CA - Trican Well Service Ltd. (TOLWF) Q3 2023 Earnings Call Transcript

2023-11-10 20:45:04 ET

Trican Well Service Ltd. (TOLWF)

Q3 2023 Earnings Conference Call

November 10, 2023, 12:00 PM ET

Company Participants

Brad Fedora - President and Chief Executive Officer

Scott Matson - Chief Financial Officer

Conference Call Participants

Aaron MacNeil - TD Cowen

Keith MacKey - RBC

Waqar Syed - ATB Capital Markets

John Gibson - BMO Capital Markets

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the Trican Well Service Third 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 Chief Executive Officer of Trican Well Service Limited. Please go ahead, Mr. Fedora.

Brad Fedora

Thank you, everyone. Thank you for attending our third quarter conference call.

A brief outline on how we intend to conduct the call is: first, Scott Matson, our CFO, will give an overview of the quarterly results; I will then provide some comments with respect to the quarter and the current operating conditions and the outlook for the future; and then we'll open the call for questions. As usual, we have several members of our executive team here in the room with us, so we'll be able to answer any questions that may come up.

I'll now turn the call over to Scott.

Scott Matson

Thanks, Brad, and good morning, everyone.

So 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 Q3 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 the Business Risks section of our Q3 2023 MD&A and our MD&A for the year ended December 31, 2022 for a more complete description of the business risks and uncertainties facing Trican. These documents are available both on our website and on SEDAR.

During this call, we will refer to several common industry terms and use certain non-GAAP measures, which are more fully described in our Q3 2023 MD&A. Our quarterly results were released after market closed 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 third quarter of last year, and I'll provide some commentary about our quarterly activity and our expectations going forward.

Our results for the quarter were as anticipated, down slightly from last year due to lower activity and a persistent yet somewhat more moderate inflationary environment. Revenue for the quarter was $252.5 million, a decrease of about 2% compared to the same period of last year. Our activity level was down marginally compared to the same period of last year, mostly attributable to the specific well designs and customer programs that we executed during the period.

Adjusted EBITDA came in at $65.7 million or 26% of revenue, down from the $70.9 million or 27% of revenue we printed last year in the same quarter. This is mainly attributable to the job mix I noted earlier and persistent inflation in some of our key inputs. But also note that our adjusted EBITDA figure includes expenditures related to fluid and replacements, which totaled $1.5 million in the quarter and were expensed in the period.

Adjusted EBITDAS for the quarter came in at $68.5 million or 27% of revenues, again, slightly down from the $72.1 million or 28% of revenues we printed last year. To arrive at EBITDAS, we add back the effects of cash settled stock-based compensation recognized in the quarter to more clearly show the results of our actual 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 continue to generate positive earnings, printing $36.4 million in the quarter, which translates to $0.17 per share, both on a basic and fully diluted basis.

We generated free cash flow of $47.7 million during the quarter as compared to $64.9 million in Q3 of 2022. Again, our definition of free cash flow is essentially EBITDA less non-discretionary cash expenditures, such as maintenance capital, interest, cash taxes and cash settled stock-based comp. I would note that we moved into a net taxable position in 2023, which is the primary driver of the year-over-year difference. You can see some more details on this in the non-GAAP measures section of our MD&A.

Capital expenditures for the quarter totaled $27.1 million, split between our maintenance capital program of about $6.5 million and our upgrade capital program of about $20.6 million. Our upgrade capital continue to be dedicated mainly to our ongoing Tier 4 capital refurbishment program and the electrification of certain ancillary frac equipment, which Brad will touch on later.

Balance sheet remains in excellent shape. We exited the quarter with positive working capital of approximately $144 million, including cash of $44.5 million.

And finally, with respect to our return of capital strategy, we renewed our normal course issuer bid program on October 2 and have repurchased and canceled about 1.1 million shares under the renewed program. On a year-to-date basis, we've repurchased and canceled approximately 21.2 million shares at an average price of about $3.40 per share.

And as noted in our press release yesterday, Board of Directors declared a dividend of $0.04 per share to be paid on December 29, 2023, for the shareholders of record as of the close of business on December 15, 2023. And I would note that those dividends are designated as eligible dividends for Canadian income tax purposes.

So with that, I'll turn things back over to Brad.

Brad Fedora

Okay. Thanks.

So overall, the quarter was a little quieter than we had expected. We're still very happy with our results. It was still, in the grand scheme of things, a great quarter for us. There was lots of interruptions this summer with fires and, believe it or not, actually flooding at the same time that we were having fires.

There were a few less rigs than last year, just I think just due to lower natural gas prices. And as a result, we did experience some pricing pressure just as some of our competitors position themselves for the winter. And as a result, we lost some customers. As we've said before, we don't play in that game. What we offer our investors is stability and discipline, and we're very fortunate in that we have very long-term customer base that has been with us for years. And so, we tend to just step aside when that is happening in the market.

On the inflation side of things, we're still seeing inflation, but it's really -- it has really slowed. We still expect sand price increases. Third-party trucking can get tight very quickly and they're very quick to respond with rate increases. Products with the U.S. Canadian dollar going against us here. We will experience product price -- chemical price increases, things like that, even all of the parts that we source come generally out of the U.S. And so exchange rate is very relevant to us and its very real near time. So, we're getting inflation, but it's kind of like the rest of the economy, it's somewhat under control.

On the fracturing side, we're still operating with seven frac crews. The basin activity hasn't grown enough for us to add any more equipment to our operating fleet. That means that we're operating at about 60% of our fleet with 40% on the fence and ready to go. Our competitors are operating at near, if not, 100% capacity. And so, as demand grows in the basin, we'll be able to respond with bringing more equipment into the field. And even though we're leading the sector in profitability, we're actually not in the sweet spot of our operation from a profit perspective.

Obviously, our infrastructure is built for more than seven frac crews and more than 22 cement crews. And so, as we add equipment to the field, our profitability will grow as we currently have to depreciate all equipment, whether it's operating in the field or parked against the fence, just that's the way the accounting rules are in Canada. So as we bring that equipment off the fence and into the field, it's a direct drive right down to earnings immediately as our fixed costs won't change at all.

We're operating with four Tier 4 dynamic gas blending fleets today. We get our fifth fleet, and I'm going to talk about this a little bit later. We get our fifth high-pressure fleet in late December. So that'll mean we'll take another -- we'll take an old diesel fleet or a Tier 2 fleet out of the field and replace it with another DGP fleet. So, as a sort of Jan. 1, five of seven fleets will be the low emissions natural gas engine frac fleets.

On the cementing side, we're very happy with this division. It continues to perform quarter after quarter after quarter, and we couldn't be happier with our results there. Overall, we're sort of 30% to 40% market share in the overall basin. But really, the focal point for that division has been the Montney. We hold about a 50% market share in the Montney and the Deep Basin just because when things get technical, we're the go-to provider for cement services. We have a fully operational lab and fairly extensive engineering group here in Calgary. So, it's kind of a no-brainer for the larger, more technical wells that Trican will be doing that work.

Our market share gains, they are really limited to our ability to add staff. And just as we get more qualified staff, and we get them through training, we will continue to add units to the field and I'm going to talk a little bit of this later as well. But we're going to continue to focus on some of the markets that we've had to give up just with the staff shortage. And we had to concentrate our staff into the Montney and the Deep Basin. And as we're able to add it, we'll take back some market share that we had lost in other areas.

Coil, we have talked before that we weren't happy with our coil division, but we've made great strides in the coil division, so really good progress there. Q3 was one of our best quarters ever in coil. We're operating six to seven units. Again, we're held back by staff there. Our demand far exceeds our ability to supply coil, and it's just as soon as we can catch up on things like supervisors and other field staff, we'll add more units into the field, and again, there's no fixed cost increases as we add those units. So it's very profitable proposition for us to add more equipment.

The outlook for Q3 -- Q4 and next year is basically similar to what we've been saying for the last year or so. We expect Q4 to be very similar to last year. October was a very busy month for us. Some of the work from Q3 did push into Q4, and as a result, some of the October work has been pushed into November and December. So, we will have a good quarter, but it will slow down going into Christmas, and that's a good thing. As we've said before, Q2 is now busier than it ever -- than it has been in the past. And then as a result, we have a wind down into the Christmas season, which is great for the field staff.

We expect next year to grow about 5% in activity. I think CapEx is more like 10%, but there is inflation, so I think it'll result in about a 5% activity increase. And there's always commodity price volatility and things will always change. And you may have busy quarters followed by a slope, but overall, the market, we think is going to be 5% higher next year. And the pressure pumping market is operating at very high utilization. So, as activity grows next year over 2023, that's a great thing for our sector. We're already working sort of 23 to 24 hours a day, and so we don't really have any more hours to give from an efficiency perspective. And so, any more additional activity will result in additional demand for our services.

The focal point of the basin is still the Montney of course. Everybody's getting ready for LNG. The Montney is a very profitable play, world class, so that's still the focal point of activity. We are seeing more growth in the Duvernay. The Duvernay play has been around for years, but really wasn't very busy and just the plans for that play are to increase activity. It's a very frac-intensive play with very high treating pressures. And we believe that our frac technology is really well suited for this area and our fifth Tier 4 fleet is specifically designed as a high pressure, high durability fleet with 3,000 horsepower pumps. So the leading frac fleet in Canada for sure, and is specifically designed for plays like the Montney and the Duvernay that have high treating pressures. And you need to be able to operate sort of 23.9 hours a day at very high pressure. So, we specifically designed this equipment, and as a result, it'll have very high reliability, low R&M, should be very attractive to the Duvernay players in the Kaybob area, in particular.

The Clearwater gets lots of attention. Very profitable play, obviously. We generally haven't sort of been active in that play just due to manpower shortages. So, we are expanding our cementing services into the Clearwater. Been successful there. We have a few rigs running and, just as we're able to add more people, we'll focus on plays like the Clearwater and taking back some market share that we've given up heavy oil in the oil sands.

And as always, it is people are the bottleneck there. Getting people hired and trained and making sure that they can operate safely in the field and provide good service to our customers is our first priority. So, it takes a while and that's okay. We want to make sure that we're building a long-term sustainable business, and will take the time to do it right. We're very fortunate. We have great people. They're very committed to this organization and the strategy that we put in place. And we have an excellent safety record. And so, we continue to enjoy the dedication of our people, and we wouldn't be able to operate as efficiently without them. So from our perspective, employee retention and getting good people is, of course, our top priority right now, making sure that we can grow profitably as the industry grows.

The supply chain on the sand side particularly is definitely stressed. We've got -- it's basically operating at or above its capacity. So we expect that we're going to see some sand shortages from time-to-time, especially when things get cold and rail loads have to go in half. But we expect this will be tight for the next few years. So, I'm going to talk a little bit about this on the strategy side.

We're very bullish on Canada. We think this is a great place to have our business. We're not looking outside Canada at this time. We think Canada is going to continue to play an important role in providing natural gas, in particular, to the rest of the world. Obviously, LNG is coming on stream here in the next 18 months. So, we view this as a very attractive basin in which to grow our business, and we believe that it'll be sustainable growth as well. We think the dramatic cycles of the past are being basically -- are more muted now. The highs are lower and the lows are higher. So, we're really comfortable looking at Canada as a long-term investment -- from a long-term investment strategy.

The Montney and the Duvernay will drive lots of pressure pumping demand. We have the newest fleet, and we think we'll benefit from all the activities that's happening here. Unfortunately, our customers remain very discipline with respect to their capital budgets. They're still spending about half of their cash flow on drilling and completing wells provides a great shock absorber to temporary volatility in the commodity market. We are hearing directly that they are doing LNG-based activity now. And if LNG comes on stream early 2025, those wells have to be drilled very soon. In fact, that's what we are seeing.

And frac intensity is still growing, and we're talking about the supply chain. On a per well basis, we're seeing higher sand volumes more stages and we've gone from a basin that pumped about 6 million tons of sand in 2021 to about 8 million tons of sand in 2023. So of course, that means the logistics and supply chain is being stressed. Some of these wells in Northeast BC require 50 to 100 rail cars of sand. So that requires probably an infrastructure buildout. And we'll look to make strategic investments into logistics, particularly in Northeast B, to make sure that -- Northeast BC, sorry, to make sure that we can provide sand for our customers and have more efficient operations in that part of the world. The issue there is, in Northeast BC, without sort of transloading facilities that are connected to rail, you can end up with very long trucking times, which on those types of highways in the winter, you can experience all sorts of delays. So, we'll make strategic investments that have returns immediately and benefit our customers.

As usual, we're very focused on free cash flow and return on invested capital. I've said this before, EBITDA is not really a good indicator of success in this service line. Like, you really need to look at free cash flow and in particular return on invested capital, because our depreciation is real. So, our earnings is something that should get more attention, frankly, than -- free cash flow and earnings should get more attention than EBITDA.

Our strategy is still the same. It's differentiation and modernization while maintaining a conservative balance sheet. We focus on state of the art equipment, improving our systems to be state of the art internally, developing a good ESG strategy, working with Indigenous partnerships to help facilitate work in Northeast BC, making sure that everybody benefits from what is happening. We have a guiding principle of clean air and clean water. So all of our investments generally are focused on providing low emissions, more efficient operations, lower costs and things that the public is happy to see. And it's not just equipment, it's things like chemical blends, as I've talked about before, that allow us to use more produced water versus fresh water. So something that both the clients and the local communities want to see this industry do is use less fresh water, recycle and use produced water whenever possible. So we have a full suite of chemicals to provide our customers with respect to that.

We're extremely happy with the results of our Tier 4 dynamic gas blending equipment. As I was saying, our fifth high pressure fleet will be ready in late December. And since we have brought this equipment to the basin, it's basically been operating at 100% utilization. It's generally, we can't keep up with demand. And as a result, with running five fleets now we have the newest, most efficient state of the art fleet in Canada with low emissions, high performance, long pump times, lower R&M. We're -- less trucks on the road because we're sourcing the natural gas right on location and because the utilization is high, it's been good for our shareholders from a profitability perspective. The customers are happy because there's significant fuel savings. We try to capture a good chunk of that, of course. But as you've seen now, our competitors have responded by building the same technology because it makes sense in Canada. We're not ready for an electric fleet in Canada yet -- or a fully electric fleet in Canada yet just because of the requirements. So we think this natural gas engine technology is going to be basically the standard for the Montney in the deep basin.

We're not stopping there. We continue to differentiate our service offering. And in the last year, we've built electric equipment in our frac spread for everything other than the frac pumps. And so, we call it the backside. And that includes the blender, the chemical unit, sand belts, the data van, all of this runs off electricity, which means there's a natural gas generator on location. And this, of course, means more diesel displacement, less fuel cost, fewer people. This electric gear operates very nicely without manpower being controlled from the data van. That means none of our employees are in the dangerous parts of the frac spread, which we call the hot zone. And with this electric equipment, we are now getting up to 90% natural gas substitution on location.

So, industry leading throughout North America. Our tier four technology, we were getting the best substitution rates in North America. And now with the addition of this electric gear we've taken it to a whole new level now. So, we're basically getting 90% natural gas substitution, which means it's almost the same as a fully electric frac spread. But operationally, it makes much more sense in Canada. And, of course, our customers, this electric gear is very well received. We cannot get more of this fast enough and we announced a preliminary capital budget of $76 million for next year in 2024. And some of that will be to build out two new electric packages. We wish we could get more of it sooner, but there's still lots of constraints in the supply chain to get new equipment.

There's other things we are working on as well on the technology side. We're currently trialing the hydrogen cell aftermarket add-on technology on our sand hauling trucks. And what this does is injects hydrogen into the engine instead of using pure 100% diesel. And preliminary data looks really encouraging, with a 10% to 12% reduction in fuel consumption and a really significant reduction in emissions. So, we'll continue to test this if it makes sense or if it continues to perform over the long haul like it's performed so far. This is something that will go on our fleet of trucks. As we've talked about before, we have 500-plus trucks on the road on any given day, and we drive over 20 million kilometers a year. And so, if we can get a 10% to 12% fuel reduction and reduce our emissions, obviously that's an investment that likely will make sense.

On what's the value for shareholders and a return of capital, as we talked about before, we're very fortunate. We generate significant free cash flow and we have a clean balance sheet. And so, our priorities are to build a resilient, sustainable, differentiated company that can provide good service to our customers. We invest in growth and upgrading opportunities like the Tier 4 engines or the electric gear. We'll continue to look at M&A opportunities as they arise. But I think the idea is that we want to provide good cash flow and earnings -- a good consistent cash flow and earnings stream that's growing ideally with a consistent return of capital to our shareholders.

We believe in a diversified strategy, which means we both buy back shares and pay dividends. We've been very aggressive on our NCIB. We finished our 2002-2003 NCIB early, and we've just renewed our 2023-2024 program a month ago and have basically been active in the market every day. In calendar 2023, we purchased more than 21 million shares. We'll just continue to chip away as we think buying our own shares at these kinds of multiples is a great investment opportunity. Actually quite hard to beat when you put it in the grand scheme of building new equipment or doing M&A, buying our own shares back is still one of our best investment alternatives. And just as a reminder, since we started this program in 2017, we've bought over 42% of our shares back. So, we're definitely dedicated to this program.

As Scott was saying, we do have a modest dividend of $0.16 a year, we paid quarterly, $0.04 quarterly. We'll continue with that program. We hope it's permanent, and we'll hope that we can increase it as the share count goes down. So, we'll continue to review that in the context of our other investment opportunities.

Okay, operator, I think I'll stop there and turn the call over for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question comes from Aaron MacNeil of TD Cowen. Please go ahead.

Aaron MacNeil

Hey, morning, and thanks for taking my questions. Brad, you mentioned the seven active crews and swapping the legacy fleet in the new year with the Tier 4 instead of going to eight. I'm sure you obviously noticed one of your competitors bringing pressure pumping equipment from the U.S. to Canada. And obviously that's probably based on a pretty good demand outlook into Q1. I guess, are you seeing the same strength in your calendar? And what would you need to see to bring on that eighth crew? And how long do you think it would take to hire the people?

Brad Fedora

Yeah, Q1 of next year looks busy. I know we are a little behind on adding an eighth crew, but it's part of our discipline model. We're not going to do it just to do it. We don't, at the end of the day, care about market share. We only care about returns. So, for us to add an eighth crew, we would want that equipment working at a very high utilization for, like, the entire year. And I'm not sure we are quite there yet. Obviously, we're always looking to make that move. But just given the positioning that happened this summer with pricing, we kind of removed ourselves from that battle. But that's okay.

And if we decide to do it, the hiring side is not insignificant. It's going to be a few months for sure to get that number of people hired and trained and then mentored in the field, getting them to the point where they're good to operate on their own. Of course, we spread the new people around the company. We don't put them all together on one frac spread or anything like that. But still, we're dealing with high pressures, very expensive equipment, lots of driving risk. So we don't take adding a new crew lightly. And it would take time for sure. something that can't be rushed.

Aaron MacNeil

Makes sense. You mentioned the backside investments embedded in the capital program next year, but it doesn't seem like you've contemplated any further Tier 4 upgrades. So, similar question. Wondering what you need to see need to green light another upgrade. And what you think the probability of that is of happening, and how much do you think it would cost?

Scott Matson

Yeah, I think, Aaron, I think we're constantly evaluating what that next suite of technology looks like as well. As we come through the end of this year, we'll have five of seven crews running on Tier 4 technology. And we're evaluating the next generation as we speak, which would be full nat gas engines as we go. That's probably not a next year discussion, that's probably a year or two in the future. But same metrics would apply, right, in terms of how do we bring that stuff in from a high profitability and utilization perspective. So, I don't think our thinking has changed on the technology suite. We'd love to get more gear in the field, but that next generation is probably a little ways away for now.

Aaron MacNeil

Maybe I'll sneak one more question. It just seems like you guys are a bit reluctant to get excited about the near-term outlook. You mentioned the 5% activity increase in 2024. Obviously, mechanical completion of coastal gas link happened earlier this week or last week. And so, are you sort of risking the timeline for LNG-related growth, or how should we think about your view towards that?

Brad Fedora

No, not at all. The great thing about this market now is, like I was saying, it's a much more stable, predictable market. So, way better operating environment than we've ever had. The downside of that, of all this financial and capital discipline, is you don't have these 30% growth years. That's a good thing, right? We want to just do our thing, provide good service to our customers. We don't care about big, flashy sort of events that are share price catalysts, right? We've taken the sort of long term discipline, grind it out approach and as a result, we pay the dividend, we buy the stock, and we're providing growth that way.

But don't get me wrong, like this kind of a market that we're in today is awesome, right? As we know, LNG is going to put a foundation of activity into this basin. There's tons of LNG going on in the U.S. Lots of Canadian players selling into that market. I mean, it's nothing, but it looks great. And that's why we're so happy to be in Canada. But again, the downside of that is it's all very disciplined and thoughtful by our customers. And so, therefore, we need to be disciplined and thoughtful and not oversupply the market. And we are fortunate. We just have the one operating environment and somebody has to be disciplined, right? And that's us. We're the leader in the market and we'll take that responsibility on and show some discipline. And our shareholders can count on that kind of financial and operating discipline going forward.

But make no mistake, we think this market is great. For the first time, we can think in terms of five-plus years. So it's a great place to be.

Aaron MacNeil

Okay. Makes sense. Thanks, Brad. I'll turn it back.

Operator

The next question comes from Keith MacKey of RBC. Please go ahead.

Keith MacKey

Hi, good morning. I just like to start on the $76 million capital preliminary budget for next year. Can you just maybe talk about what makes -- what turns that from preliminary to final or actual results? Is there some factors that could make that change materially to bring that north of $100 million? It sounds like maybe not more Tier 4 equipment, but just trying to get a sense on where things could go given your outlook for next year, which is a very modest growth in industry activity. So, is there anything particular that could make that capital budget change materially, or should it be really a $74 million, plus $5 million or minus $5 million kind of a thing?

Scott Matson

Yeah, Keith, it's probably pretty secured at the number that it's at. I mean, the biggest component of that $75 million is maintenance capital or capitalized maintenance. That usually runs around 3.5% to 4% of revenues on an average basis. So that's a big chunk of it. Similar to what we spent this year. We did about $100 million-ish this year, which included $33.5 million of Tier 4 upgrade, right? So you pull that upgrade out and you're kind of at that $75 million or so, including a couple of the backside additions that Brad talked about earlier. So, I don't see that number at this point materially changing. But as we get into Q1 and get a bit more better view of what the rest of the year looks like, we'll evaluate it accordingly. But for now I think it's a pretty solid number.

Keith MacKey

Okay, got it. And as you think about potential investments in logistics or rail trans load, sand hauling type investments, I know there's nothing, like you said, last call, there's no immediate press release coming or anything like that. But give us a sense of how you're thinking about that? Like, could this be something that's a substantial investment? Are there any investments that you'd actually put debt on the balance sheet for or is this much smaller in magnitude?

Brad Fedora

Yeah, it would be more, it would be definitely smaller. Nothing that would require any permanent debt of any kind. And the timing is just getting approvals always proves harder than you would expect. And so -- but these investments wouldn't be huge because you're probably better off with a couple of small ones than you are with one big one or something like that. It is still early days and we want to make sure that any money that gets spent, that we are generating the kind of returns that our investors require, right? So generally don't spend money unless we think we can get high-teens, low 20% return on it. And so, you got to be careful. You can't just go out and say, wow, we need this. It's not that simple. We're going to spend, everything costs millions of dollars, as we all know. So if you're going to spend that money, we owe it to our shareholders to make sure that we're going to get subsequent cost reductions or efficiency gains that are going to generate returns.

Keith MacKey

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

Brad Fedora

Thank you.

Operator

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

Waqar Syed

Thank you for taking my question. Brad, could you talk about the total percentage of fleets in Canada now that are Tier 4? And how do you see that trending over the next 12 months or so?

Brad Fedora

I think I heard you, Waqar. Total Tier 4 fleets in Canada at the end of this year would be five from us, and I think two of our competitors have one each. So, it make a total of seven out of, say, 31 fleets.

Waqar Syed

And do you see a need for an e-fleet? Like, we hear that these e-fleets have significantly less wear and tear going on, and so, bringing down OpEx quite a bit because of that, and then obviously the significant fuel savings as you go to 100% fuel replacement. Do you see there's a need for that in Canada?

Brad Fedora

I mean, everybody knows, I think, the nice thing about electric equipment is it operates with less wear and tear. It's probably easier to operate electronically versus manned, and we would love to go to 100% electric, but it just isn't practical here. If you had an electric frac spread, it would be 35 megawatts of electricity required. I mean that's a lot of electricity needing to be generated. So, the pressure we're getting, particularly in Northeast BC, is smaller footprint, right? And that's a strategic advantage to have a smaller footprint. So, if you start rolling a bunch of natural gas generators onto location, that makes for a bigger footprint.

And so, that's why we love this combination of electric backside gear and the Tier 4 gears, because we are at 90% natural gas versus 100% that you would have with electric. But the investments and the footprint increases that we would see by going full electric, we don't think are warranted at this stage. And we got to make sure that we're good corporate citizens, right? We want smaller footprint. We want to make sure our people are safe when they're operating the equipment. They're not that experienced with that kind of electricity. And let's not downplay that side of it.

We've got an entire oil patch that has grown up with mechanical gear and all those high voltage lines running around, that's lots of potential for significant problems. And so, we're not transitioning into that for many, many reasons. And we're happy with the Tier 4 technology. Now, that being said, of course, we are looking at new technologies all the time, and I'm not pulling electric gear in northern Canada. It's not that practical yet.

Waqar Syed

Yeah. And on the U.S side, we've gone from zipper to simul-frac and now there's some talk of, like, I don't even know what the right word is, tri-frac, three wells being fracked same time. In terms of the service intensity and the size of the crews needed to complete these jobs, like, where do we stand in Canada? And what do you think -- how do you think that would change in the coming one or two years in terms of the horsepower needed at the work site?

Brad Fedora

We've kind of gone away from the two frac fleets on location, so I'm not -- I know exactly what you're asking me, but it doesn't seem to have trended that way here. These pads have 20-plus wells on them, but we haven't gone back to this sort of zipper-style frac where you have a couple of frac fleets on location doing multiple wells at the same time. It's been more one fleet at time, one well at a time, with everything obviously plummed in, so there's no downtime between stages. But...

Waqar Syed

Okay. Is there a structural reason for that, that those -- the U.S. practices are not relevant here? Or is there -- it's just that with trend -- over time that the Canadian market will shift towards that side as well?

Brad Fedora

I mean, the footprint issue is significant, particularly in BC. I'm not sure anybody -- everybody's trying to figure out how to build a smaller pad, not a bigger pad. If you want to, especially when you're on First Nations' land, they want to know, hey, we want less trucks, smaller disturbance. And that doesn't jive with, I think, what you're asking, and I understand what you're saying. But you got to remember that Canadian frac operations are so efficient. If you looked at them compared to the U.S., like we're almost exclusively 24 hours operations. The number of frac -- or the number of drilling rigs per frac fleet here is higher, meaning the frac operations are more efficient. So, maybe that's part of the reason why you're just not seeing it is because we're already there from an efficiency gains perspective. And we have to do our part to provide a smaller footprint on location so that we have less disturbance.

Waqar Syed

Great. Well, thank you very much. Thanks for your answers.

Brad Fedora

Okay.

Operator

[Operator Instructions] The next question comes from John Gibson of BMO Capital Markets. Please go ahead.

John Gibson

Good morning all. Just regarding those sand numbers you were talking about in '22 and 2023, where do you see these going in '24 and beyond, just given a bit of an uptick in activity as well as increasing well intensities? And is there enough capacity in the system to handle these levels either from a logistical or operational perspective?

Brad Fedora

Yeah, I mean, we don't think there is, not efficiently, right? So, we're at say 8.1 million tons this year. Let's say we have a 5% activity growth. And you can't use the well -- or the well -- or the rig count anymore. Because the rigs get more efficient and they drill longer laterals. So you have to sort of look at the number of wells and the average length per well to sort of backfill a sand demand number. But yeah, they're growing. As we all know, there's lots of sand around. But the logistics issue is not easily solved because of the rail. There's only one rail company north of Edmonton and there's no real giant transload facilities in Northeast BC. So, we do a lot of trucking out of sort of Grand Prairie area into Northeast BC and you end up with these 16-hours return routes, which you get a bit of a snowstorm or a traffic accident or a road construction, and all that goes out the window and the trucking times grow. So, the logistics side is definitely stressed and that's why we're having a careful look at it to see where we can add some value.

John Gibson

Got it, thanks. And last one for me, cementing work appears to be making up a larger portion of your revenue. What's driving this? And are you seeing some inroads with customers on the pumping side through your cementing work?

Brad Fedora

Sorry, can you say that again?

John Gibson

I'm just saying your cementing work appears to be making up a larger portion of your revenue and wondering what's driving this and if it's allowing some inroads to customers on the pumping side through...

Brad Fedora

No, our cementing customer list is massive. And really why we've had cementing growth is because we finally were able to sort of meet some staffing -- the staffing demands. And the demand was always there for our cementing services, it's just we weren't able to staff the equipment as well as we would have liked. And so, we've seen the number of units grow in the last year from sort of 17, 18 to 22, 23 units, which is significant, right? And still demand is there for more if we can find the people.

John Gibson

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

Brad Fedora

Thank you. Okay, operator, I think we'll end the call here. I don't see any more questions on the board. The Trican management team is available for any follow-up questions for the remainder of the day. Thank you, everyone.

Operator

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

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Trican Well Service Ltd. (TOLWF) Q3 2023 Earnings Call Transcript