Total Energy Services Inc . (TSX:TOT.TO) reported its financial results for the first quarter ending March 31, 2024, with a 14% drop in consolidated revenue, attributed mainly to decreased drilling activity in the United States and adverse weather conditions in Australia. However, the company's consolidated gross margin improved, rising from 25% to 28% compared to the same period last year. Total Energy also announced a 13% increase in its quarterly dividend and a significant capital expenditure budget hike to target growth opportunities.
Key Takeaways
- Total Energy's revenue fell by 14% due to lower U.S. drilling activity and wet weather in Australia.
- Gross margin increased from 25% to 28% year-over-year.
- The company completed a $50 million acquisition of Saxon Energy Services Australia.
- Positive working capital stood at $124.4 million, with $45 million in cash.
- A $19.8 million increase to the 2024 capital expenditure budget was announced, with a focus on North American growth.
- Total Energy drilled the longest Montney well in Canada at 8,006 meters.
- The company maintained a strong safety record, with zero total recordable injury frequency in several segments.
- An optimistic outlook for Canadian and U.S. well servicing segments and steady demand for compression process services.
Company Outlook
- Total Energy expects to significantly increase operational capacity in Australia following the Saxon acquisition.
- The company is optimistic about the Canadian well servicing segment and anticipates improvement in the U.S. segment.
- Demand for compression process services is driven by North American infrastructure build.
- A stable market is expected in Canada, with planning underway to meet this outlook.
- Larger horsepower equipment for compression is anticipated to be in higher demand as LNG projects approach in-service dates.
Bearish Highlights
- The company is prepared for potential market slowdowns.
- High pricing can discourage investment in natural gas infrastructure.
Bullish Highlights
- Strong demand for drilling equipment in Canada, particularly for liquids-directed activity.
- Infrastructure and drilling investments are seen as necessary for the upcoming LNG demand in Canada.
- A healthy demand for gas supply and infrastructure is noted as Canada prepares to export LNG.
Misses
- Revenue was negatively impacted by external factors such as weather and lower activity levels.
Q&A Highlights
- CEO Daniel Halyk discussed the need for increased investment in infrastructure and drilling to meet gas demand.
- The resolution of aboriginal issues has led to increased drilling in British Columbia.
- Current pricing levels are deemed sufficient for investment in LNG development.
- Australia is cited as supportive of natural gas and LNG development.
- The company follows a balanced capital deployment strategy, including debt repayment, dividends, and share buybacks.
- Halyk expressed hope to provide further updates after the second quarter.
Total Energy Services Inc. remains focused on growth and operational efficiency despite the challenges faced in the first quarter of 2024. With strategic investments and a strong financial position, the company is poised to capitalize on the opportunities in the North American and Australian markets.
Full transcript - None (TOTZF) Q1 2024:
Operator: Thank you for standing by. This is the conference operator. Welcome to Total Energy’s First Quarter 2024 Results Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Daniel Halyk, President and CEO of Total Energy Services Inc. Please go ahead.
Daniel Halyk: Thank you, and good morning. Welcome to Total Energy Services first quarter 2024 conference call. Present with me is Yuliya Gorbach, Total’s VP Finance and CFO. We will review with you Total’s financial and operating highlights for the 3 months ended March 31, 2024. We will then provide an outlook for our business and open up the phone lines for questions. Yuliya, please go ahead.
Yuliya Gorbach: Thank you, Dan. During the course of this conference call, information may be provided containing forward-looking information concerning Total’s projected operating results, anticipated capital expenditure trends and projected activity in the oil and gas industry. Actual events or results may differ materially from those reflected in Total’s forward-looking statements due to a number of risks, uncertainties and other factors affecting Total’s businesses and the oil and gas service industry in general. These risks, uncertainties and other factors are described under the heading Risk Factors and elsewhere in Total’s most recently filed annual information form and other documents filed with Canadian provincial securities authorities that are available to the public at www.sedarplus.ca. Our discussions during this conference call are qualified with reference to the notes to the financial highlights contained in the news release yesterday. Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars. Total Energy’s financial results for the 3 months ended March 31, 2024, reflect relatively stable industry conditions in Canada, lower drilling activity in the United States and extended wet weather in Australia that significantly reduced field activity levels compared to the first quarter of 2023 despite stable industry conditions. On March 7, 2024, Total Energy completed acquisition of Saxon Energy Services Australia, Pty Ltd for a total purchase price of approximately $50 million. $47.4 million was paid on completion and $2.7 million less any post completion adjustments is payable on March 7, 2025. During the first quarter of 2024, the company paid $19.7 million of income taxes and related interest and penalties arising from a Canadian income tax reassessment related to Total Energy’s conversion from an income trust in 2009. While Total Energy has appealed the tax court decision, all amounts on pursuant to such reassessment have been paid in full. Consolidated revenue for the first quarter of 2024 was 14% lower compared to Q1 2023. This was due primarily to lower drilling activity in the United States, restricted fuel activity in Australia due to wet weather and lower fabrication sales in the CPS segment. Modest price increases and cost management mitigated the decline in revenue such that first quarter consolidated EBITDA decreased by 11% compared to 2023. Geographically, 50% of first quarter revenue was generated in Canada, 39% in the United States and 11% in Australia as compared to the first quarter of 2023 when 46% of consolidated revenue was generated in Canada, 44% in the United States and 10% in Australia. By business segment, Contract Drilling Services generated 40% of first quarter consolidated revenue followed by the CPS segment at 38%, Well Servicing at 12% and RTS segment at 11%. In comparison for the first quarter of 2023, the CPS segment contributed 41% of consolidated revenue; Contract Drilling Services 35%; and Well Servicing 14% followed by RTS segment at 10%. First quarter consolidated gross margin was 28% as compared to 25% from the prior year. Margin improvement in our CDS, RTS and CPS segments offset a decrease in the Well Servicing segment. Relatively stable drilling activity in Canada and an acquisition of Saxon on March 7, 2024, partially offset an industry-wide decline in U.S. drilling activity and the negative impact of wet weather on Australian activity with the result that the CDS segment experienced a 3% decline in the first quarter operating days as compared to 2023. Despite a modest increase in revenue per operating day, lower activity resulted in a 2% year-over-year decrease in the CDS segment’s first quarter revenue. Price increases arising from rig upgrades, a change in the mix of equipment operating and cost management resulted in a 10% year-over-year increase in the first quarter CDS segment EBITDA. In Canada, market share gains and the relocation of a triple rig from the U.S. in 2023 contributed to a 5% year-over-year increase in the first quarter operating days. Increased operating days, combined with a 2% year-over-year increase in Canadian revenue per operating day resulted in a 6% year-over-year increase in first quarter Canadian drilling revenue relative to 2023. In the United States, first quarter revenue declined by 40% as lower U.S. drilling activity and the transfer of the triple drilling rig to Canada in the second quarter of 2023, contributed to a 39% decrease in operating days. Revenue per operating day declined by 1% due primarily to the mix of equipment operating. Efficient operations and cost management more than offset the decrease in revenue, such that the first quarter operating income more than doubled compared to 2023. In Australia, operating days increased with the additional tax on March 7, 2024. Partially offsetting this increase was a general reduction in field activity levels due to extended wet weather conditions. Revenue per operating day increased 2% as a result of rig upgrades and addition of heavier Saxon drilling rigs. Revenue in RTS segment decreased compared to Q1 of 2023 as a result of lower industry activity, particularly in the United States. Modest pricing increases and the mix of equipment and operating contributed to a slight year-over-year increase in the first quarter segment EBITDA. First quarter revenue in total CPS segment decreased by 21% as compared to 2023 due primarily to lower fabrication sales and the impact of lower natural gas prices on parts and service activity. The decrease in fabrication sales was primarily due to a significant portion of fabrication activity in the CPS segment directed towards the construction on new compression rental units rather than fabrication sales as evidenced by a 35% increase in compression horsepower on rent in the United States during the first quarter of 2024. Utilization of the rental fleet was slightly lower on a year-over-year basis due to the deployment of several newly constructed rental units laid in the first quarter of 2024. Improved fabrication sales margins and increased rental revenue contributed to an 8% year-over-year increase in the first quarter, CPS segment EBITDA margin. This increased margin partially offset the 21% decrease in revenue, such that segment EBITDA declined by 13%. The quarter end fabrication sales backlog decreased to $185.7 million compared to the $227.4 million backlog at March 31, 2023. Sequentially, the quarter end sales backlog increased by $22.9 million during the first quarter of 2024. First quarter Well Servicing segment revenue decreased by 28% compared to 2023 as utilization and revenue per service hour decreased 26% and 2%, respectively. This was due to lower activity in all jurisdictions. Australian activity was impacted by extended wet weather conditions, while lower well abandonment activity contributed to lower Canadian activity. Segment EBITDA and EBITDA margin declined as a result of lower activity as well as lower pricing in the United States. From a consolidated perspective, Total Energy’s financial position remains very strong. At March 31, 2024, Total Energy had $124.4 million of positive working capital, including $45 million of cash. During the first quarter, Total Energy borrowed $50 million to complete Saxon acquisition and paid $19.7 million arising from a Canadian income tax reassessment, which resulted in a $25.4 million of net debt at March 31, 2024. Total Energy’s bank covenants consist of maximum senior debt to trailing 12 months bank defined EBITDA of 3x and the minimum bank-defined EBITDA to interest expense of 3x. At March 31, 2024, the company’s senior bank debt to bank EBITDA ratio was 0.41 and the bank interest coverage ratio was 10.05x excluding $10.5 million of nonrecurring interest expense relating to the income tax reassessment, the interest coverage ratio was 30.77x.
Daniel Halyk: Thank you, Yuliya. We are pleased with our first quarter results. Despite a significant year-over-year decline in U.S. industry activity levels, our U.S. businesses performed reasonably well, particularly our U.S. drilling group, which did an excellent job managing their operations in a slower environment. In the context of relatively stable industry conditions and our strong financial position and having regard to our future prospects, the Board of Directors of Total approved a 13% increase to our dividend during the first quarter as earlier press released. As Yuliya mentioned, our CPS segment made a significant investment in growing its compression rental fleet during the first quarter. This is the most significant growth of the fleet in many years and is a result of improving market conditions in part, likely due to higher interest rates. While this investment reduced first quarter CPS segment revenue and EBITDA, the return on such investment will be realized over the next several years. We are excited about the addition of Saxon to our Australian drilling business. The addition of the 11 Saxon rigs substantially increases the operational capacity of our Australian drilling fleet. For example, during the first quarter, Saxon Rig 185 drilled the longest horizontal coal-seam gas well ever drilled in Queensland at a total measured depth of 5,020 meters. The rig requirements to drill this well were beyond the capacity of our pre Saxon Australian drilling rig fleet. Saxon had no significant bottom line impact during the first quarter given the timing of closing and the expenses incurred to complete the acquisition. Rather, the impact of the Saxon acquisition will begin to be realized in the second quarter particularly, should recently improved weather conditions continue. The full impact won’t be realized until we complete the integration and realize the efficiencies of the combined operation, which we expect to complete by the end of this year. In addition to Saxon, our Australian operations expect a newly constructed drilling rig to commence operations in the third quarter and two upgraded service rigs in late Q2 and Q4, respectively. All three rigs will be operating under long-term contracts. As such, we expect the income statement contribution from our significant investment in Australia will increase substantially over the next several quarters. As such investment was made without the issuance of any new equity, the impact will be amplified on a per share basis. Investment opportunities also exist in North America, as evidenced by the $19.8 million increase to Total Energy’s 2024 capital expenditure budget announced yesterday. $8. 3 million of this increase is targeting North American growth opportunities, including $6.4 million allocated to purchasing new rental equipment for the RTS segment. Total Energy’s investment in upgrading its equipment fleet over the past few years has not only provided a reasonable return for our owners, but it has also increased the capacity and performance of our equipment for the benefit of our customers. A highlight occurred in April when we drilled the longest Montney well ever drilled in Canada at a total measured depth of 8,006 meters. The well was drilled by Savannah Rig 653 and AC electric telescopic double rig in just 19.2 days. Our safety performance during the first quarter was commendable, and I would like to thank all of our employees for their continued commitment to operating in a safe and efficient manner. Several of our operating segments achieved a zero total recordable injury frequency in the first quarter, which resulted in a 0.90 consolidated TRIF for the quarter and a 12-month rolling TRIF of 1.34. A special shout out goes to the employees of Total oilfield rentals who achieved a zero TRIF for the past 12 months in respect of our entire North American RTS segment operations. Congratulations on a job well done. Finally, I’d like to invite you to attend our Annual General Meeting that is being held this coming Tuesday, May 14, at 10:00 a.m. at the Calgary Petroleum Club. I would now like to open up the phone lines for any questions.
Operator: Thank you. [Operator Instructions] And our first question today comes from Cole Pereira with Stifel. Please go ahead.
Cole Pereira: Hi, good morning, all. Dan, you provided a few comments on the Saxon acquisition thus far. I mean wondering if you could just add any color on how things are progressing relative to your expectations, any surprises, positive or negative, etcetera?
Daniel Halyk: So things are progressing well. I would say we’re very happy with the acquisition. I think the fit is good. In terms of the equipment and personnel, I would say, generally, what we’re finding is more positive relative to expectations. And what I’m seeing is a group that’s happy to be part of our company. We’re excited to be in the land drilling business, and we’re excited to grow the business. And I think that excitement is shared by the Saxon employees that are now part of our company. And so I’m quite excited to see where our Australian business will go over the next several quarters.
Cole Pereira: Great. That’s helpful. Thanks. And can you just provide an outlook on how you’re thinking about the Well Servicing segment and what the outlook is there, call it, for the next few quarters?
Daniel Halyk: So Canada, we had a bit of a flat line. Less abandonment work certainly impacted. There was some customer consolidation that impacted programs a bit in Q1, although our sales group there is working to broaden the customer base with healthy oil prices, the differential in heavy oil tightening here, we’re reasonably optimistic on the Canadian business. The U.S. side had a tough quarter. I think industry consolidation, there were a number of significant consolidation events. Those always are preceded by a drop in activity. I think the group struggled to manage their labor force keeping employees in anticipation of activity and that didn’t materialize. Again, the focus is on broadening the customer base and with healthy oil prices, we expect that business to improve going forward. Australia was really about weather. And as I mentioned, we’ve – as part of our 2024 capital budget, we are deploying three service rigs, one of which was deployed here about a month ago, and I commented on the other two, that will be in late Q2 and the other one in Q4. We’ll see a nice pickup in our service rig activity in Australia over the balance of the year here. So as long as oil prices remain stable, that business should be okay.
Cole Pereira: Okay, great. That’s helpful. Thanks. And Yuliya, just outside of anything from the CRA, how should we be thinking about total cash taxes going forward?
Yuliya Gorbach: Well, you know what this is a binary problem. It’s good when you don’t pay taxes, have enough losses, and it’s bad when you’re actually paying taxes, but when you are profitable enough to be paying taxes. So I guess we’re going to deal with that problem as we go. We have disclosed our available losses in U.S. and Canada. So our income won’t be translated in cash taxes in the near future, but some of it will. So just the way you look at it, you look at the year-end disclosure, and you can project the cash based on that.
Daniel Halyk: The one comment I would make is the $10 million plus of interest that was paid on the reassessment was not tax deductible.
Yuliya Gorbach: Yes.
Daniel Halyk: Which is why a bit of a strange anomaly here the past couple of quarters.
Yuliya Gorbach: So you’re going to see the rate is looking a bit higher is because that $10 million was deductible. Couple of things to think about U.S. is that in U.S. you can only apply 80% of your income to available losses. So that will definitely factor into what amount will be cash taxable.
Cole Pereira: Got it. Okay. Great, that’s all for me. Thanks, I will turn it back.
Daniel Halyk: Thanks, Cole.
Operator: [Operator Instructions] Our next question comes from Tom Monachello with ATB Capital. Please go ahead.
Tim Monachello: Hey, good morning.
Daniel Halyk: Good morning, Tim.
Tim Monachello: Tim calling in for Tom. So in Australia, I’m just curious, like weather was a big impact. How much – I don’t know how you want to quantify revenue or activity you think you lost because of weather in Australia, both on the Drilling and Well Servicing side.
Daniel Halyk: There was a lot of standby with crew standby, without crew. We haven’t done the exact math. And even if we did, we probably, I hate blaming weather too much. But literally, Q1 is always the slow time in Australia due to their wet weather season. This year was exceptionally wet. Literally, we had helicopters having to retrieve crews off of rigs because you could not access them by ground. When I think things are bad, though, I was reminded by two of our directors who were founders of Savannah that when they first moved to Australia, they literally lost two rigs, were totally destroyed by flooding. So it could be worse. So like I said, Q1 there is always the wet season. It’s kind of their breakup season. But the weather has improved and hopefully, that continues. And if it does, we expect to have a pretty solid operation there.
Tim Monachello: Can you speak to any rigs you’re running in Australia today?
Daniel Halyk: Drilling rig wise, I think we’re in that nine range.
Yuliya Gorbach: Yes, it is. Yes.
Tim Monachello: And services?
Daniel Halyk: Probably four or five. Four?
Yuliya Gorbach: Four.
Daniel Halyk: Yes.
Tim Monachello: Okay. That’s helpful. Were there any one-time costs in Q1 just related to the integration of Saxon that weren’t called out in the MD&A.
Daniel Halyk: Acquisition, about $0.5 million.
Tim Monachello: Okay. And then I was curious about the CPS segment. Good to see that utilization ticking up with – alongside higher fleet size. Are you through that build down for 2024 or are you going to continue to be utilizing floor space or internal builders?
Daniel Halyk: There’s always rental activity. What we saw beginning in Q4, culminating in Q1 was the largest build we’ve seen in quite a few years. And it’s literally a timing issue where we had a couple of large rental orders that were deployed to the U.S. And so that was definitely a bit of a exceptional situation. We normally wouldn’t comment too much on the break down in terms of production activity. But it was meaningful enough to highlight that. And going forward, that’s really dependent on customer preference at any point in time. And so we’re not going to try and forecast that. But what I would say generally is the rental business has improved, I think, in large part due to a higher cost of capital, which has now taken some of the financial players out of the market. We offer a true operating lease, which means we take residual risk at the end of the lease term as opposed to a finance lease. So the asset stays on our balance sheet, and we take residual risk. And we expect to be compensated for that risk. For quite a few years, likely due to low interest rates, the market in our judgment was under pricing risk. That’s normalized a little bit. And if there is good opportunities, deployed capital and growing the rental fleet, we’ll pursue it. If there’s not, we won’t.
Tim Monachello: Okay. Just in terms of like the capital budget that’s been allocated, there’s some carryover from ‘23 and in the 2024 budget. How far are you through the allocation to gas rentals?
Daniel Halyk: A lot of that 2023 carryforward was the compression rental build and so you can see in Q1, there was about $10.5 million of capital expenditures within the CPS segment. That’s virtually all rental fleet additions. Keeping in mind, the Q4 would have also been and I don’t have that number in front of me, the setup for that build. So anyways, we don’t build compression rental units on spec. And typically, what we will do is increase our rental budget for any major new projects. We did allocate $5 million in our preliminary budget this year to this rental build or the rental fleet. A lot of that is simply when units come back off rent, you have got to do some retrofit and modifications to make them suitable for new projects. Basically, you modify the equipment in response to new rental opportunities. So, that would not be kind of net new additions to the fleet. We don’t approve those until we have opportunities that are acceptable.
Tim Monachello: Okay. And can you speak to the level of demand that you are seeing in terms of third-party orders for compression process services?
Daniel Halyk: I would say right now, North America is all about infrastructure build. And so what we are seeing is I would say the demand is primarily driven by pipeline and midstream companies.
Tim Monachello: Can you give us an indication of direction that you are seeing that is improving flat line?
Daniel Halyk: I would say it’s pretty steady. Obviously, the backlog went up during Q1. So, that speaks for itself.
Tim Monachello: Okay. And then just I am curious if you are getting a sense that your customers are planning more or less growth than they would have been planning for the back half of the year in Canada relative to three months ago?
Daniel Halyk: I think it’s a – I would call it a stable market. We are in breakup right now, which is always a difficult time to kind of assess, it’s really going to depend on oil price stability, a recovery in gas prices, obviously, we are going into 2025 when LNG Canada will fire up. You get different views on what that means exactly. But I would say, generally, we expect and we are planning for a relatively stable market.
Tim Monachello: Okay. Great. I will turn it back. Thanks for all the details.
Daniel Halyk: Thank you.
Operator: [Operator Instructions] Our next question comes from Josef Schachter with SER. Please go ahead.
Josef Schachter: Good morning Dan and Yuliya. Thanks for taking my question. I am just wondering, Dan, if you are seeing for the latter part of this year and into 2025 in each of your business lines, a pickup for our orders related to build-out drilling and build-out for LNG projects between LNG Canada, and we are seeing Rockies moving ahead. Are you starting to see discussions and orders? And is the size of the equipment, let’s say, for compression getting bigger? And of course, are they more complicated and therefore, potentially more profitable for you?
Daniel Halyk: So, definitely, as I mentioned earlier, Josef, infrastructure build is driving North American demand, the material demand for compression process equipment. And so definitely, the answer to your question, are we seeing continued demand there, it’s yes. It is bigger horsepower equipment. Some of its electric and depending again on the location, we expect that demand to be relatively stable over the next couple of years. And it’s again driven by the requirements to feed all of these LNG plants that are coming online in North America. I would say most of it is tied to the gathering system level at this point. What I would expect to see as we get closer to, in-service dates would be more field compression, which would likely mean a bit smaller horsepower and more from the producer level. That remains to be seen, but that’s typically how these things go. As we get closer to in-service dates, again, you would expect gas drilling to pick up and completion activity. Clearly, right now, there is a lot of gas in North America. We have definitely seen some shifts away from gas towards oil. Again, the next couple of quarters will be interesting as we get closer to in-service dates on LNG and you again hear different numbers about how much is needed to fill these things. But I would say kind of what’s driving the drilling business in Canada right now is certainly the recent commissioning and in-service of Trans Mountain. We are seeing some pretty strong demand for our AC doubles and super single class of rigs for liquids-directed activity. And that will pull our rental business as well as our service rig business with it.
Josef Schachter: And just to follow up on that. Are you – do you have enough capacity across the system? Let’s say for compression or is it going to be – are you going to have to do some major construction once you start seeing more contracts coming your way?
Daniel Halyk: I would be hesitant to add more capacity. I think we have always found a way to increase throughput, and there is different ways to do it, both by being creative in the way you use your physical floor space, adding shifts, night shifts. So, I would say within the CPS segment, we are fine for physical capacity, it would be labor ramp-ups, primarily. In the drilling business, if you are on an AC double and a high-spec single today, good luck post breakup. Those are tight markets in Canada. The U.S., I think we have seen, hopefully, knock on wood, our rig count bottom and again, our guys have done a wonderful job down there managing their business. And with oil prices holding and some of this LNG kicking in, hopefully, that will see a ramp up in U.S. drilling over the back half of the year. Our rental group is obviously short, certain lines of equipment. I won’t give specifics for competitive reasons, but we just made a significant investment to add some brand-new equipment there. Again, the type of equipment will tend to pull other lines of equipment that we have ample now. So, like I have said all-in-all, I think we are reasonably optimistic. Again, it’s a strange macro environment, so I don’t take things for granted. But we will enjoy the activity as it plays out, and we are not going to put ourselves in a position that if things slow down materially, we are going to be at risk.
Josef Schachter: Okay. Thanks for the color. I appreciate that. Thank you.
Daniel Halyk: You’re welcome.
Operator: And our next question comes from Ernest Wong with Baskin Wealth Management. Please go ahead.
Ernest Wong: Hi. Good morning Dan and Yuliya.
Daniel Halyk: Good morning Ernest.
Ernest Wong: I just wanted to stay on the topic of LNG. So, maybe on a big picture, what is – how do you think about the ability of the industry overall in Canada to meet the upcoming demand and expected production increase in gas?
Daniel Halyk: Well, there is going to have to be more investment, both in infrastructure and drilling and completion. We are seeing that play out on a steady basis within the CPS segment, but there is more to go. And on the drilling front, we expect – you have seen a pretty significant uptick in BC drilling over the past year. Some of that was related to restrictions on drilling due to some aboriginal issues there that have now been resolved. But we think there is a relatively healthy demand for infrastructure and gas supply that will play out here over the next couple of years as Canada gets ready to finally start exporting LNG. The global LNG market is generally fairly healthy. Pricing has moderated somewhat from the extreme levels over the past year or so. Honestly, we see that as a good thing. Extremely high pricing discourages investment in future infrastructure built around using natural gas. And so I think our kind of general view is pricing today is sufficient to see investment in developing and producing LNG. Australia is a prime example. Their national government just issued a policy here earlier this week. That’s very pro natural gas and pro LNG development, which is we see that as reassuring, given it’s typically been seen as somewhat of a hostile regime towards natural gas development. So, you are seeing the reality physics and economics always dictate outcomes and the reality is the world needs more energy, and they are increasingly turning to natural gas to supply that. And so I tend to be a relatively bullish person on natural gas in the medium to long-term, whether it’s North America, Australia or elsewhere.
Ernest Wong: Got it. Thanks. Have you – you guys raised CapEx, obviously, but is there any change in terms of how you think about excess capital deployment, whether it would be for capital returns or M&A, or debt pay down?
Daniel Halyk: We continue to take a balanced approach. We never – I don’t like hard and fast rules. We use our balance sheet when it makes sense. And we paid down debt at any time in between. We used our balance sheet to do what we see as an attractive acquisition with Saxon. Effectively, the rest of our CapEx is paid with cash. And given kind of how we are trending here, I expect debt repayment will not take too long to deal with, and we increased our dividend effective Q1. We will continue to look at share buybacks. And our Board reviews our dividends on a quarterly basis, but we also don’t like to – we like sustainability and a balanced approach to shareholder returns. But we have given a lot of capital back to our owners over the years. In fact, we have given more back through dividends and share buybacks, and we have raised. So, we will continue, I think anyone who has followed the company and been a shareholder for a long time knows that we don’t talk about shareholder returns. We just do it.
Ernest Wong: Good. Thank you.
Daniel Halyk: You’re welcome.
Operator: And ladies and gentlemen, this concludes your question-and-answer session. I would like to turn the conference back over to Mr. Halyk for closing remarks.
Daniel Halyk: Thank you everyone for participating, and we look forward to hopefully seeing some of you at our AGM and speaking with you after our second quarter. Have a good weekend.
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