Trican Well Service Ltd

TSX:TCW

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen. Welcome to the Trican Well Service Third 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, President, CEO & 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 third 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 review 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 a more complete description of business risks and uncertainties facing Trican. Our third quarter results were released this morning and are available on SEDAR. We experienced improved sequential activity levels relative to the second quarter. However, fracturing activity did not recover to the degree we had previously anticipated. While third quarter experienced a strong recovery in activity levels after a slow start to July, activity slowed in September, and as a result of both difficult weather conditions, which caused some of our larger customers to not be able to access their locations and a weaker overall fracturing market. Although we saw a sequential increase of 20% in the amount of sand pumped relative to the seasonally slow second quarter, we did not recover to the first quarter 2018 levels. Pricing for our services remained stable relative to the first and second quarter pricing levels, although we did see very competitive spot market pricing. We were not able to fill short-term scheduling gaps with spot market work without dropping pricing to unacceptable levels. Pricing for our fracturing services averaged $616 per horsepower on the approximate 283,000 average working horsepower in the third quarter. This compares to approximately $560 per horsepower in the second quarter. The change is not a reflection of pricing increases, but a change in job mix with jobs weighted to customers where Trican supplies the proppant. Third quarter 2018 fracturing pricing also remained relatively consistent with third quarter 2017 pricing of $636 per horsepower on the average of 400,000 that was active in Q3 2017. The approximate 30% decline in average active horsepower in the quarter was a result of the previously mentioned activity challenges and also due to smaller pad sizes, which resulted in less utilization on our fleet and contributed to the decline in third quarter 2018 revenue compared to the prior year Q3 2017. Gross margins in our fracturing business calculated as revenue minus non-depreciation cost of sales was 18%. This margin includes a deduction of approximately 5% of revenue for fluid end expenses and would have been 23% if expense would have remained capitalized. At the end of the second quarter, fluid end expenses have been averaging 3.5% of revenue but weighting towards higher intensity work in the second quarter and the third quarter, contributed to this expenditure being approximately $2.5 million more than we had previously anticipated. 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 2018, with the lower anticipated fourth quarter activity likely to result in this expenditure coming in at the low end of the range. Year-to-date, our fracturing service line gross margin was 21%, which includes a deduction of 3.9% for fluid end expenses equivalent to a 25% gross margin and fluid end expenses were capitalized rather than expensed. Profitability in our cementing service line improved sequentially but declined year-over-year. Activity was lower due to some of core customers in the northern deep plays not being active, which temporarily lowered our market share during the quarter. We're seeing a recovery in this activity for the winter drilling season as our clients resume drilling their Montney, Deep Basin and Duvernay wells. Activity in all remaining service lines was strong as all service lines generated significant sequential profitability and adjusted EBITDA improvements. In particular, demand for our coiled tubing operations and fluid management services was robust throughout the quarter. Pricing for all other service lines remained stable during the quarter. We continue to take proactive measures to optimize our business. Part of this optimization resulted in severance payments of $1.2 million during the third quarter and will also result in $3.5 million of severance payments in the fourth quarter. Overall, the result of the aforementioned items, combined with the loss on the company's investments in Keane of $9 million, contributed to Q3 2018 net loss of $0.04 per share. We remain in a strong financial position, with roughly $117 million of debt less cash and a working capital balance of $166 million. For the 12 months from September 30, 2017, the company was able to repurchase 10% of its outstanding shares and exit September 30, 2018, at an overall reduced debt position relative to the position at September 30, 2017. Our debt position did increase from our position at Q2, which was approximately $60 million. This is due to NCIB repurchases and a typical seasonal investment into working capital. We continue to believe that an investment into our shares is a good long-term investment. As such, we renewed our NCIB program and have made an initial investment of approximately 10 million shares since October 3. We continue to evaluate possible additional share repurchases and the appropriate funding mechanisms to achieve them. However, given uncertainty in the current operating conditions, additional investment into share repurchases will be evaluated in the context of expected operating conditions at further clarity on client capital spending plans for 2019. I'll now turn the call over to Dale who will be providing comments on operating conditions and strategic outlook.

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

Thanks, Rob. At the time of our last call, we were fully booked throughout Q3 and we're having a number of conversations with our fracturing clients about consistent Q4 programs. However, sustained lower natural gas prices, the widening of light oil and condensate differentials, magnified by the negative sentiment caused by the TMX announcement and poor weather in September, resulted in customers reducing Q3 activity and significantly reducing client activity in Q4. This challenging macro environment, combined with the fracturing spot market that softened in Q3, resulted in weak overall activity and very competitive spot market pricing later in the third quarter. This competitive pricing translated to few Q4 and 2019 contracts -- translated to a few Q4 and 2019 contracts being priced very aggressively. We made a strategic decision that lowering price in 2019 was not required as we have a broad customer base and have a number of clients looking for our services in Q1. As a result, we decided not to bid at these very low price levels for long-term contracts and instead maintain our project pricing, which is at minimum full-cycle return thresholds. We do not believe our industry can be sustainable with long-term lower pricing and are committed to pricing at levels that generate returns on the assets allocated to the project. We are pleased with our strategy as we have booked 9 of our 11 fracturing crews at Q1, and have outstanding bids and customer interest on the remaining flights. We anticipate being fully booked in the quarter as the remaining crews should be booked by the end of November. Pricing is expected to be down moderately in Q1, but relative to Q3 levels. We believe industry activity will be strong in Q1, which should result in a balanced fracturing supply/demand market in the quarter. We have provided modest discounts specific to the fourth quarter of 2018 since the fracturing market will be temporarily oversupplied throughout this quarter. For this reason, we anticipate Q4 2018 activity and cash flow will decline sequentially as compared to the fourth quarter of last year. Although our cementing service line will experience less of a decline in Q4, we will not achieve activity levels seen in Q4 '17 as we anticipate the overall rig count to be slightly lower year-over-year. We anticipate a Q1 rig count similar or slightly down from last year and solid activity with stable pricing in this service line. Previously described investments into our coiled tubing business have started to pay off. Coiled tubing operations showed significant improvement in activity and profitability levels. Strong utilization, combined with an improved job mix, resulted in coiled tubing revenue of $13 million in the quarter, a 43% improvement from the first quarter revenue levels. This revenue was generated with 6 coil units, so this is still a small part of our revenue in the quarter. As we now have reorganized this business and met our profitability hurdles, we are focused on adding more units in the upcoming year, which will further improve leverage on fixed cost and make the division a more meaningful contributor going forward. During the fourth quarter, we have staffed one incremental coil unit and we'll continue to focus on deploying additional units. Given the macro external factors that I discussed, we continue to remain focused on further optimization of our business units. Part of this evaluation is including evaluating the long-term prospects of certain of our smaller service lines. The initial result of this evaluation is that some of our smaller service lines are now being integrated with the larger components of our business. The result will be less fixed cost personnel and an ability to better utilize field personnel within our more active service lines. This process, combined with additional personnel reductions, resulted in $1.2 million of severance cost in the third quarter and will result in $3.5 million of severance cost in the fourth quarter. Personnel reductions are an unfortunate byproduct of sustained discounted natural gas prices and uncertainty surrounding Canadian oil and condensate pricing. We also have a number of projects underway to drive efficiency in other areas of our business that will allow us to lower our cost without reducing staff. These efficiencies will result in permanently lowering our cost structure required in this competitive business. The estimated result of our personnel and other cost-reduction efforts are expected to generate annualized savings of $10 million. We will continue to evaluate further opportunities to improve our business cost structure that will make us more efficient and not have a negative impact towards our operational quality. We continue to remain focused on identifying incremental areas for improvement, including how best to deploy parked equipment. Near term to date, the market weakness will delay reactivation of fracturing equipment. We will be focused on exploring opportunities generating acceptable returns from this equipment in 2019. As is typical, at this time of the year, we lack visibility beyond the first quarter 2019, but we do expect additional visibility in the coming months as our customers set their 2019 budgets. If we see growth in customer budgets and demand, we are well positioned to staff additional equipment. Other equipment is well-maintained, suited for the basin, active in our existing fleet and requires no cost other than staffing to bring into service. We will monitor and have discussions with our customers on full 2019 programs as they finalize their budgets and decide on whether we add equipment to them at that time. We are already talking to customers about Q2 programs, but do not have these confirmed yet. I want to thank all of our staff for their contributions. There's perhaps no better highlight as to how difficult our people's jobs are is when we see how volatile activity levels can be in our business. Our personnel continue to impress in their ability to adapt to the ongoing changing environment in which we operate. This ability to adapt, deal with adversity and provide superior, safe service to our clients truly gives us a competitive advantage. I thank you for your attention today, and your interest at Trican, and I'd like to turn the call over to the operator for any questions.

[Operator]

[Operator Instructions] The first question is coming from Sean Meakim of JPMorgan.

[Sean Christopher Meakim, Senior Equity Research Analyst]

So Dale, maybe I was hoping to talk a little bit more about some of the puts and takes for the first quarter. It sounds like activity is going to be pretty strong. You feel good about the demand side from customers and also -- and it sounds like you're confident in terms of your ability to hold the line on pricing. But also, in the press release, you noted that expectation -- your expectation was that you'd see, sounds like, some negative mix around smaller pads, fewer pads and that also could influence how we think about kind of revenue per job or the amount of utilization you can get in a given quarter. Can you maybe give us some of those other puts and takes and how we should think about that -- their impact on your progression into the first quarter?

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

Yes. Yes, so if you look at kind of Q1 numbers, there was -- there's 3 crews that we had working last year that were just on very large pads -- super pad projects. And so we've actually placed all of those crews in other projects, but they're not on super pads. But they're still doing quite large pads, but saying that there will be more move and rig updates in between. So the super pads will set for sometime 6 weeks on the same well location without having to move, where some of the stuff where we replaced it with -- we're moving in every 3 weeks. So we're getting less time in there. And just being kind of cautious on the way Q1 works out sometimes when you're doing your move a rig up, you've got weather delays or whatever it may be. So it's going to have a slight impact, but we don't see it being massive. But did want say that it's not exactly the same. And I'd say that of those 3 crews that we replaced with our clients, 2 are in some pretty -- still from larger pad situations. One of them will be in smaller pads that may be moving every 10 days or so.

[Sean Christopher Meakim, Senior Equity Research Analyst]

Got it. That's very helpful. I appreciate that feedback. In terms of the other piece, as it relates, I thought, what's interesting was you've talked and you've said in your prepared comments that to the extent that the market gets stronger, you've got your active horsepower that can put back to work, you just need to staff them up. Could you talk a bit about the 200,000 horsepower that you talked about potentially disposing, depending on how the market unfolds here? Just maybe how do we think about the stress of that particular set of your equipment? Why can it be more prone? And what are the long-term implications from a capital standpoint to the extent that this horsepower may not find a home, but ultimately, you may need to invest in new horsepower down the line? Just thinking about, longer term, how that could influence the capital you need to put into the business?

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

Yes, I think, first of all, we're not planning on disposing it. And that equipment is actually just relative to our operating fleet right now, so it's actually similar to the equipment we have. So it's well suited kind of on the same, it's not all the equipment that we're looking to getting rid of. And so it's not a disposal and if it was unclear in our MD&A, I want to correct that. We're -- it's a matter of trying to make sure that we can get returns on those assets. And our view is, for some time has been, and we continue to reiterate it that we like to put it to work in Canada and we'll see how 2019 budgets play out for our clients. And if we see some increased growth with certain clients, and in particular, clients who will give us longer-term commitments, then we would look at putting that in there. But we're way too early right now. Our view is, right now, in Q1, we're not going to do it. That's still our preferred mechanism. If we're going to view that on a longer-term basis, the Canadian market is not going to recover any further than it say it is in 2018, then we do have to try and look for returns on those assets. And that would be, however we do it, but it's not selling the assets. It's more looking for opportunities that generate EBITDA from them.

[Robert Skilnick, Chief Financial Officer]

Yes. And just to add a little more color. Like year-to-date, we've sold over $50 million worth of noncore equipment and assets. So that would be the type of assets we continue to look to dispose of, just to bring some cash into the business. So if anything, that's -- we don't envision going back to work in Canada, but that's not fracturing equipment.

[Sean Christopher Meakim, Senior Equity Research Analyst]

Got it. Those clarifications are very helpful. And one last point, if I could. Just on the coiled tubing units sales, are you looking to add? Would those be standard units or wider diameter coil? Just trying to get a sense for what the appetite in Canada looks like for wider diameter coil? And what the market dynamics look like there on incremental units?

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

Yes. The equipment we're adding to the market are -- is larger units that can do extended reach, large diameter coil. And we refurbished some equipment earlier this year, and so we'll have the ability -- that equipment is all refurbished now. We have the ability to add it to the market, and it's well suited for kind of the deeper and longer, plugged drill type work. And so it's not small units chasing small play on some things.

[Operator]

The next question is coming from Kurt Hallead of RBC.

[Kurt Kevin Hallead, Co]

I think what I'm trying to get a perspective from you, Dale, as you look out into '19, and I know we're heading into kind of the E&P budget period. What -- we're trying to find the silver lining into an outlook for 2019. In your opinion, what could that be? And what kind of data points do you think we should be honing in on as we start to look into what the E&Ps are talking about on their budgets for '19?

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

Yes. I mean, it's -- the silver lining is all around netbacks for our clients, quite honestly. And so netbacks for our clients are strong. They'll be making more cash flow than we anticipated. And then the other piece is how much of that cash flow they're actually going to put into the ground. And if you look to 2018, netbacks are pretty good for our clients, but they didn't put it all to the ground. So it's really commitments from our clients to how strong netbacks first of all and then what they're going to do in terms of spending. Could you get a potential lift from natural gas for a short period of time this winter? There's a theory out there that, that's possible, but we're not really forecasting because that's a long-term thing, but we'll see how that plays out, so that's a possible silver lining. And certainly, differentials tightening up or getting better as '19 builds on. It's a significant benefit to our clients' netbacks. And so that's another silver lining that you could see in '19. I mean, frankly, it's quite uncertain right now, I think, even with customers, with service industry watching customers, with analysts you name it, and we'll try to get a read on what the industry is going to look like.

[Kurt Kevin Hallead, Co]

Got it. And in the press release commentary, you kind of referenced in your prepared commentary that there were pricing dynamics in the marketplace that you were not willing to go to. And you also referenced that there was pricing levels that you wouldn't go beyond based on your return hurdles or metrics. I was wondering, why don't you give us some insights on those returns, kind of hurdles and metrics that you're not willing to go beyond.

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

I think we -- the way we look at the business and, certainly, in the short term, what we've seen in the last 9 months is, as highlighted by our fluid end expenditure increases throughout the year, is that sustained high-pressure activity is very hard on equipment, and we've really been operating with sustained -- in an environment of customers that run high-pressure activities since the beginning of 2017. So I think being aware of the impact that has on our equipments, we're not willing to go, certainly, below, covering your maintenance cost, but more importantly, on an amount that allows you to replace that equipment over time.

[Kurt Kevin Hallead, Co]

Okay, got you. And then, finally, given the outlook that you have for 2019 as it currently stands, how do you feel about the overall gap structure? And you feel you're at a really good strong manageable point even in a, what's going to be a kind of near-term challenging market dynamic?

[Robert Skilnick, Chief Financial Officer]

Yes. The financial position is -- continues to be strong. I mean, in a severe downturn scenario, we all are aware of how working capital unwinds and flows back to the balance sheet, which mess any investment in Keane and leaves us in, I think, an enviable position on the balance sheet side.

[Operator]

Next question comes from Greg Colman of National Bank Financial.

[Greg R. Colman]

Just a couple of quick ones here, a lot of them were already answered, but do have a handful more. You've given a lot of qualitative color on the NCIB, so I appreciate that, Rob. And just asking a little more directly, given the current environment, are you actively buying shares in Q4?

[Robert Skilnick, Chief Financial Officer]

No, we have no plans, given the uncertainty, to buy shares back yet in Q4 at this time.

[Greg R. Colman]

Okay, got it. And thinking, just a little bit more generally or looking into 2019, how do you think about the balance between reducing share count and your debt levels? And I was wondering if you can give us some bogeys on the debt levels, either on an absolute number or relative to EBITDA.

[Robert Skilnick, Chief Financial Officer]

I think we're looking at it more on a debt-to-tangible-capitalization perspective. And so our perspective is balancing what that leverage position is relative to our working capital. Our tangible capitalization, primarily, given the volatility that we can see from a debt-to-EBITDA perspective. I would say that, given the uncertainty, it's not something we're keen on ramping up aggressively right now at this time.

[Greg R. Colman]

Okay. So what is the metric specifically at today that you're monitoring? And what would be a level where you would look to redeploy towards share count reduction?

[Robert Skilnick, Chief Financial Officer]

So we haven't, as a board, and we haven't exactly set that metric to the public market yet. But broadly, I would say that we want to keep the debt to tangible capitalization within a 25% metric, but that's going to be -- move up and down, depending on where we see the market and how it's positioned.

[Greg R. Colman]

And your cash capital -- sorry to interrupt you.

[Robert Skilnick, Chief Financial Officer]

Go for it, Greg.

[Greg R. Colman]

I was just going to say, debt to tangible capital 25% is a metric you're comfortable with and your view of tangible capital, just to be clear, would be depreciated gross PP&E, plus your, I guess, current assets?

[Robert Skilnick, Chief Financial Officer]

Your equity minus your non-tangible assets.

[Greg R. Colman]

Okay, there we go. Great.

[Robert Skilnick, Chief Financial Officer]

Greg, the one thing I will say that, everywhere -- if we happen to have Keane liquidated [ Asian events ] debenture, whatever the tap is, we are certainly going to have -- we're looking for other ways to deploy capital to buy back shares if we happen to do it. But we're just not -- we're going to do that reasonably and not deal with the nice thoughtful process. But yes, we had another capital in the company, we'd absolutely be looking at trying to buy back more shares. It's really the operating capital that we're going to be concerned with. So...

[Greg R. Colman]

Got it. Just trying to look at the metrics to monitor. Obviously, value purchases come with uncertain times. Certainty tends to be more expensive to buy.

[Robert Skilnick, Chief Financial Officer]

Yes, sure.

[Greg R. Colman]

So on -- okay, switching gears. On the CapEx, just a bit -- a little factual here, I think you're in $45 million, $46 million year-to-date on a $70 million program. Are you still targeting that $70 million going to the year-end? Or given the uncertainty and the challenges, is that $70 million adjusted?

[Robert Skilnick, Chief Financial Officer]

I think we're $55 million year-to-date, and we'll be close to that metric. Some of it is just, quite honestly, the maintenance capital that comes with activity levels that we've already experienced. So to have equipment ready for, again, what we've perceive to be a recovery in Q1, we'll still have to expend a lot of that capital.

[Greg R. Colman]

Got it. And then just, finally, this is a bit of a clarity question, actually. But Dale, in your prepared remarks earlier, you said Q4 cash flow will decline sequentially as compared to the fourth quarter of last year. I'm just trying to reconcile because I hear 2 parts there. Sequentially, I think versus the prior quarter and year-over-year will be versus the fourth quarter of last year. So I'm just wondering, when you talk about Q4 cash flow, are you seeing a decline versus Q3 of '18 or Q4 of '17? Or, I suppose, both?

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

It's just sequentially and relative to Q4 of last year, both metrics.

[Operator]

Next question is coming from Ian Gillies of GMP.

[Ian Brooks Gillies]

With respect to the Q4 outlook, and given where utilization was in October and budget exhaustion, do you think frac activity is going to be worse in Q4 of this year than Q2?

[Robert Skilnick, Chief Financial Officer]

I think the way I'd characterize activity, certainly, other service lines will be busier than they were in Q2. Frac, there's still some items out there to wait on and see. There is a risk of where that activity shakes out ultimately in Q4.

[Ian Brooks Gillies]

Okay. With respect to some of the severance, and I apologize if I missed this, is there a dollar cost savings amount you can associate with the severance so far and what you expect to incur?

[Robert Skilnick, Chief Financial Officer]

The total cost savings from that activity and others is expected to be $10 million annualized in 2019.

[Ian Brooks Gillies]

Okay. And then I mean, with, I guess, the degradation in Canadian activity and the uncertain outlook with the balance sheet strength, I mean, does it accelerate your desire or change the corporate strategy on how you're thinking about the U.S., given what should be a more robust outlook in the U.S. for the back half of next year?

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

Yes. It's no at the present time because we want to see how both markets going to play out. It's too early to talk about full '19, quite honestly. We've got a very strong Q1, but we just don't have a lot of visibility across that. But we do have clients talking about programs through the full year, we certainly have some core clients that have outlined full year programs. And so our view is that, we want to see how this plays out. If we didn't get a read that 2019 full year was going to be a real substantial poor year, then we do have to look at how do we get returns from these assets in any way possible. And so I've said this a number of times, I never want to rule out the U.S., but certainly, not strategically something that we want to pursue at this time, nor do we have -- I don't think the U.S. is that great a market in the near term, we either -- quite honestly. So no wonder, we have any kind of any near-term reason to be looking at.

[Ian Brooks Gillies]

Okay. Last one from me. There's a fair bit of real estate on the books or what appears to be a fair bit of real estate. I mean, what does the cost benefit look like right now of executing a sale leaseback versus -- and putting that cash into share buyback? Is that something worth pursuing in your view?

[Robert Skilnick, Chief Financial Officer]

I think some of the challenges is, unfortunately, not that simple, given the complications with your credit facility agreements. And -- because essentially, it's leveraged at a percentage interest rate that will require refinancing 10 to 15 years out at an unknown rate at that point in time and the banks and credit facility guys maybe changes some of those dynamics. So it wouldn't be a one-for-one swap if you would take a look at something like that.

[Operator]

[Operator Instructions] The next question is coming from Jeff Fetterly of Peters & Co.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

Just a clarification on the coiled tubing side. You talked about adding capacity in the fourth quarter, looking at adding additional units in 2019. Just trying to understand that in the context of the commentary in the MD&A about coiled tubing not being a profitable business for you in Q3.

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

Actually, it was very profitable. It was Q2 that it wasn't. I think it might have been a reference to the comparative second quarter where it wasn't. Coil was one of our better margin businesses, it's just partially smaller fix units. And so we certainly have -- it doesn't contribute as meaningful, but it was a strong business for us in Q3 and, certainly, weren't adding initially in the market. We plan on adding one -- while we've added one already, we're planning on adding one more in Q4. And looking at what we could do in 2019 as well because we still have some good assets that we can add back to the market with staffing and training qualified staff.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

How many additional units for '19 do you think realistically would make sense or could bring back, more in terms of what capacity you would have to bring back?

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

Yes. Well, we have -- if you looked at kind of what I just said, that would get us up to 8 units, entering '19. If we have the next 2, we would have bought another 5 units, so we could add to the market that are -- require a little bit of capital, but not a huge amount there, quite well suited to buy it back into the Canadian market.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

Okay. For 2019, on the capital spending side, what are your thoughts at this point? And I guess, from a current run rate maintenance standpoint, where do you think you'll come in?

[Robert Skilnick, Chief Financial Officer]

We're going to go through it. Part of it is dependent on activity. So if you look, as a percentage of revenue, generally, we've been running -- if you look, this year, we have about 5% of revenue so far this year on ratio of maintenance capital in 2018 through the months.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

And is that a decent ratio to think about for '19 as well?

[Robert Skilnick, Chief Financial Officer]

Yes. I mean, that's certainly a preliminary number that we'd be looking at. We'll continue to monitor that, Jeff, to see if there's any changes in our complement work that improves that.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

Okay. And just last piece, in terms of the restructuring side, I know you've said about $10 million of cost savings realized in 2019. More from a broader standpoint, what type of initiatives, or what is your focus in terms of where do you want some of the ancillary pieces that you're restructuring to evolve into?

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

Well, if you look at some of the smaller service lines that we would have, as I mentioned, we did some work on our coiled tubing service line already. We've kind of reorganized that one, and we're trying to see the benefits of that, so we're comfortable where we're at there. The nitrogen service line, nitrogen service, it's very tied to gas wells, and we've already made moves to basically roll that into our fracturing and our coil tubing lines and our industrial pipeline lines. So basically, we didn't solve the fixed cost, we just rolled it under other services. And then there's a few other smaller things that we think we can consolidate together that allow us to kind of remove fixed cost levels.

[Operator]

The next question is coming from Gary Chapman of Guardian Capital.

[Gary M. Chapman]

Dale, just wanted to get your thoughts on instead of the buyback tax, your thought on taking a good balance sheet and turning it into a fortress, so that there could be opportunities, and at tougher times, sort of carry on the outlook...

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

Yes, it's a great question, Gary, and that's Rob kind of alluded to that we're slowing our NCIB. We think that our balance sheet strength is still #1 priority for the company, and we'll make sure that we maintain that. We balance that all the time. It's a discussion we have every quarter at our board meeting as to where we want to -- how much we want to allocate the buybacks as well as how much we want to make sure that our [ board ] approves. Because our working capital release, as Rob talked about, during a bit of a downturn, let's say, we have a downturn in '19 -- not forecasting that, but if we saw -- the way we have a working capital release and our investment in Keane, it basically does leave us in a really, really strong position. I can say, net debt 0. But we've continued to wait out. And it's really based on where we see the operating conditions are.

[Gary M. Chapman]

Yes. I get that you get working capital returning to the balance sheet. But if you're already close to net debt free, I mean you'd be a powerhouse. And just the comment about Keane is that I guess there's quite a bit of uncertainty when you'd actually get the cash from that.

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

That's correct, yes. You're right. But there is mechanisms for us to sell our interest in the Keane -- Keane Holding company, it's just at what price. But if we were in a situation where we have to monetize it, we could. And it's just -- it's discount the Keane share price, without a doubt, because we're selling an interest in the holding company. But I think, overall, if you looked at kind of the overall philosophy of the company, we do value a strong balance sheet, and we want to do buybacks, but we're not going to risk the balance sheet.

[Operator]

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

[Jon Morrison]

Can you comment on the pricing trends that you're seeing in cementing and coil, call it, over the last 4 weeks? And if it's been the similar behavior that you've seen on the fracturing side, or is the triopoly in the cementing market largely kind of holding firm?

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

Yes, we haven't seen any degradation in coil or cement pricing in Q4 and into 2019 at all. It's holding steady.

[Jon Morrison]

So when you think about your customer concentration, it's not like you've given up any major market share because of pricing dynamics there recently?

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

On those services?

[Jon Morrison]

On cementing, particularly.

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

We did. As I mentioned, we had a shift in Q3, where we had some of our core clients that have slowed a little bit on their programs, and they were replaced by clients who are drilling in the shallower areas or Eastern Alberta and some of the smaller stuff. So we did see a bit of a market share reduction in -- through Q3, but that's returning here in Q4. It was just really a function of timing of our clients' drilling programs rather than any change or loss in clients. We've actually, if anything, we've gained a few clients going into '19 in terms of additional clients that we didn't -- wouldn't have had, I'd say, even in Q3.

[Jon Morrison]

Okay. Just on the fracturing side, can you give any more color on what the pricing dynamic in the spot market has been like over the last, call it, 3 or 4 weeks? And then, are the bulk of the comments that you've made about softness and high competition really weighted towards things that went on 6 or 8 weeks ago? Or are you seeing a continuation of that trend or even acceleration right now?

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

For the most part, I think we're booking out at, basically, I'd say, pricing maybe just very, very slight less than where we were in Q3. We're -- so we thought -- we're tendering at those levels. We don't always know where our competitors are at, but we're tendering and agreed -- doing pricing agreements at those levels. So I would assume that things have, for the most part, stabilized, but that would be my read. We've got additional tenders out right now, and we're not -- we've tendered those at the levels that we're comfortable with and kind of similar to Q3, and don't seem to be getting a lot of pressure or indications that we're off-market massively. So I would say that it seems to have stabilized, maybe -- that's the short answer.

[Jon Morrison]

Okay. Last one just for me, how do you think about how hard the bookings are for the Q1 program at this point? And when you think about staffing, and I know that you're bidding a couple of incremental crews, are you really meaning to get firm visibility for those 2 incremental crews to make sure you're fully staffed over the next few weeks? Or you'll largely try to have them staffed and ready to go even if a customer comes in with a program, call it, early in the new year?

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

We're staffed now for those 2 incremental crews. And the bookings are very firm, so I can say that they're hard bookings. That means, dates in the schedule board, weld numbers in the schedule board, number stages, all that stuff. So Q1 is very firm. There's not a lot of softness in there with the exception of those 2 crews, but we are retaining our people through this quarter to ensure that we could do the Q1 work, and that's part of the reason why we've been kind of messaging a tougher quarter that utilization will be there this quarter, but we're committed to maintaining our people. We duly can in terms of reducing our variable costs as much as possible, which we have done in the quarter, but we also are committed to keeping our people around to execute our Q1 programs.

[Operator]

That concludes the Q&A session for today. I would now like to turn the call back over to Mr. Dale Dusterhoft for any further remarks.

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

Yes. Thank you for interest in Trican today. We certainly look forward to talking to you at the end of our next quarter, somewhere in the February time frame. Thank you. Bye.

[Operator]

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