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Good day, ladies and gentlemen. Welcome to the Essential Energy Services Limited 2018 Year-end and Fourth Quarter Results Conference Call and Webcast.I would now like to turn the meeting over to Ms. Karen Perasalo, VP, Investor Relations. Please go ahead, Ms. Perasalo.
Thank you, Alanna. Good morning, and thank you for joining our fourth quarter and year-end conference call. With me on the call today are Garnet Amundson, President and CEO; Jeff Newman, Senior VP, Business Development; and Allan Mowbray, CFO.This morning, we will give you an overview of our fourth quarter and year-end results, speak to the outlook and open the line for questions. Please note that effective tomorrow, Mr. Newman will assume the CFO and VP Finance role. Mr. Mowbray will be leaving our organization.In this conference call, we will be discussing financial measures, including certain non-IFRS financial measures such as adjusted EBITDA and bank EBITDA. Please see our March 6, 2019, fourth quarter and year-end news release for definitions of these terms.Today's call may include forward-looking statements. Such statements are given as of the date of this call and involve risks and uncertainties. A number of factors and assumptions were used to formulate such statements. Actual results could differ materially, and there can be no assurance of future performance or market impacts. For additional information with respect to forward-looking statements, factors and assumptions, please refer to our March 6, 2019, fourth quarter and year-end news release. In this call, we will refer to Essential Coil Well Service as ECWS.I will now turn the call over to Garnet.
Thank you, Karen. The fourth quarter of 2018 was challenging for the Canadian oil and natural gas industry and service companies, including Essential. The WTI oil price decreased significantly and the Western Canadian oil price differential increased to alarming levels. Natural gas prices remained weak. Political, regulatory and market access issues continued to restrict investment in Canada's oil and gas industry. As a result, many E&P companies reduced spending as the fourth quarter progressed.Against this backdrop, Essential generated $41 million of revenue in Q4 '18, which was 5% lower than Q4 last year. Adjusted EBITDAS was $2 million, exceeding the prior year quarter by $1 million, despite lower revenue. Thanks to effective cost control during the quarter.The term adjusted is used this quarter to reflect exclusion of a $0.5 million onerous lease provision we recorded in Q4 '18 as a result of our decision to close an ECWS shop facility in Southern Alberta due to inactivity in the area.For the full year, revenue was $190 million and adjusted EBITDAS was $20 million, both approximately 8% higher than 2017. Essential continues to have low debt. Yesterday, Essential reported debt of $10.7 million, a substantial decrease from $21 million at the end of December, largely due to timing of customer payments and reduced spending. Year-end debt-to-bank EBITDA was a reasonable 1.04x.Allan will now speak to each of the businesses.
Thank you, Garnet. ECWS reported Q4 '18 revenue of $18.3 million, 17% lower than Q4 '17 due to lower activity from key customers. The Generation III coil tubing rigs and quintuplex fluid pumpers had the highest utilization in the fleet as they have done deep horizontal wells. Pricing was consistent with Q4 '17 in the first 3 quarters of 2018.Gross margin of $1.5 million was an improvement from the prior year quarter. Despite the 17% reduction in Q4 '18 revenue, gross margin improved over last year's quarter due to our focus on managing headcount and certain costs. Lower labor costs were partially offset by higher repairs and maintenance costs and higher fuel prices in the quarter.For the full year, revenue was $99.5 million -- of $99.5 million was 6% higher than 2017. But ECWS gross margin for 2018 finished consistent with the prior year.Our first ECWS Generation IV coil tubing rig retrofit started work in October and completed several jobs in the Montney and Duvernay, proving the design and engineering. Management is excited about this rig and its capabilities. It has been well received by customers and crews.ECWS recognized an $18 million write-down of assets in Q4 '18. The write-down was related to specific coil tubing rigs, fluid pumpers and nitrogen pumpers. Weak and uncertain Canadian industry activity and commodity price outlooks made it difficult to support the ongoing value of certain ECWS coil tubing rigs and pumpers. Uncertainty caused by political, regulatory and market access issues increased in the fourth quarter and negatively impacted the operating and financial outlook for Canadian E&P and oilfield service companies, including Essential. All of this contributed to the write-down conclusion.Tryton reported Q4 '18 revenue of $22.9 million, 7% higher than Q4 '17 due to higher Canadian MSFS revenue and a substantial increase in U.S. revenue. Tryton's Canadian activity did slow as the quarter progressed, similar to the slowdown in the broader Canadian industry. For the year, Tryton revenue increased 10%, driven by higher demand for conventional tools, including production and decommissioning services in Canada, strong performance from the MSF business and growth in U.S. Tryton's gross margin was consistent with the prior year, despite higher revenue as there was lower contribution from the higher margin rentals business and lower pricing in the U.S.I will now provide a brief update on the Packers Plus litigation. As previously disclosed, an appeal hearing was held on February 6, 2019, for the patent litigation. The timing of release of a decision is unknown. In 2017, as part of the initial decision by the trial judge, which ruled in favor of Essential, Essential was awarded costs. The cost recovery hearing is scheduled for May 10, 2019.Garnet will now speak to the outlook.
Thanks, Allan. To date, in the first quarter, Essential has experienced activity and revenue slightly below 2018. However, unlike March 2018, our activity in March of 2019 is expected to slow sooner in the month. Beyond spring breakup, we're beginning to get inquiries about second quarter work, but generally, activity and demand for the rest of 2019 remains unclear. In this challenging environment, Essential is focused on the following: cost management. Fixed cost reductions have been implemented, including compensation reductions, employee layoffs, a shop closure and general spending reductions and other initiatives.Next, prudent capital spending. Our 2019 capital budget of $6 million is primarily for maintenance capital, mostly for ECWS. With a smaller active coil tubing and pumping fleet of 16 packages and considering our current activity forecasts, ECWS believes it can maintain the fleet appropriately with this budget.Rightsizing the ECWS fleet and crews as part of our 16 active coil tubing and pumping packages, we now have 2 conventional Gen IV coil tubing rig offerings for our customers. Our upgraded Gen IV reel trailer, which went to work last week, and the first retrofitted Gen IV coil tubing rig are excellent additions to our existing deep coil tubing fleet. We're currently crewed to operate up to 11 coil and fluid pumping packages.From a fleet growth potential perspective, now that we have a proven formula, there are 4 additional Gen IV rigs that can be retrofit when market demand dictates. The 2019 capital budget does not currently include any new retrofits. The cost and time to complete a retrofit is significantly less than it would be for us to have a new build. I'd like to highlight then on innovative tool business. Tryton offers a variety of multistage tools to meet the varying customer needs for completion-related activity. The conventional tool business provides customers with an array of tools for both production and decommissioning activities. This business has a broad customer base and strong customer relationships. Tryton does not face staffing reductions in early 2019 due to their activity and its highly variable cost structure.And finally, allocating free cash flow to reduce debt. Essential has been in the fortunate position of having low debt over the last couple of years, providing meaningful financial stability. Positive cash flow from operations is expected to exceed capital spending in 2019. At this point, surplus free cash flow is expected to be applied against debt. We may make other decisions as we see the second half 2019 outlook clarify.With lower activity and excess oilfield service equipment in the WCSB, it is a challenge to balance crew retention, equipment maintenance and other escalating costs with competitive pricing pressure and sporadic activity. Our Canadian oil and gas industry is facing tremendous uncertainty. This is unique and unnecessary, given the more positive state of the oil and gas industries in the United States and the rest of the world.We would like to thank our employees for their patience and understanding, again, in 2019, as we've had to embark on more cost reductions, wage rollbacks and unfortunately layoffs. All of this is due to the state of the Canadian oil and gas industry due to the lack of support from our federal government to build new pipelines so that Canada's responsibly produced oil has access to new markets.Before I close off on the formal comments, I would like to sincerely thank Mr. Allan Mowbray for his dedication and contributions to Essential as our CFO for the last 6 years. Allan has been a good friend and coworker over many years, and I wish him well with his new opportunity at Sequence.
Alanna, at this time, we would like to open the line for questions.
[Operator Instructions] The first question is from Josef Schachter with Schachter Energy Research.
Allan, best wishes for you over at Sequence. They're on the turnaround, too, so I hope with the Duvernay move that they have a good recovery. But going -- Garnet, going to your results, you guys did -- had good cost control. Tryton was really good in the year. If you look at weak Q1, Q2 for, let's say, 2019 and if you have a more optimistic price deck as I do for the second half of 2019, do you see Tryton holding in and being kind of a similar situation in terms of gross margin and profitability in 2019, a little softer in the front, stronger in the back end?
Josef, thanks for your question. Yes, I think the -- I mean, we're obviously not going to speculate on the second half price deck, which is I'm glad you got optimism, I know many people do, and I think that's great. We don't see really a problem for Tryton maintaining, sort of, what I'll call, traditional higher margins. The last couple of fourth quarters for Tryton have seen tougher margins for a variety of different reasons. But really that business is set up with a good variable cost structure. We did comment about pricing competition a little bit in the U.S. saw us come down, but we actually feel that if commodity prices pick up, you're right, it tends to relieve that pricing and I would expect margins to, sort of, stay as strong as they typically have been for Tryton, if not slightly improved as the year goes on, providing we get those stronger commodity prices you're looking for.
Okay. Then going to the layoffs, how many people would that have impacted in terms of layoffs in -- and was it in the coil tubing side and the nitrogen side? How much would that have impacted in terms of total manpower count?
Yes. And I'm going to actually decline, Josef, to give a number on that one. I'll tell you why. I can tell you where we're working, but most of what we've done so far has been either in the corporate or in the Essential Coil Well Service side. As I mentioned, there's been nothing on the Tryton side. And part of what we have to look at, the reason I don't want to throw a number out is as we get into breakup here, we've got to take a look at the outlook for the remainder of the year and continue with our plans. We've had lots of conversations, but I would say we're not done probably what we need to do. Similarly, in our corporate office, we have to take a look at processes, Allan's departure. And I think it's obvious to people who know the company, we've got a senior experienced long-time employee like Allan leaving and we're not replacing that position. So we're going to be down 3 officers in the company now in the last 2 years and we're trying to give experiences to some of our younger, less expensive folks, frankly, without doing a lot of headcount replacement. And when you do changes of that magnitude, there can be positions that shake out. So we're still a little bit early to be throwing numbers around.
Okay. But it's nowhere near what like STEP's announced, 12% in the field, 13% at head office and then there was a big announcement at Trican as well. It's nowhere near those kind of percentages.
No, I don't expect that. What you see from us, we actually went really hard, if you look back in our history, in '15, we did some layoffs. And then in the spring of '16, we did round 2. And we didn't really staff ourselves up a whole lot other than hourly field personnel as we went into '17 and '18. So right now, our standard practice that we've announced to staff, we started with executive salary rollbacks as an announcement, which we did in December. Then we pushed salary rollbacks across the board to all but our most junior positions. And we also looked at our hourly ECWS wages and dropped that. Sometimes, that's not enough for savings, but I can tell you the organization clearly both got the message and understood what needed to be done, and there's been a great cost-saving efforts across the board. Then we've been keeping our attention focused on Q1. And you can tell from our comments, subject to what happens in March, we're pretty proud of how we've executed so far in Q1. And the rest of the decisions will be made here as we go into breakup.
Okay. I got 2 more questions. Do you want me to go back in the queue or could go forward with my questions?
You know what, Josef, I'm happy to keep on going because we appreciate your -- you put in lots of good effort to come up with the question, so I'm all yours.
Okay. You mentioned in your commentary that debt from the accounts receivable came in at $10.7 million, and you mentioned that if there is more free cash flow, you'd paid down debt. So the goal is to have no long-term debt? Just the payables on a go-forward basis?
Well, it's a fair question. And I don't think no long-term debt is our goal. We, in fact, at our board meeting yesterday, talked quite extensively about the situation, because when the debt gets down to $10 million, that's -- considering that we still got a substantial, call it, $30 million of receivables outstanding plus inventory, that debt is getting down quite low. So the debate we've had with the board is once we get clarity on outlook, again, for the back half of the year, what we're looking for? We're looking for signs from our customers. We're looking for a positive election in Alberta to replace the existing government. We're looking for some positive federal developments to show some level of support for Albert and the country rather than just for companies based in Québec. And if some of that can start to happen, then I think -- then we will invest in the future in business opportunities. This Gen IV opportunity that I've highlighted is just a fantastic thing for our shareholders and it's literally late into potential, but there's no sense to us preparing more equipment as good as that equipment will be if the completion and drilling space on an industry basis continues to shrink in Canada. So we've got other opportunities in the Tryton business. And then, of course, we get asked all the time about would Essential ever put in a normal course issuer bid and that's been discussed with the board as well, but I don't have any specific conclusions to share today.
Okay. And then last area from me, the Gen IV, 2 of them, you said, have been refurbished to this new capabilities. You have 3 that are inactive and you took the $17.9 million hit. Would you -- are you going to -- would the 3 inactives hold them in inventory and you don't have to take any further write-downs? And only when you decide that there is business for them and you can spend the money to upgrade them, they will still be there as inactive rigs, but there's no further write-downs expected like the $17.9 million?
That would be our expectation, Josef. And of the write-down that occurred, approximately half of it was related to the Gen IV assets that we have purchased. And going back to the history, for anybody listening to this response, Option Industries, which was literally on the verge of bankruptcy and then did go bankrupt in December 2016. We picked up all that we could of the, I'll call, the bits and pieces and these assets, the rigs in various states of completion on that day at the time of our conference call actually in 2016 and brought them back. And then coincidently, Option has gone bankrupt, again, if you can believe that, in December '18. And so there's -- we would have nothing to do with those guys. We haven't for a long time. In the meantime, we worked with NOV Hydra Rig, established this proven practice to strip a lot of the Option parts off and wait and different things. So -- yes, it's all the components that we've determined were either not good or redundant that we have picked up from Option. That's what that write-off is. But you're right, the rigs that we have remaining, we expect there should be no further write-down. The remaining portion of the write-down was primarily some of our inactive fleet. We've got 29 coil units and 19 fluid pumpers and some of that equipment that is either older or more worn or that are not likely to be used as actively in a less active Canadian industry. You don't get a choice in accounting rules anymore to have a bunch of idle book value assets that aren't expected to work in our forecast.
Further on this thing, the 10 inactive Gen IIs, are those something that you would -- that can be upgraded to Gen IIIs or at some point, they're scrap?
Yes. I think the future for inactive Gen IIs and when we actually have our operations and sales team looking at this is, they could not be converted to Gen IIIs. They just don't have the foundational infrastructure to be able to do that. So the future of those is for us to determine with our customers what the market potential is. And I would suggest that the other approximately half of that fleet probably would be suitable for, as some of our competitors have done, having it leave the country, preferably to the United States or the Middle East. So we will begin to likely market those assets and move on because the Canadian industry is just getting deeper and having higher expectations and some of that equipment just wouldn't ever be able to get to that specification.
Okay. If I can sneak one more in. Tryton, you've gotten a presence in the states. Given your balance sheet is so strong, are there tucked-under acquisitions to get you more bases and some of the stronger basins possible or opening up at this time when things are tough and starting new bases? Is that something that's in the cards? Or are you guys holding back on that given the uncertainty of the industry?
No. Thank you for that question as well. The United States operations of Tryton actually had a very successful fourth quarter in terms of revenue growth compared to the same quarter last year. And we also have some, I'll say some products in the wings for that division in the United States, where we can -- primarily right now, it has been a conventional tool business. And we're trying to introduce some of our multi-stage tools to the extent we feel they are suitable for the formations in which we operate in the U.S. As we noted in our MD&A, the Texas Permian area has been sort of the greatest growth expansion area for that business, and we're also looking at some other ideas where we can expand. One of the barriers to expansion and the tough thing that's been hard on margins in that business is it is extremely competitive. So to stay active with our customers, pricing has been under pressure, and it's very difficult to get good people in the United States. So during slow times, that's another thing where we can look at, are we able to send our off-season Canadian employees on a temporary basis in to help out and share some of the techniques and successes we have in Canada.
The next question is from Tim Monachello with AltaCorp Capital.
Josef asked a bunch of the questions that I was looking for an answer on. But you mentioned in the remarks that you're expecting free cash flow to outpace CapEx in 2019. Do you have a rough guide of a high and low range, where you're expecting that to come in?
Sure. I'll take the -- based on -- Karen and I work most closely with you folks as analysts, and I would say that based on what we see there's 3 of you, including your numbers that look like they've been updated for 2019 to something that we think is -- reflects the current state of the industry. So those numbers are all in about the $14 million to $15 million range. So I'm just going to use $15 million for easy math for a number for 2019. Now just to emphasize for the record, we don't give guidance. We don't give forecasts. That's basically just the math of 3 analysts that have updated, I think, currently on 2019, before today's release by the way. That was their numbers before. If you take the $15 million, our debt servicing costs given where we're at, including sort of facility renewal costs for simple math, call that $1 million. So if you take that off, cash taxes aren't really an issue for us given our current situation and the situation of the industry. So our capital expenditures, as we announced, which is mostly maintenance capital, is currently $6 million. So $15 million minus $1 million minus $6 million is going to be $8 million of free cash flow, if everything pans out. The uncertainty on that really comes down to, we don't know how Q1 will finish. Q2 looks like it could be a little more of a traditional Q2. We had a strong Q2 last year. And we're all -- I think all the completion companies and ourselves would feel that our customers are holding their cards very close to their chest right now for the back half of the year combined with the commodity price and political uncertainties. So I don't know how the back half will unfold. If we hit those numbers, as the analysts have suggested, which seem reasonable and possible to me, that would give us $8 million of free cash flow. Debt bounces around up and down, but yes, our debt could drop more quite conceivably from the $10.7 million, it is today.
Okay. All right, that's helpful. If you were talking about the cost reductions that you've already implemented here, if you were to see -- well, I don't know maybe you can just quantify them or you have quantified them internally, but if you were to see second quarter, that was something like as bad as '16 was. How much better would cash flows come out based on what you've already enacted here today?
If we saw the second quarter be as bad as 2016, then what is your question, Tim?
Sorry, you did negative $4 million in EBITDA in 2016 in the second quarter. So I'm wondering, if activity was that bad, the fact that you've already reduced costs, how much better could cash flows be? Basically, how much have you reduced your fixed costs could be?
Yes. And that's probably -- and I'm going to probably give you the same story that -- I know you're trying to probably get some clarity in your model, but I have to give the same answers I did to Josef that -- out of fairness. And I think we're in pretty good shape. And I have to balance these comments with not freaking out the staff because people -- in a market like this, people are, obviously, sensitive to their jobs and making sure that we're stable and with a $10 million debt amount, we've got a lot of opportunity to do the right thing, whatever that means. So we're -- that's part of why -- because I don't know what Q2 will be, I think we've got our fixed cost structure in a pretty good spot here that we shouldn't see anywhere near a 2016 Q2. That is something I would not want to see. What we will try to do is figure out any cost reductions that we need to do by the end of March, get them booked into Q1. So for our May conference call, I should be able to answer these types of questions more specifically because we want to build that into our outlook going forward. The commitments on what we would do with our free cash flow instead of just paying down debt, we've got to get further into Q2 and probably get much closer to sort of midyear or summer when our customers announce their own spending programs before we can decide what we're going to do with free cash flow because if the back half of the year falls apart as we saw in 2016, then we're going to hold on to our cash.
Okay. That's helpful. The next one I have here, in terms of the ANR that you announced in the quarter. Do you know of any specific activism that's happening behind the scenes that you might be trying to prevent?
No, I am not aware of any activism. I can tell you one of our -- I'll tell you our 2 motivations for putting that in place: one, we think it's probably appropriate, normal and leading good governance, and we consider ourselves a company that does the right thing in that respect; and two, if you've attended our AGMs, anybody who has in the last several years, we often -- because we don't have a major shareholder as some companies do. We've got one shareholder over 10%, but really it's about 5 or 6 institutions and then we're very widely held. So we do see some unusual and uncomfortable moments sometimes early in the proxy loading period. When loading is tandem, there can be some weird and unusual trends. So this just gives us more transparency and line of sight sooner should anything like that be developing.
Okay. That's helpful. And then, my last one here. Actually, on the conventional tools business, pacing to conventional tools revenue against Canadian rig count would show that you had some pretty significant market share growth over the last number of quarters. I'm wondering if that growth has been a result of actual market share growth within Canada. Or if that's primarily due to growth within the U.S. market, if you can speak to anything in that regard?
Sure. It's always hard for us to have data points to speak to market share because we're literally -- as far as I know, the only publicly traded, publicly disclosing downhole tool company that gives you information like this. The other competitors are either subsidiaries or divisions of big U.S. companies or private companies or it just sort of disappears in other people's numbers. That being said, our informal belief, and talking with our sales and operations team, is that we are the #1 tool supplier in Canada in the conventional tool space, and one of the key international competitors we used to compete with has really had some hard times in the last 18 months. And their internal strife has been an opportunity for us to step into that space. Another area that shows up in conventional tools for us is decommissioning. And we're using the word decommissioning instead of abandonment just because I think there's some general literature out there for people who don't understand the oil and gas industry that find the word abandonment has negative connotation. So we'll use decommissioning, and we've had some tremendous success with customers, and I think it's not news that a lot of this has been in the media about producers being under pressure to clean up their wells and get going, and I think Tryton is a company of choice for decommissioning work for some very large and influential companies. So that's been fantastic. The U.S., as I already commented, had significant revenue growth in Q4. So they've been growing, but for different reasons than the dynamics in Canada. Does that answer...
Okay. Yes. No, that's very helpful. It begs another question, though. How much of the revenue today from conventional tools you think is from abandonment or decommissioning?
That I don't know and I think we'd probably be reluctant, again, and we try to be transparent, but I think that might just be too sensitive for our operations folks to want to throw out there.
And the next question is from [ Ted Powell with Gamcap ]. I apologize, it appears he's canceled his question. So we will move on to the next question, which is from Josef Schachter with Schachter Energy Research.
You mentioned the decommissioning of wells. Can you walk through what kind of tools, what kind of services you provide there? Again, a scenario I'm not familiar with in terms of what products you do there. So just to get a feel for it in terms of being able to explain it.
Sure. So your typical -- I think the best way for me to describe is a typical vertical well. And as I talked about -- I'll go back to the days, a couple of years ago, when we had service rigs, you would typically see a well that no longer produces or is a marginal producer would have one of those horse head pump jacks sitting on it or it might just have a wellhead sitting there. And eventually, if you look sort of that's what you would see on the surface and below the surface. There's probably casing or a steel lined hole. And within the hole, there's probably some sort of pumps and rods or a downhole mechanism to lift the hydrocarbons out when it was a producer. If it's an oil well or even a gas well with water might have that. So somebody comes along probably with the service rig and lifts all that stuff out to get the downhole equipment out of there. And then what you need to do is -- what the producer needs to do is check and make sure that the casing still has integrity, meaning the steel line hole isn't corroded or rotted or cracked because that's where complaints about hydrocarbons leaking into groundwater or surface contamination can occur. So you'd have a different type of service that would pressure test the integrity of that casing. And depending on the history on the well, whether it was sour or not, how old it is, different levels of success, you may put in new casing, but that can be expensive, more likely. You come along with a plug or a tool. And if you just try to fill the hole entirely with cement to seal it off, you could imagine you could be pumping a lot of cement, that'd be expensive. So engineers would be involved. We would come along with -- I'm going to say a downhole tool or tube which basically goes partway down the wellbore, creates a seal and then the cement can be pushed in there. And depending on the status of the casing, it may be other tools used to squeeze the cement out into the formation. And then there may be something else used to create a seal closer to surface. So it's a whole series of what I'll call experimental teamwork with a variety of oilfield services to make sure that, that wellbore is completely isolated and secure as far as hydrocarbons ever coming back to surface or leaking into the ground or groundwater. And then they cut off the wellbore and the surface equipment and then I'll call the dirt people come in and make it look pretty again. That's basically the exercise, Josef.
So how much would one of these tools cost, the downhole tool, to plug the well?
I don't think the tool will be particularly expensive. It's going to be in the thousands of dollars. It's the time -- that business looked so remarkable, but for us it's the tool hands that get charged for time on location, planning. So often in our work, it's the expertise that we're sending out there and because when you're doing those abandonments, there's a lot of things that happen that are unexpected. The oil company, the value add we bring, it's got to be a company that they trust, and they basically do these wells on a large sort of batch basis. So they just send you out there almost as a subcontractor that they trust saying, I'm not sure, what you're going to encounter, get it done. Please get it done efficiently, effectively and on a timely basis and that's what we bring to the table.
So a job could be a $10,000 to $30,000, $40,000 job if it's multi-wells?
For sure.
[Operator Instructions] The next question is from [ Ted Powell with Gamcap ].
Just got a question here about -- could you give us like a little color regarding the current state of the private coil tubing operators? I know last quarter you mentioned that 3 had actually gone out of business, so equipment had left the space. Just looking for a little additional color.
Sure. You bet. Thanks for the question. So I don't know if it's helpful, but I can just for others on -- the 3 that left the space, last time we did a quarterly conference call, they were all private operators that we were familiar with. And to my knowledge from industry discussions, 2 of them were purchased and shut -- the Canadian operations were shut down. The equipment went to a Canadian fabricator for, sort of, retrofit modifications and the destination of 2 of those private operators was for the equipment to be imported into the U.S. and operated there. And the third one, similarly, Canadian operations were shut down, sent to a fabricator for retrofit and those assets were shipped to the Middle East for work in that environment. So that is the history. Since that time, I am not aware of any other coil operators on a private basis that have shut down. I can just add notionally that what we've seen from the other fractors, meaning if -- I'm sure, you read Trican and Calfrac's outlook as I did, and they both spoke positively about adding or expanding in their coil tubing operations in the last quarter. And it's probably similar to our experience that when you see financially unhealthy competitors out there, that's not good for pricing. There's too much equipment in the space. We all -- I think, most of us -- I'll speak for myself, felt it was good when they left the space. And now maybe that's creating a little more room in the first quarter for all of us. So that's where we see things. The problem that the smaller coil operators that are left, there are not a lot of those guys that have or got any substantial amount of what we referred to as deep coil or high-capacity pumping. And the complexity of that work gets higher and bigger. So these 3 that left was actually quite a good thing from our perspective because we felt they were competitors that weren't necessarily helping the strength of our sector.
Okay. And just one follow-up here, regarding the outstanding patent situation. As far as the reimbursement of legal costs, if the patent is to get squashed, any kind of range you can provide us about the amount that we're looking at potentially coming back?
Yes. We're -- I'll bounce it over to Jeff Newman, who is our -- about to be our CFO, and he's been most actively involved in the litigation and he can quote you the numbers and give you a little more background on those costs.
Ted, with respect to the patent litigation, the cost recovery is still something that until it's really decided by the courts it's a complex series of costs in terms of eligible and ineligible costs, it's not really something that I'm in a position to disclose a range at this point in time, but I think as Garnet has mentioned and we've talked about in our public materials, obviously we spent millions of dollars over the last 6 years in this litigation. So we hope to see some recovery. But again, it's really a decision that's still before the courts.
Okay, I figured it was worth a shot.
What was that, Ted? Worth a shot, sorry. We've got another -- on your question about equipment in the space, and this is something I'd like to highlight at conferences. Not so much people that have left, but just the size, the relatively small size of what we call this deep coil and pumping market. And I like to toy around the -- obviously the drilling rigs are in the hundreds and the service rigs are in the hundreds in the Canadian market. And we're constantly trying to scour between the big fracking companies and ourselves and any other privates that are out there of substance. We think there is somewhere in the neighborhood of 44 or 45 of these deep active coil units out there. So it's a pretty tight community in a pretty small market space and that's a good thing in terms of -- if the industry does turn around, it eventually has to in Canada, you could see a real tightness, which generally means price improvements for our space.
There are no further questions registered at this time. So I would like to turn the meeting back over to Ms. Perasalo.
Thank you, Alanna, and thank you, everyone, for joining us today.
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