CES Energy Solutions Corp. (CEU) Earnings Call Transcript & Summary

Hello, and welcome to the CES Energy Solutions Annual Meeting 2020. It is now my pleasure to turn today's meeting over to Mr. Matthew Bell, Director of Legal for CES Energy Solutions. The floor is yours.

Thank you for joining us today. My name is Matthew Bell, and I'm the Director of Legal for CES Energy Solutions Corp., and I will act as secretary for the meeting. Before we begin, we'd like to provide a quick overview of the Lumi virtual meeting platform. You should now see the agenda on your screen. [Operator Instructions] The voting icon will only be displayed once the polls are open. Thank you, and I will now turn it over to our Chairman, Mr. Kyle Kitagawa.

Thanks, Matt. Good morning, and welcome to the Virtual Annual General Meeting and Special Meeting of the holders of common shares of CES Energy Solutions Corp. My name is Kyle Kitagawa, and I'm the Chairman of CES Energy Solutions. For convenience, we have divided today's meeting into 2 parts, the first to deal solely with the legal requirements for the meeting. After we conclude the legal part of the meeting, Tom Simons, President and CEO, will provide a corporate update, followed by a question-and-answer session. In order to ensure that the meeting covers the required business in an efficient manner, we have prearranged with designated shareholders and proxy holders to move and to second the motions of business. I will now call to order the Annual General and Special Meeting of Shareholders of CES Energy Solutions. I will preside as Chairman of the meeting. Mr. Bell will act as secretary of the meeting and Ms. Jennifer Oliver of Computershare will act as scrutineer. The notice calling this meeting of shareholders was mailed to all shareholders in advance of the meeting and is dated May 14, 2020. I would request the secretary to keep proof of mailing of the notice of meeting, information circular and form of proxy to the registered shareholders of the corporation with the records of this meeting. The bylaws of the corporation provide that a quorum exists if holders of at least 5% of the shares entitled to be voted at the meeting are present in person or represented by proxy. It has been confirmed by the scrutineers that a quorum has been met, and 77% of the issued and outstanding common shares are being represented at this meeting. Accordingly, I declare the meeting is regularly called and properly constituted for the transaction of the business. I will now explain the voting procedures to be used at today's meeting. We have received all proxy voting results for today's resolution in advance of this meeting. Anyone in attendance today who has not yet voted and is not signed in as a guest will have an opportunity to go online in real time using the Lumi platform. Rather than hold up the business of the meeting for the final tabulation of votes cast on each motion, the Chairman will be providing interim results received from the scrutineer in advance of this meeting on each of the motions presented. The Chairman has directed that the final combined results of the advanced poll and the votes entered through the virtual platform on all motions today be included with the minutes of this meeting. These results will also be available in the report on voting results posted on SEDAR following the termination of this meeting. The polls are now open. The first item of business is the presentation of the financial statements of the corporation for the fiscal period ended December 31, 2019, and the report of the auditors thereon. Copies of the financial statements, including the report of the auditors thereon are available at this meeting and have been posted on the corporation's website and filed on SEDAR. As no action is required to be taken by the shareholders on the financial statements, I now declare the financial statements of the corporation for the fiscal period ended December 31, 2019, and the report of the auditors thereon have been received by the shareholders and submitted to this meeting. The next item of the business is to fix the number of directors to be elected at the meeting. May I please have a motion to fix the number of directors to be elected at the meeting at 6?

I so move.

I second the motion.

Thanks, [ Kate ]. Thanks, [ Celine ]. Are there any questions on this motion? Okay. Seeing none, we'll proceed to the scrutineer's report. According to the report, the results of the vote to fix the number of directors at 6 are as follows: 97.38% for, 2.62% against. I declare the motion carried. The next item of business is the election of directors. The corporation has nominated 6 directors for election and has not received any nominations from shareholders pursuant to the bylaws of the corporation. The 6 nominated directors as set out in the corporation's management information circular are Spencer Armour III, Stella Cosby, John Hooks, Phil Scherman, Tom Simons; and myself, Kyle Kitagawa. At this time, I would like to take a moment to recognize Mr. Rod Carpenter, who is not standing for reelection. Mr. Carpenter has been a member of the Board since December 2005. And on behalf of the Board, I would like to thank Rod for his service and valuable contributions to the corporation. For those not familiar, Rod was one of the founders of our Canadian fluid systems, which was one of the precursor companies to CES. Rod has been instrumental in growing CES. And on a personal note, I would appreciate -- I appreciate Rod's wise counsel and steadying influence. Rod has been a valuable member of the Board, and he has provided wisdom and counsels to both management and the Board. And the Board and management wish Rod and his family all the best in retirement. May I now have a motion from the floor to let nominees as directors of the corporation to hold office until the next election of directors or until their successors are appointed?

I so move.

I second the motion.

Thanks, [ Celine ]. Thanks, [ Kate ]. Are there any questions on this motion? Seeing none, we'll proceed the scrutineer's report. According to the report, the results are as follows: myself, 98.88% for, 1.12% withheld; Spencer Armour, 99.92% for, 0.08% withheld; Stella Cosby, 97.68% for, 2.32% withheld; John Hooks, 94.68% for, 5.32% withheld; Philip Scherman, 99.91% for, 0.09% withheld; Tom Simons, 99.95% for, 0.05% withheld. I would like to remind you that CES has a majority voting policy, requires each director nominee to receive at least 50% or more of the votes cast. I see that all the directors have received more than 50%. Therefore, I declare that the 6 nominees have been duly elected as directors of CES Energy Solutions for the upcoming year. As noted previously, the final voting results for each director will be available on SEDAR subsequent to this meeting and will be also disclosed via a press release. We'll now proceed with the ratification and approval of the amended and restated restricted share plan as described in the information circular. They have a motion to ratify and approve the restricted share unit plan as amended.

I so move.

I second the motion.

Thanks, Tony. Thanks, [ Celine ]. Are there any questions on this motion? Seeing none, we'll proceed to the scrutineer's report. According to the report, the results of the vote to ratify and approve the corporation's amended restricted share unit plan are as follows: 99.77% for, 0.23% against. I declare the motion carried. The next item of business is the approval of unallocated restricted share units under the RSU plan. May I have a motion to ratify and approve the unallocated restricted share units?

I so move.

I second the motion.

Thanks, [ Kate ]. Thanks, Tony. Are there any questions on this motion? Seeing none, we'll proceed to the scrutineer's report. According to the report, the results of the vote to approve the unallocated restricted share units under the URSU plan are as follows: 99.65% for, 0.35% against. I declare the motion carried. The next item of business is the special resolution approving the continuance of the corporation out of the jurisdiction of Canada and into the jurisdiction of Alberta. As a reminder, this is a special resolution requiring 66 2/3% of shareholders voting approval. May I have a motion to approve the continuance of the corporation?

I so move.

I second the motion.

Thanks, [ Celine ]. Thanks, Tony. Are there any questions on this motion? Seeing none, we'll proceed to the scrutineer's report. According to the report, the results of the vote to approve the unallocated restricted share units under the RSU plan are as follows: 95.5% for, 4.5% against. I declare the motion carried. The final item of business is the appointment of auditors for the corporation. May I please have a motion that Deloitte LLP, the appointed auditors of the corporation until the next annual meeting of shareholders or until a successor is appointed and that the directors of the corporation be authorized to fix their reiteration?

I so move.

I second the motion.

Thanks, [ Kate ]. Thanks, [ Celine ]. Are there any questions on this motion? Seeing none, we'll proceed to the scrutineer's report. According to the report, the results of the vote to appoint Deloitte LLP as auditors of the corporation are as follows: 99.98% for, 0.02% against. I declare the motion carried. As there are no further scheduled businesses to be brought before the meeting, this will serve as a 1-minute warning prior to the polls being closed. If you're voting though the virtual platform, please ensure that your votes are recorded. [Voting]

The polls are now closed. Unless there is any other business to be brought forward, we will now proceed to conclude the formal portion of the meeting.

I move that the meeting be terminated.

I second the motion.

Thanks, Tony. You jumped the gun. I was supposed to say seeing none, I will now entertain a motion.

My apologies.

Thank you, [ Kate ]. Thanks, Tony. No problem. Any objections? No? Then I declare the meeting to be terminated. Tom Simons will now proceed with the presentation portion of the meeting and provide a corporate update. Thank you all for attending.

Thank you, Kyle. This is Tom Simons, CEO and one of the founders of the company. Off the top, on behalf of management, I'd like to thank Rod Carpenter for trusting Ken Zinger and I with his business 15-plus years ago. Ken Zandee and Rod had a fabulous business that was very successful in the Saskatchewan Bakken in the heavy oil, coal recovery market and SAGD market. And Ken Zinger and I put the business together with Rod and Ken and have managed to go into the States, managed to diversify the business, vertically integrate the business, and we've made people a little money along the way. So Rod, it's been a pleasure. We're grateful you trusted us, and we think that we've got a very strong team going forward with your old business. I'll start now on the presentation. For anybody who's looking online, there are slides, and I'll try to reference the page number as I work through it. This will be pretty succinct. So CES is sort of a house of brands. We've got a very decentralized model deliberately. We're copying what we think are our best customers' ways of managing their assets by solving problems and making decisions at the rig, at the frac spread, at the wellhead or in the field for the pipeline. So we've positioned our business to have AES be drilling fluids in the U.S., Jacam Catalyst be production chemicals. Canadian Energy Solutions is the mud business in Canada. PureChem is our production chemical business and so on. We run 9 P&LS, roll them up every month, try and ensure that we print a block number. We have become, in the 15 or 16 years we've been public, Ken started and I started this privately, one of the leading providers in North America on land of chemistry, polymers, finished minerals to be used for drilling wells, for fracking them, for treating your pipelines and for treating tanks. We're very pleased that we've got to fairly equal contributions from the more recurring part of the industry, the production pipeline tank trading compared with the upstream part, which is drilling and completions. Our trailing 12 months revenue is CAD 1.3 billion, and that's 70% occurring in the U.S. and 30% in Canada. In the U.S., we are in the markets that when oil is not negative, which we don't believe can go on forever, that we're in the right place to work with the customers that can make money from oil at $50. So the Permian, the Eagle Ford, the Bakken, Scoop and Stack in Oklahoma and in the Northeast U.S., the gas market -- although that gas market in time probably gets pressured again as bypass or associated gas comes with oil production in the Permian rising in the future. In Canada, we've kind of run the table on our drilling business and are starting to see a lot more new traction in our PureChem or chemical business in Canada. We service the oil sands. I want to note to generalists that don't follow energy that might be on today's call, I think that it was a good piece of politics and business, the Keystone announcement. Pretty tough to shut a project now that the State Department in the U.S. says won't contribute to climate change and had met 10 or 15 years of hurdles put in front of it. Tough to shut that down and all the jobs it creates when half of society that doesn't work for the government has to stay home and hope they have a job in the sense. That pipeline will allow the oil sands to grow. We will grow with it, running mud for SAGD wells and then treating that production after. And even a generalist can imagine, if you inject steam into the ground to flow very thick oil through metal, creating scale, creating corrosion, you create H2S in these formations, kind of all the things that happen for people in farmhouses with water wells, except that the volumes are industrial in nature, and the solutions are highly complex. The Montney and the Duvernay and generally the Deep Basin are the other place that we do very well in. Together, we have about 40% of the drilling market in Canada. And over time, under Ken's leadership of all of our Canadian operations, hope to grow PureChem into the double digits for market share. I'll go to the next page on the slide. What we have done in response to COVID and then a collapse in oil and now gas prices, the possibility that storage was going to be shut in. We have reduced head count. Hopefully, without reducing how we run safety for the business, including our response to COVID. We've rolled back compensation for people that are here. We are rationalizing distribution and logistics assets to drive the cost of the business as low as we can. We're closely monitoring liquidity. I personally was on the window ledge when it looked like storage would fill and I thought good people at good businesses and oil companies may have to choose whether they pay their vendors or go broke. The industry avoided that. And I think the CEOs of the big U.S. oil companies were right that the industry would respond and not let that happen and the free enterprise, in fact, does work. We have been able to generate a lot of working capital harvest to the point where now the line last week was down to CAD 20 million and coming down every day. We're carefully watching how we will allocate capital inside the business. We've been very focused on that for the last 2 years, as people know. In '19, we cut our operating line in half by shrinking working capital required for the business from about 35 cents on the dollar to 30 and by getting -- and that happened in a combination of ways: using machine learning to do better estimates of required inventory at drilling locations and to get invoices out faster. Coming out of this, we will build a cash war chest. We will decide how to allocate that in the way that we think increases value for the long term the best. Specifically, that would be either buying bonds at the right price and canceling them and relieving the business of their interest obligation. It could include buying shares at these low prices. The cash flow yield on the share price is 20%, 25% and getting higher. So we could create value that way. And then maybe the most boring but best thing is we could put it into some inventory when the industry recovers. We've got very good analytics on working capital needs as the business recovers. So if AES, our mud business in the U.S. that supplies drilling chemicals -- today, they've got 38 jobs running. If they go to 100, we're going to need inventory on the ground. We are heavy on oil-based mud inventory, which could be as much as half of inventory for drilling fluid businesses. So the ramp-up may be a little less as a percentage on the dollar, but it's fair to say we need about 30 cents on the dollar as the spring gets reloaded and then goes. And our view is we'll know when that's coming, when people's freedom to move around is restored because politicians and health care workers think it will be safe for us to do that. Until then, we'll bump along and try to not lose much, maybe breakeven, maybe make a snick through this. I'll go on to the next slide. It's just a map showing where we do business. Rod, this is something you and Zandee and Zinger and I are awfully proud of. We started this place with an old chicken coop in Southeast Saskatchewan as our only warehouse and bought everything from wholesalers 5 minutes before the rig moved when we put the businesses together. We -- in the first year of business, we did $60 million of sales and made 10 of EBITDA. We've approximately 17x the EBITDA and taken top line to $1.3 billion by doing what's on Page 5. We've expanded into the U.S. through M&A and then left the people who created the value in those businesses. We left them in charge. And then we kind of doubled down on that by keeping those brands. And so those brands that you see on the right on that slide, that's what the customer recognizes. And the key employees have emotional connection, hopefully, to that brand because it's treated them well so they can look after their family. So in Kansas, right in the middle of the U.S., 80-acre facility with rail siding. We bring in commodity chemicals. We react them into intermediates and then go to work formulating those for finished products for our 5 end markets. So upstream oil and gas production, pipelines oil and gas, a little bit of stimulation business as well as just fracs. And then a small percentage of the business is supplying industrial and cosmetics. And that's a part of the business that we like a lot because it's low volume, high margin. And we aim to grow that over time. You can see that we're all over Texas in the right markets. We're in the right markets in Canada for LNG, for expanded heavy oil or oil sands production that can go through Keystone or if it happens, Trans Mountain. On to Page 6. Just something for people to ruminate on as investors try to -- and for employees listening to this or furloughed employees we want to get back to working. The macro trends that explain how Canada got to 4 million barrels a day of oil, how the U.S. got to 13, it does use 20. It was going into this unprecedented crash, the world's largest supplier of oil. That's happened by drilling horizontal wells. 80% of the oil sands are too deep to be mined. So the operator drills well pairs, put steam in the top one, creates a chamber or envelope of heat underground, and then the bottom wellbore produces that oil. We're there to drill through that sticky sand. We're there to clean up the waste and then we're there to treat the production afterwards. So that's a place where we can do 3 pieces of business in one place. In the U.S. and in the rest of Canada, all this oil and gas has come by drilling horizontal wells that used to be the source rock but it wasn't that you could get the production out of it. Now you can fracture those wells. People call it shale, but there's lots of different types of rock that are multistage fracked. That's allowed oil and gas companies to contribute to our countries having energy security and safety. For us, it's taken what we do from being in drilling 2% to 5% of an AFE or cost to drill a well to 5% to 10%. And in production treating, as the wells are longer and horizontal, treating is continuous versus batch treatments out of expensive trucks we don't want to have unless we have to. And there's more problems that have yet to be solved because they're new formations. So we treat the water. It comes with the oil and gas. We treat it continuously with equipment on surface instead of expensive trucks we supply. Last I read, 55% of the U.S.' oil production was 14 months or newer. That tells me that when society resumes consuming oil at its normal pace, the declines are going to have hit. And I believe there'll be a spike in drilling, particularly in the U.S. and possibly even in Canada, to replace what's declined and not been replaced because there's no rigs running today. And then we draw your attention to the slide on the bottom of the page. Water production as it grows in the well, actually causes more problems. It's a bit of a financial juggling act in the field. But technically, we consume more chemistry to prevent failure to the metal in the hole or cause formation damage in the rock. I'll now go on to Page 7. We're very proud of this. A couple of years ago, we made a pretty strategic and long-term effort in here quietly to not just work for all the results-based independents. Our biggest customer is EOG. That's disclosed. We work for EOG because they're results based. They've helped form our culture. We work for Tourmaline and Seven Gens in Canada and CNRL. They're results based. So it's helped form our culture. You need to be a mirror image of your customer as close to the wellhead or rig as you can. It's why we have different brands. But then share a common manufacturing base, logistics base, back into the business, safety, creates many efficiencies to allow us to make more money as a percentage than smaller competitors on the same amount of revenue. Over the last couple of years, we've successfully gone into 3 of the super majors. It is the 3 that are active on land in North America. We're active for them on the upstream side and a little bit on the production side. As they grow their North American production, we will grow with them. We're seeing opportunities through COVID because competitors are going away. And particularly competitors that were working at uneconomic rates, this is breaking them. We do assert that, that's one of the unique attributes of our business, is that for many service companies, that's growing the ability to service the debt is shrinking, our debt is shrinking, and we'll build enough cash to get through a year with our lenders and being able to meet with cash, our bond obligations and have flexibility with our line if the oil depression takes more than a year to go away. I'll do some financial highlights, and then I'm actually going to turn the last one over to Tony to give you the most thorough explanation. We've got 12 months of trailing results at CAD 1.3 billion, 70-30 U.S.-Canada. That total indebtedness number on the slide, a lot of that is actually inventory and AR. And as you may imagine, if the rates don't work, as long as you get paid on the wells you just did, you can shrink inventory until you have a line of sight they're going to go back to work and collect on the receivable. We have this as a private business. We were in a race to get to Phoenix every breakup in Canada because there will be nothing to do except collect receivables and plan to go back for 9 months of hard work from July to the next April. That's allowed this business to become a cash flow generating machine that plays energy that's available to institutional and private investors. That's why Rod came in with us on this. In the history of the business, we paid out CAD 330 million to unit or shareholders. We have canceled $9 million of our outstanding bond. We have built $360 million of property, plant and equipment, which is a long ways from a chicken coop in Carlyle. That $360 million is only about half utilized at the manufacturing level. So our message is we have the bones to go to $2 billion in revenue without blowing our brains out on CapEx to be able to make it and then drive it. And a lot of our assets are rolling stock or trucks. We make stuff in centralized places and push it out to the field through infrastructure we control and then ideally, get sales out of that infrastructure multiple times for the same location. Our market share for Canadian drilling fluids, today, is around 40%. And we came up a lot in the first quarter, which was a banner quarter for the company, we did CAD 51 million of EBITDA adjusted in the quarter. We're up to 15% market share in the U.S. We've went past the big independents that are results focused. And the nuance is that Shell, Chevron and Exxon are building shale teams that are decentralized from what works for them in offshore or in the international market and allowing their people to pick best-in-class rather than one bundled service from 1 of the big 3 integrated service companies. So we went up by being better and allowing overall the well to cost less by actually running more technical drilling fluids and driving days down on wells, which is where the real spend is. We've also got information there that shows our treatment points. There's a bit of a nuance in that in that you might treat a well twice a month with an expensive truck. And in isolation, that's probably not an economic business transaction. But you treat the old verticals to get the new horizontals. So the 55% of the oil production in the states, that's horizontal and new, that's what we want. To get it and get more of it, we need to have these treater trucks for vertical wells. So treatment points can be continuous injection of high-volume 24/7 or it could be once or twice a month for 50 gallons of product. So it's a helpful number. It's directionally telling for investors or for ourselves, but the prize is the oil sands horizontal market. The prize is the horizontal shale markets in the Delaware Basin, in the Eagle Ford, in the next to-be-discovered big oil play. And I'll highlight that lease in earnest by adding volume at the super majors, by rationalizing activities inside the business, consolidating management in Canada of drilling and production through focus on working capital, both on the ground and coordinated within town, with machine learning to track and prove to customers that we had too much product on location for contingent problems, that combination helped us get EBITDA closer to 15% as a company in the first quarter. We had been up since '14 when things crashed. We will continue to aim to try to get the businesses to 15% but make -- but have no misunderstanding. At these commodity levels, even $41 for oil, the industry isn't very economic. So we will need for oil to get to $50, we will need for it not to be a false start. Rigs will go back to work, uncompleted wells will get completed, shut-in production will come back on. And we believe we will be able to, in a lot of cases, go from COVID pricing to not COVID pricing and get volumes and margins back up. But our objective right now is to survive so that the people on this call that are our business partners as shareholders or bondholders that we all benefit together by being here for the recovery and then riding that wave as long as it lasts. I'm going to ask Tony to go through the last slide, and then I'll make a couple of closing comments and offer to take questions from callers. I gave you the slide earlier than I said, Tony. Sorry, I'm catching you flat footed.

So yes. So we're on Slide #9 that really from a financial perspective, summarizes a lot of the attributes of the company and the business model that Tom and Ken and the team has built. We are CapEx light and asset light, and the proof is really in the pudding. When you take a look at how the company has been able to maintain a strong balance sheet throughout this cycle, we said as we got into this downturn that we were going to continue to focus on cash. Cash is king, cash flow is king at CES. And the team demonstrated that back in the last downturn in 2015, '16, where we went from being drawn on the line to going into a cash position. The other thing that I would say is I remind everybody that from 2018 to '19, although our revenue stayed relatively flat at $1.3 billion, the team in Calgary and in each of the divisions focused on working capital and cash and actually harvested $55 million of working capital through that period. And why that's important is that helped put our balance sheet in a very strong position as we got into the downturn that we're in right now. And more importantly, it demonstrated what the culture and the team is able to do. And as a result, we feel very strongly that we're going to continue to harvest working capital. We are just over $90 million drawn on the line at the end of Q1. And as Tom mentioned, we were at $20 million last week, and that's going down by the day. And we believe that we're going to be in a very strong position on the balance sheet as we go forward through the month and through the quarter. And that will give us the flexibility that Tom alluded to, to allocate our available capital in the most prudent way possible. So very comfortable with our financial profile, even more so the culture that we have that's focused on these very important financial attributes that give us a significant competitive advantage versus a lot of other peers and other companies in the sector that are hamstrung from a capital structure perspective. So moving on to Page 10. The financial metrics and capital markets metrics are here to demonstrate what I was referring to. Our share price has languished just like everybody else's as the oil price collapsed and demand for energy collapsed during the COVID crisis. We, similar to and maybe a little bit more so than others, have started picking up a bit on the equity side. However, I would really like to draw your attention to where we are from a debt perspective. As mentioned, credit facility was at $20 million. It's lower than that and continues to go lower every day, every week. We did what Tom alluded to earlier in November. We took advantage of our liquidity and our ability to go into the market to buy back some bonds. We bought $9 million of bonds in November of last year, that's 94.5, extinguishing some debt and taking advantage of the interest rate arbitrage between our 6 3/8% on the senior notes and our line, closer to 3%. And we actually did that again more recently. We will continue to pick up 1s and 2s as we feel is the right opportunity. And also related to the line of the fact that we have significantly ample liquidity available to us, our senior credit facility size is CAD 240 equivalent. And we have over $220 million available on that. And that's the big, big cushion that we're going to be able to draw on as we wind back up the business and look to invest in inventory and other areas of capital allocation. So very comfortable with our leverage metrics, very comfortable with our liquidity. And a lot of what I said has been endorsed by not only the research equity analysts but also the very detailed credit rating agencies. S&P reaffirmed our B flat rating about a month ago, and I believe DBRS is working on their update as we speak. And you can see how that results in terms of the price performances not only of our stock but also of our bonds, which we feel in this environment is even more important classification of what -- how the company is doing. Our bonds are trading in the mid- to high 80s, where most of the bonds of our peers are trading in the 30s, 40s and 50s, and we're very proud of that. And the other big, big thing that's important to us that should be important to all stakeholders, whether they're equity investors, debt investors, customers, suppliers and most importantly, employees. We have a very enviable maturity schedule where our credit facility doesn't mature until September of 2022. And our $290 million principal remaining on our high-yield bonds doesn't mature until October 2024. So that's us from a capital market snapshot. At this point, I'd like to turn it back over to Tom.

Sure. So I'll remind everyone, we are going to open the floor up to any questions. Ordinarily, this is a room in Calgary packed to the rafters. So what we're doing is management and the Board and key employees in this business is we're trying to preserve our culture and ability to be better than our competitors through COVID and very importantly, after COVID. So through this, if we keep our people, if we maintain our assets and very importantly, as we keep access to capital to buy inventory and carry some receivables as the industry picks back up, we think we'll have walked that fine line very well. I will say that we've had to furlough and lay off a lot of great employees. We hope to have some of those people or a lot of those people come back. We are maintaining the key people that the customer has a deep relationship of trust with. We're maintaining our top professionals to maximize the contribution of the business from the back end. We are maintaining our scientists, our reaction facilities, blending facilities, the people that can problem solve in proposals. We're keeping that so that the customer can count on us to solve their problems. And as they bring wells back on, then they complete the existing docks or uncompleted wells and then put rigs back to work, and I think that will be the cadence. We want to be along for the ride. So we think if we save our culture, our assets, our brand, we can join with our customers that are creditworthy and resume supplying the world with energy from North America. With that, I'll turn the presentation over to any questions.

Thanks, Tom. Thanks, Tony. [Operator Instructions] We'll leave the question period here open for about a minute or so to see if there's any questions and to allow you to type those in. We have one question, and it is what do you think a recovery looks like.

Thank you, Matt, and to the caller who sent in the question. We think a recovery for the U.S., for us, looks like us running around 100 drilling fluid jobs in the U.S. That number might be conservative. We were well above that for a little bit of Q4 and most of Q1 because we've added some of the super majors on the producer side as customers. So we've kept the independence and added the big guys. 50 jobs in Canada annualized would be, I think, successful. Keystone will play a part of that, Trans Mountain will play a part of that and LNG will play a huge part of that. And all of those things are interconnected from diluent or condensate that comes from these gas wells that helps move the oil sands down pipelines to shipping natural gas offshore in B.C. We see a recovery, having less competitors in the drilling space. We see on the production side, we think, some competitors that are highly centralized are either overdiscounting through COVID or underdiscounting through COVID. And because we are actually in front of the customer as leaders of the business all the time, we kind of know where to ring the bell. And we obviously can't subsidize or carry the oil producers and gas producers in North America. But when they're not making money, those service companies don't make money. That's just basically how it goes. You adjust to market pricing, keep your customers, keep the customers that pay. And as they bring production back on and then look to grow because it's economic, we'll be their silent partner in that. So I think a recovery that doesn't take a big rig count in the U.S., we could have 100 on 500. We could have 100 on 600. So whatever the analysts' kind of macros are, the banks, you can plug your numbers into that. And there'll be times where we'd be way over 50 in Canada as it's seasonal. I'd call that a kind of a nice outcome annualized. And as LNG comes on and if the oil sands has access to capital and the big producers do just through cash flow, and we work for those customers, I think you'll see oil production from Canada go well past the 4 million barrels. And I think in time, the U.S. can go over 13, and they're going to replace old vertical production with new horizontals that are 5, 10x better for us than an old vertical. So that's why we're fighting hard to save the business through this because we see a run coming for everyone that owns part of this place.

Thanks, Tom. We do not have any other questions. So I turn it over to you for closing.

Well, we'll conclude this year's AGM. We're hopeful that next year, we're all shoulder to shoulder in a meeting room in Calgary or Houston. We want to thank our employees for their patience as we work through this with their ability, in many cases, for them to work from home. We're really thankful of the field people that are still out there making it happen, and we'll keep our shareholders and bondholders updated as much as people want to talk to us or where notes come out from conferences. This business is going to pay out its line, and it's going to deploy the cash in a sensible way. So undervalued bonds or shares or put the money in the inventory. But we don't have to save it all for inventory because we've got such liquidity by paying the line out. With that, we're going to call it a day. Thank you.

This concludes the meeting. You may now disconnect.