudent capital program, we will continue to invest significantly into our share buyback program. We believe that, that is the best use of our capital at this time. We like the long-term potential of the Canadian pressure pumping market and in particular, the competitive balance in this market as compared to the U.S. Cash flow is improving for our clients and some competitors are moving equipment out of the basin, resulting in an improved supply/demand balance going forward. There's very little excess equipment in Canada to handle an increasing customer budget should they decide to do so. We have only 5 larger pressure pumping competitors in Canada, which makes it a much more disciplined market, with no Canadian competitors adding equipment at this time. Although it is always difficult to accurately estimate how much horsepower is on the sidelines, our current belief is that there are only 8 larger crews in Canada, which needs to be placed into the market. And these crews could be absorbed with a 10% increase in deeper wells build in 2019. Once our customers start to increase spending, Trican will be in a good position to capitalize on this build as we still have a number of unstaffed crews that could be added to the market. We believe that the market access issues will improve in the long term and that our customers will continue to shift their spending to liquids-rich and oil properties, which will increase their cash flows and also eventually move to larger pad sizes on liquids wells, which will improve our operating results and Canada will be a strong market for many years to come. I want to thank all of our staff for their contributions. The rate of change that has occurred in this organization over the last 12 months has been significant. The last 12 months has helped our people adapt to an environment of continuous improvement with a strong focus on cost control and I'm excited that this attitude is being embraced by our entire organization. For this reason, I am looking forward to the incremental improvements that will continue to be made by our over 2,000 dedicated employees. I thank you for your attention today and your interest in Trican, and I'd like to turn the call over to the operator for any questions.

[Operator]

[Operator Instructions] Our first question comes from Taylor Zurcher of Tudor, Pickering.

[Taylor Zurcher, Director of Oil Service Research]

You noted that the shift to more oil and liquids-rich plays means more single well pads. And so, I guess, first question, absent weather impact in July, the utilization was 75%. It was 90% last year. Is there a cap to utilization moving forward with the visibility you have to more single well pad activity? I mean, can you reach that 90% utilization threshold as the activity mix or job board shifts to more liquids-rich plays moving forward?

[Dale M. Dusterhoft, CEO, President & Director]

Yes. No, we can't. 90% to 100% is really -- you have to have everything kind of perfectly taking along. I would say, you're probably a lot closer to 80%, maybe 85% at the very best. But likely, 80%. If we're doing a smaller pad, just to put it in perspective, we're probably pumping for anywhere from 4 to 7 days on that pad. And then you have a rig up day on either side of that and a move day on either side of that. And so there's a -- there would be 4 loss days of pumping time on an 11-day period, we'll say. Where, if we were doing a larger pad, like we did last year for a gas well, we're out there for 30 days sometimes and we're churning stages every day and so you're getting kind of maximum efficiency. And that's -- that kind of gives you an idea of what we face now, but it's a temporary thing. Our customers will move towards larger pads eventually, but as they test out their properties, until they get a comfort level around the reservoir quality that they have with their property, they will continue to delineate with smaller pads.

[Taylor Zurcher, Director of Oil Service Research]

Okay, that's helpful. And then maybe a follow up on the proppant changes. On a year-over-year basis, obviously, the internally sourced proppant for Trican was much lower this quarter. Is that a Q2 sort of customer mix issue? Or said another way, how did that mix look over the back half of the year? And clearly, these are lower revenue per job type opportunities if you aren't supplying the proppant, but is it fair to assume these are also going to be a lower margin per job type work for you, moving forward?

[Dale M. Dusterhoft, CEO, President & Director]

So 2 comments. I think we'll move back to kind of Q1 ratio, it shows how much proppant we pump as compared to that supplied by our clients. We only have 2 clients that supply their own proppant. And no, it doesn't really change our margins too much. We build a pumping service charge into that number. There's a little bit of margin erosion to it, but a lot less risk as well in terms of sand supply and standby and various other charges that you incur if you had only your own proppant.

[Operator]

[Operator Instructions] Our next question comes from Sean Meakim of JPMorgan.

[Sean Christopher Meakim, Senior Equity Research Analyst]

So Dale, I guess trying to take the context in your comments. What level of incremental demand or industry utilization or pricing do you think is -- would be necessary for you to feel incentivized to accelerate crewing some of that horsepower that you're reactivating? Or would you view labor as kind of a near-term gating item? I mean long term, it's like you build a crew people up, but...just to think about kind those main puts and takes that would -- could force you to change the current expectation.

[Dale M. Dusterhoft, CEO, President & Director]

Yes. So the first thing I'll say is labor is a gating item. That 3 to 4 months is real and it's something that -- we're able to hire, but we're hiring green people, and we've hired a complement of green people now for our fracturing crews. But we have to train up supervisors. We have to promote people up in the organization. And we have to train those new people as well. And so 3 to 4 months is a gating item, and I will stick with that. We could potentially wrap it up, but it would be hard. From an industry condition standpoint, the big thing is, is we don't want to destroy pricing by adding crews in the market. And if we think we could add crews without destroying pricing, then we will, because current operating margins on a per crew basis will incrementally be accretive to our overall margins in the company. And so we're still at a point that every crew we add is a benefit to our overall earnings. And so as long as we can keep the pricing in line and get the people, then we'll continue to add the staff. But I think you have to anticipate that the whole industry [ and our] competitors, we're all on the same boat in terms of how quick we can add things. The ramp-ups won't be really instantaneous on January 1 or something, where 8 crews get added to the market. It will be a slow bleed in and probably see some tension in the market prior to that which, in all honesty, we'd want to see some pricing increase from. So things kind of flow together, you usually try and get pricing increase as you're doing that as well.

[Sean Christopher Meakim, Senior Equity Research Analyst]

Got it. And that's all very fair. And then just thinking about the buyback program. So just -- can you give us a little more context, the accelerated pace in July, is it just driven by share price? And I'm thinking kind of longer term, as you're buying back a substantial portion of the outstanding shares, how do you guys view the optimal through cycle capital structure, given things look a lot different than it did obviously a year or 2 years ago? How do we think long term about that?

[Robert Skilnick, Chief Financial Officer]

Yes. I mean, I don't think we're any -- under any illusions that this is a volatile space, so you've got to manage that. But -- and debt to EBITDA is probably not the best metric to look at because your EBITDA can be so volatile. But if you look at your tangible capitalization, the components of your assets, it does allow for incrementing our debt from where it is today. And not placing the company in any kind of risk. So we see an opportunity to increment it, and we specify an exact debt to tangible capitalization, not at this point. And what that figure looks like is dependent upon how flexible of covenant structure you can create for the organization.

[Sean Christopher Meakim, Senior Equity Research Analyst]

Got it. And do you have any more feedback, I guess, with respect to how the pace of buyback and what's dictating that? Is it purely share price at this point, given the rest of the opportunity sets not changing dramatically, or any of the other things that are being compared?

[Robert Skilnick, Chief Financial Officer]

Yes. Combination of share price and we're trading closer to tangible book value. So you start to see numbers like that. That makes sense from that perspective. And naturally, that makes other opportunities of investment less competitive, as your share price lowers.

[Operator]

Our next question comes from Greg Colman of National Bank.

[Westley Macdonald-Nixon]

It's actually Westley Nixon here for Greg Colman. Just compared to Q3 of last year, it sounds like we're going to see a little bit lower utilization this year with a little bit less pad work. Probably relatively stable pricing. And capacity is up obviously year-over-year, maybe 40,000 or 50,000 horsepower. So a number of moving parts, but I was wondering if you could maybe just help us quantify a little bit more the slow start to July? And how that might start trickling through to the full quarter in comparison to last year?

[Dale M. Dusterhoft, CEO, President & Director]

Yes. The slow start to July was partially weather. We -- even though, at times, Calgary was very hot, we had some big rainstorms up in the Grand Prairie area, which is where a lot of our work is. The majority of our work is up there actually, and so it was partially weather. Also, partially, it is the lack of customer urgency, I would say. There was -- no one was chomping at the gate already even in June to get their programs underway, and clients were trying to space their capital spending out over the second half of the year, and not get ahead of their capital budgets. We had one of our core clients that kind of pushed things back into the August time frame from July, so that had a bit of an impact. So all of those things combined, that kind of resulted in July coming out of the chute slower. We believe it was an industry thing, because we kind of saw the same thing with our competitors for a period of time. And so there -- it wasn't just Trican's client base, but it seemed like all. As in the industry, a lot of clients were not ramping up in early July. We ramped up around the July 15 to 18 time frame, and we started picking up activity there to be fully utilized. But again, as we said, a full utilization isn't the same as last year. We're overbooked in August. We would have more work than we can currently handle and we'll juggle that with our clients as we always do. And I'd say, in September, we see some ramp as well that kind of warrants adding that additional crew in the market.

[Westley Macdonald-Nixon]

Okay, and just if you think about the formula for capital allocation with respect to NCIB, is it a, within kind of cash flow buyback formula? Or would you be willing to, like draw on the line of credit if the stock got to levels that you thought were so attractive?

[Robert Skilnick, Chief Financial Officer]

Well, I think at this point, we're committing some of the underutilized credit facilities to the buyback between now and the end of October, beginning in November. So at this point, we're willing to allocate funds from there. On an overall basis, if you hit the ultimate or the appropriate debt structure levels, at that point, you start just using free cash flow.

[Dale M. Dusterhoft, CEO, President & Director]

Yes, and I think the one thing to say is, we're probably more aggressive on our buybacks than we have been in the past. I think that's kind of obvious from what we said. And that's a lot to do with share price, but also a lot to do with our capital structure being in a really great spot.

[Operator]

Our next question comes from Ian Gillies of MP (sic) [ GMP ].

[Ian Brooks Gillies]

Can you guys maybe talk a little bit about the rationale behind, I guess, outlining what you intend to do with the NCIB rather than just implementing a substantial issuer bid?

[Robert Skilnick, Chief Financial Officer]

I mean, there's -- if you go down the route of substantial issuer bid, there's a -- there's timing factors to that, number one. And it's not quite as straightforward and simple relative to a program you already have active and in place.

[Ian Brooks Gillies]

Okay. But I mean, I guess, I suppose then, as you head in towards the end of the year and the NCIB runs out, I suspect you'll renew, but is there any interest in executing an SIB?

[Robert Skilnick, Chief Financial Officer]

We're looking at all avenues. And I think that's one avenue to look at, for sure.

[Ian Brooks Gillies]

Okay. With respect to the noncore asset sales mentioned within the release, I mean, are you able to maybe outline a little bit what that may be? Or what maybe doesn't fit in the broader Trican platform?

[Robert Skilnick, Chief Financial Officer]

I mean, the majority of those assets were idle or redundant real estate through the first half of the year. And then we did have a small group of assets in Q1 that was for incredibly small element of our services that we sold. And now we're more targeting just -- if you looked at things like old coil tubing units that aren't working anymore and not likely to be competitive in Western Canada, and old nitrogen units that are, again, less competitive and aren't active and were built for a higher gas price environment, there's stuff like that, that hasn't worked that we'll just continue to look to sell out of the basin. It's tough to quantify at this point, and it's -- and -- but we'll just keep working at it and whittling it away. The real estate was the low hanging fruit, though.

[Ian Brooks Gillies]

Dale, with respect to the shale basin, I mean, how many crews do you think are industry-wide or for Trican are going to be running there in the back half of the year? And do you think you see, based on what you know today, do you see a material ramp in that activity in 2019?

[Dale M. Dusterhoft, CEO, President & Director]

That's a good question, Ian. I don't think we have really great visibility on 2019, although intuitively, we do believe it's going up. It's just based on what the customers are telling us. We've seen 2 private companies increase their programs, raise capital and increase their programs pretty substantially. But a lot of the others are still in the test mode. In terms of our crews in there, we would have 1 to 2 crews in there at any given time, depending on the client mix and their scheduling. And so that's kind of where we're at. And I anticipate that, if you went across the industry, probably have 4-ish crews working in that basin, maybe 3 to 4 at any given time at the present time. So there's some more -- they haven't completely ramped up yet, but probably some more to come on it if the customers continue to get good results.

[Ian Brooks Gillies]

Last one for me, and -- with respect to frac in the back half of the year, given all the transitory issues seen in Q1, I mean, would you be expecting that margins in that business improve in Q3 and Q4 relative to Q1, acknowledging some of the noise in July?

[Robert Skilnick, Chief Financial Officer]

I'm sorry, Ian, frac, just the margins?

[Ian Brooks Gillies]

Yes. Just the margins, whether you want -- I mean, not even specific data obviously, but even if you just want to talk about it at a gross margin or an EBITDAs level for that business line?

[Robert Skilnick, Chief Financial Officer]

I mean, yes. When you've got Q2 mix at the first half of the year, that naturally just has a little bit of a pull downward on that service line. The caveat I'll give you to fully, completely cover myself here, Ian, is that we had a lot of customer-sourced sand, and the result of that is, on a percentage margin basis, the gross margin is obviously a little bit higher in those types of contracts. But you should get a little bit of benefit that you've got Q2 as in the first half, compared to the second half.

[Operator]

Our next question comes from Jon Morrison of CIBC Capital Markets.

[Jon Morrison]

In terms of the path to get better returns in the ancillary services that you talked about, what would be the types of investments you'd be making? And then, on the operating side, what sort of practices would you be engaging in to try to improve the profitability of those lines? Is it just less packaged service offerings? Or is it something on the cost side? Or what would be the path forward to improving margins in those platforms?

[Dale M. Dusterhoft, CEO, President & Director]

Yes. So I'll jump in, and Rob will probably jump in after me. But a couple of things. First of all, on the capital investment side, we announced some time ago that we were refurbishing 2 additional units to go deeper for the type of wells we have, that's also different pipe sizes, to allow us to handle basically these long lateral deep Montney, Deep Basin type wells, Duvernay wells, all those things. So we've already been investing in that. We'll just -- we're basically going to get those units out in service here shortly. So if you looked at our coil tubing business in particular, we're a little light on scale. There's quite a few fixed costs in that business. So adding these units will help our overall business and also helps our utilization, because the more units you have in that business, the better utilization you get for the overall fleet because you don't have as many down days, prepping pipe and waiting for clients and things like that. So that's part of the strategy. The other part of the strategy is focusing those particular groups from a sales side of it, from a business side of it on just improvements, and even a little bit of structure changes, to make sure that we're very focused on driving profitability there, rather than it being caught up in our fracturing and cementing service lines, which are quite large. And so it's, I guess, a more focused approach to those. And then the last piece is just making sure we have a very lean cost structure on it, because we have to compete in a competitive business on it. In the nitrogen business, a little differently. Nitrogen has fallen off largely because of gas activity. And so it's just rightsizing to the new world where there's just very little gas activity going on while still maintaining our ability to pump gas on large fracturing jobs, which we do, and servicing or providing nitrogen services on our coiled tubing work. And so it's just kind of making sure that we're rightsized for the current world. Anything you want to add, Rob, or...

[Robert Skilnick, Chief Financial Officer]

Yes, and I think, we're just continually finding ways that -- how to integrate some of the service lines better since they're primarily supporting a fracturing operation or whatever, also. And then that just helps optimize the personnel on location.

[Jon Morrison]

Perfect, that's helpful. I realize you've probably asked -- answered too many questions on the NCIB, but I'll poke one more. Is it fair to say that given where the stock price sits at a minimum, we should be thinking about all 2019 free cash flow likely going to buy back stock after you've paid for all the CapEx that you're required to do?

[Robert Skilnick, Chief Financial Officer]

Yes. I mean, we've got to come up with our 2019 capital expenditure program, to see how much we're going to spend in 2019, not just to maintain the business, but to make sure we stay on the top edge of service for our customers. So that's kind of the process we'll be going through in the next few months to set up 2019. But at these levels, it continues to be an attractive investment.

[Jon Morrison]

And Rob, that's where, again, on the ancillary service line, maybe there's opportunities to optimize with some incremental capital investments in that platform above and beyond just maintenance.

[Robert Skilnick, Chief Financial Officer]

I think maybe less so there, but just evaluating primary service lines being fracturing, as to what's the ideal equipment to minimize nonproductive time for our customers on location, especially as the intensity continues to creep up.

[Jon Morrison]

Okay. On the last incremental crew that you guys plan to have deployed by Q3. Just a point of clarification, [ have you ever actually been that ] challenged more so than it would've been 6 months ago? And would it be fair to say that you're being much more selective about the hires you're making, since you don't necessarily have the same line of sight on demand for that crew that maybe it felt like you would have 6 months ago? Is it fair to assume that you're being more selective on trying to get more skilled people, or not trying to drive up costs inflation or it doesn't need to happen?

[Dale M. Dusterhoft, CEO, President & Director]

Well, 2 parts to that. We're not driving up wage inflation to do it, and won't. We don't believe that's a win for our industry at all, or -- and it's not a cost we can incur or more likely to pass on in this environment. So wages, we're keeping flat. We think that we're in a good spot there. We're not selective, other than this -- or any more selective now than we would have been earlier in the year. We try to hire people that have good attitude, and in particular, a good service attitude and they're trainable. We've been hiring untrained people all year for our business, and training them up. And so we're bringing in people that, in some cases, do have class 1 licenses. But in other cases, they're class 5 licenses that we're teaching how to drive as well. And I wouldn't say that there's been a real change in the way we've done that, even in terms of the ramp up. It's just been kind of a consistent program where we are selective. I will say we are selective and that's probably why we don't add 60 people in a month. We can only train them at a certain rate, too, and we can't stress our operations. So we add them a little slower, we make sure we train them, but we also make sure that we're not hiring people that -- trying not to hire people that are not going to be here 2, 3 months from now.

[Jon Morrison]

Dale, can you give any more color on how pricing conversations are going on with customers when you're trying to push through legitimate price escalations that you can't not have go through the system? Like are they being fairly fair about that, or is it largely a grind to get those incrementals through?

[Dale M. Dusterhoft, CEO, President & Director]

Sand is easier. Chemicals are easier and all small incidentals are hard to push through, particularly labor cost would be hard to push through if we did -- like if we did incur some labor cost increases, that's probably harder to push through.

[Robert Skilnick, Chief Financial Officer]

Yes, no, I think that's being on. And just where we're sitting today as far as the pricing environment, it's a pretty balanced market.

[Jon Morrison]

Last one, just for me. Will job mix in the back half of the year be materially different than it was in the front half of the year from a number of wells per pad, based on the current [ line of sight ]? Or alternatively, on the [ sand ] side as well?

[Dale M. Dusterhoft, CEO, President & Director]

That's a good question. It's still evolving a little bit. I anticipate that we'll see a slight improvement over Q3, but not massively in terms of the type of work we're doing. It's probably pretty consistent with what we're seeing in Q3. But we'll see. It's a little early. Because not all of our customers have defined their programs or increased them yet, if they're going to. And so it's just a bit early. We're still kind of waiting to see on some of this.

[Operator]

Our next question comes from Jeff Fetterly of Peters & Co.

[Jeff Fetterly, Principal and Oilfield Services Analyst]

In terms of visibility, you mentioned for Q4, you have firm commitments for half the crews and soft commitments for the other half. How comfortable or how visible are the soft commitments at this point?

[Dale M. Dusterhoft, CEO, President & Director]

Yes, so the soft commitments are basically customers that have spoken for the crews, and said we want that crew through Q4, but they haven't locked in their wells. And until they lock in their wells, we don't say they're hard committed. By locking their wells, it's -- here's the path we're going to do, and we're going to start this pad on mid-November and we're going to run it through to whenever, and then that's going to be followed by those pads. I'll be honest with you, we're -- and as per normal, this is very normal, we don't start often having those hard lock-in discussions until now. And so in August and September, we'll be locking in wells. Some of that has to do with waiting for customers to get through their Q2 board meetings. So they have to basically get direction from their management teams, or that customers, overall, have to decide whether they're increasing programs or decreasing them or keeping them flat. And then also, where are they going to deploy that capital. I think all companies are looking at the most optimum deployment of capital themselves. And whether there's going to be more oil or more liquids or whatever property they're going to spend on. So that -- it's pretty normal for us to see that firm up here in the next little while, and we'll probably start getting more discussions here in the next week to month.

[Jeff Fetterly, Principal and Oilfield Services Analyst]

If you go back to last year at the same point in time, would your visibility have been any better or different than it is this year?

[Dale M. Dusterhoft, CEO, President & Director]

It's the same.

[Jeff Fetterly, Principal and Oilfield Services Analyst]

Okay. The incremental crew you talked about adding in late September, I recognize this going to an existing customer. But do you have good visibility for that at this point? Or would that crew fall into the soft commitment side?

[Dale M. Dusterhoft, CEO, President & Director]

That one goes with the customer that has defined programs. The customers, it's not just one.

[Jeff Fetterly, Principal and Oilfield Services Analyst]

Okay. And last question, in terms of the dividend, what is the thinking internally now? And where would that rank relative to NCIB and other capital allocation?

[Robert Skilnick, Chief Financial Officer]

I think we've talked a little bit about the volatility of the pressure pumping space. And I think at this point, the most attractive option, given that volatility, remains the NCIB program.

[Operator]

And we have a follow-up question from Greg Colman from National Bank.

[Greg R. Colman]

Just a quick follow up. I was curious, did I hear you mention earlier that you expected the self-sourced sand job mix to kind of shift back to Q1 levels that we saw, so maybe in that 50% range, as we look up for the balance of the year?

[Robert Skilnick, Chief Financial Officer]

Yes. I think if you looked at the balance of how much sand was internally sourced versus not, if you looked at our Q1 ratio, that's a better look at it.

[Greg R. Colman]

Okay. And would that shift back be seasonal or be -- would it be partly a reflection of the growth investments that you've made in the specialized sand stores that was alluded to back in Q1?

[Robert Skilnick, Chief Financial Officer]

It's just seasonal. Q2 was just customer mix and which ones were on pads versus not, and the ones that were on pads were dealing sand themselves.

[Operator]

And I'm not showing any further questions at this time. I would like to turn the call back to Dale for closing remarks.

[Dale M. Dusterhoft, CEO, President & Director]

Yes. Thank you for your interest in Trican today. We certainly look forward to talking to you after our next quarter's complete and have a great day. Thanks. Bye.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.