Welcome to the CES Energy Solutions Corp. First Quarter 2020 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Tony Aulicino, Chief Financial Officer. Please go ahead.

Thank you, Steve. And good morning, everyone, and thank you for attending today's call. I'd like to note that in our commentary today, there will be forward-looking financial information, and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our first quarter MD&A and press release both dated May 14, 2020, and in our Annual Information Form dated March 12, 2020. In addition, certain financial measures that we will refer to today are not recognized under current general accepted accounting policies. And for a description and definition of these, please see our first quarter MD&A. At this time, I'd like to turn the call over to Tom Simons, our President and CEO.

Good morning. Thank you, Tony, and thank you to everyone for phoning into today's call. On today's CES quarterly call, we're going to provide an update on the company's plan to survive COVID and the resulting oil collapse. I will give a succinct operations overview of Q1. We grew our market position in all four major parts of the business in the quarter: so U.S. drilling fluids, U.S. production chemicals, Canadian drilling fluids, Canadian production chemicals. While we're not going to dwell on Q1 a lot since the world has changed since then, we would suggest the Q1 results show CES' potential when the world resumes post-COVID life and energy demand increases. Tony is going to talk about financial results for the quarter, including some write-downs. He’ll also provide details and historical context of our counter-cycle working capital recovery, which has now begun. We will outline our strategy and goals during the crisis and downturn. We will provide our outlook on what the company could look like on the other side of this. So we're going to talk about how and why we will survive. We'll talk about what we could look like in a recovery. We'll then take questions and provide a short summary and wrap up the call. So I'll start with a short ops overview for the quarter. And I'm going to go a little out of cadence and say that in light of the great Keystone pipeline news, we're going to begin with Canada. Canadian drilling fluids had an excellent quarter. We averaged 84.5 jobs through the quarter, going to 50 in March. So January, February in a normal market for Canada, we were kicking some butt. Our customer mix expanded. Our well types were deep long-reach hot horizontals. It included in the quarter work in Canada for three of the super majors. Our unique expertise, utilizing brines, lower costs, better performing oil based muds, blended with superior execution and service, add up to a dominating position in the deep long-reach Canadian drilling fluid market. We also are very dominant in the SAGD market because of technology history and strong relationships of trust. In the Canadian chemical market, we continue to make financial and operational gains through the quarter. PureChem our Canadian production chemical business we started from scratch a decade ago, has been reborn over the last year. We're proud of expansion across the basin, in the deep hot long-reach horizontals and growth in the SAGD which we believe will pay the company on the other side of this crash. Our people, our products, our strategic infrastructure at PureChem now have, pardon the pun, tremendous chemistry. StimWrx and Sialco in Canada had great first quarters. I'll remind listeners StimWrx is a niche stimulation chemical line we operate with rehab old wells to make them economic versus being an abandoned in liability. Sialco is our reaction chemistry business in Vancouver. Mike and his team gives CES supply chain strength in Canada, new technology across the platform of the company and some diversification outside of energy. Clear continues to keep its nose above water as our environmental services business line, and we may get some traction with the two Canadian government programs to abandon old wells. I will now move into the U.S. where two-thirds of our revenue happened in the quarter. Pretty equal contributions, again, from drilling fluids and production chemicals. Vern and Richard are having a good race. AES our U.S. drilling fluid business line ran an average of 114 jobs through the quarter. We expanded our customer list into super majors again in the U.S. and particularly in markets where drilling is trickier, which is part of why we got hired. The better the drilling fluids perform in a tough drilling environment, the easier and more cost effective overall drilling goes. So we've expanded in the places that are tougher to drill, which makes the work yet more defensible and easier to keep long-term. As it became clear in March, that a steep drop in activity was about to happen, we expanded liquid mud storage in the Permian to accommodate returns from rigs that we knew were about to be released. Today, AES is pleased to be running 49 drilling fluid jobs in the U.S. and we won some new customers during the crash. I can emphasize the importance of having an outlet for the liquid mud inventory that you've built to support the 114 jobs over the first quarter, having 40% of that, being able to recycle and reuse that inventory is very helpful to the business today. Our U.S. production chemicals, JACAM and Catalyst, Q1 was another steady quarter in the first couple of months of the quarter in January and February. But like all of industry we saw changes start to happen in March. JACAM, Catalyst grew treatment points through the quarter and today is pleased to report that we're actually responsible for more wells now than before the crash. We've been able to work with customers on price as they manage their vendors and what to shut-in in the U.S. versus leaving producing. This will serve us later very well. StimWrx, the niche stimulation business continues with this expansion in the U.S. And I'm pleased to report contributed positive financially through the quarter, while barely in its infancy for growth in that huge market. So I'll move on to the important part of the call. How are we going to get through this and what will we look like on the other side? We've made significant cost reductions in the business to the tune of $70 million or $80 million annualized. For competitive reasons and out of respect to the good people and the families that we've either had to release or furlough, or go to job sharing or cost or pay reductions, we're not going to provide headcount numbers, and we're not giving that entailed to competition. But we want to assure listeners that we're going to do everything that's possible to get the business through this financially, while retaining the ability to do more true levels of work once the world goes back to consuming energy. Today, we have enough business going in Canada and the U.S., not to be swimming in inventory for growing our customer base through the crash. I'll reemphasize, we have more wells we are responsible for today in the U.S. than before the crash. We've been able to offer concessions and service, and technical solutions that the competition can offer and have won work when all the operators are looking to spend a little or no money. We're going to retain our people. We're going to maintain our assets. We're going to maintain our capabilities to grow in a recovery. During the crisis, our objectives are to pay out our line with our working capital harvest; to build a cash work war chest; to watch for obvious indicators of a recovery, which unlike other energy crashes, we're actually going to know when it's going to get better because we believe it gets better months after society resumes using energy. We obviously are aware that there's going to be an overhang of oil supply for the world to work off. But there will be an indicator, unlike the previous crashes that this management team has got this company through. We're going to be very mindful with the war chest that we're going to build through working capital harvest. And we're going to as management and Board watch for the best way to create long-term value for shareholders. So that could include deploying money to inventory next year in a recovery. It could include buying under priced bonds, it could include buying shares. But today, cash is king. We'll pay down. We'll pay out the line. We'll build cash, and we will sustain the business and service the bond. We think on the other side of this, we can be the preeminent mud company or drilling fluids company in North America. In Canada, we are by far number one at 30% to 40% of the market, with competition falling away through this crash. In the U.S., we are number two, and we believe based on the infrastructure, new business we won, technology we can offer the competition doesn't have, the balance sheet of the business that we're going to go to number one on the other side of this thing. Chemicals: We have the capability to thrive in a new North American production market, and I think this is a nuance that is important for people to know. There's lots of speculation of what will stay shut-in and what will be brought back on by our customers. And whether those reservoirs will be impaired, whether the physical equipment, the pumps, the pipe in the hole will be damaged from corrosion, from scale deposition, how that will affect the ultimate recovery, and when these wells come on. But what history has shown, and anecdotally, what we're hearing from customers, is that likely how this unfolds to some degree is that most of the shut-ins are verticals. And the ones that stay shut-in forever, they will be the verticals. Those are the wells that the chemical companies use treater trucks to sustain the chemistry, those trucks are expensive. Our CapEx annually, most of it goes to rolling stock or those trucks. We need to get them on the road to treat these verticals that actually aren't that economic for the chemical company. But what is economic is the horizontal well decided that has continuous injection of chemicals that happened with equipment at the wellhead, the chemical company's role is to drop the product, monitor the performance down hole, monitor water conditions, metal conditions in the hole and production conditions. Those horizontal wells, in our estimation are the ones that will either be left on or come back in a recovery versus the verticals. So for the entire chemical industry, we could be looking at a scenario in a couple of years, where more of your work is continuous injection into big horizontals and less of it is all vertical wells that are high in capital needs. So, that nuance is important for us to know about the plan for, to capitalize on and then benefit our shareholders in time. We think in a normalized market, CES can resume generating free cash flow. We think between now and then we'll have reduced debt and we'll be looking for ways to reduce the share count and other ways to enrich our shareholders. I'll now turn it over to Tony for a financial update. Then we'll take some questions and I'll give a quick summary.

Thanks a lot, Tom. As Tom mentioned, our Q1 results demonstrate the company's true potential in normal markets. CES illustrated its ability to capitalize on existing infrastructure and grow market share in key end markets, improve adjusted EBITDAC margins and generate significant free cash flow. Although our strong January and February results were negatively impacted by COVID-19 related developments in March, we were still able to generate near record financial results. During the quarter CES generated revenue of $349 million and adjusted EBITDAC of $51.1 million, representing a 14.6% margin compared to 12.6% last quarter and an average of 13.1% during 2019. Revenue generated in the U.S. was $228 million representing 65% of total revenue for the company. We experienced record drilling fluids market share in the quarter at 15%, up from 13% in Q4, despite deteriorating drilling counts, especially experienced towards the end of the quarter. Production chemical activities also increased over prior year primarily in the Permian and Rocky Mountain regions. Canadian revenue of $121 million or 35% of total revenue for the quarter represented an increase of 12% year-over-year. This increase was primarily related to the strong drilling activity in the first two months of the year and continued operational and financial strength in PureChem’s production chemicals business. As Tom mentioned, in light of the deteriorating industry conditions and low price environment realized toward the end of the quarter, we recorded the following non-recurring items: an $11.1 million of non-cash write-down of certain petroleum based inventory products to net realizable value, driven by the significant decline in the price of oil, resulting in an associated increase to cost of sales; a $1.1 million increase to bad debt allowances driven by increased uncertainty around some collections; and a $0.7 million restructuring charge for the right-sizing initiatives that were executed in March. Further, in the quarter, we recorded a goodwill impairment charge of $249 million in our two cash generating units as our IFRS impairment analysis, which was based on significantly severely depressed market conditions, indicated that the recoverable amount of the net assets for each CGU did not exceed their respective carrying values. In Q1 2020, CapEx spend was $12.4 million or 3.5% of revenue. With infrastructure build out largely complete and given the current environment, we have suspended non-essential CapEx and reduced our 2020 CapEx estimate from $50 million to up to $30 million comprised of approximately$20 million for maintenance contracts, and $10 million for expansionary projects that are either considered essential or were previously committed to. CES exited the first quarter with total debt of $426.6 million, a slight increase from December 31st, primarily as a result of working capital build to support higher drilling activity levels in the quarter, and the strong U.S. dollar. Total debt to adjusted EBITDAC at the end of March was 2.4 times consistent with levels seen at year end. CES is focused on financial attributes such as balance sheet management, working capital optimization and prudent capital allocation, have resulted in a relatively strong financial position as we withstand current industry conditions with an aim to preserve our industry leading position to benefit from an eventual stabilization and improvement in end markets. Our balance sheet has benefited from prudent structuring and maturity schedules of our credit facility and our senior notes. Total debt at the end of Q1 2020 was primarily comprised of the draw on our senior facility, and the outstanding principal on our senior notes. As at March 31, 2020, we had net draw of $92.9 million on our senior facility, which does not mature until September 2022. And currently, that net draw is closer to $75 million as the working capital harvest has already begun at the company. The maximum draw on our senior facility is approximately CAD250 million equivalent, providing us with approximately $165 million in availability today. As at March 31, 2020, we had $291 million in senior notes outstanding at a 6.375% coupon, which do not mature until October 2024. From a covenant perspective, while our senior notes are coming covenant-light, we are subject to two financial covenants on our senior facility. Our senior debt to EBITDAC maximum covenant is 2.5 times for which we are currently below 0.8 times. And as mentioned and experienced before, we expect the drawn on that senior facility to decline as working capital harvest continues. Our interest coverage minimum covenant is 2.5 times for which we are at 6.5 times at March 31, 2020. Furthermore, our existing senior facility already provides us with an optional step down to 1.5 times if we need it for up to three consecutive quarters, subject to an asset coverage test. In summary, we feel very confident in our current strong financial position, our ample liquidity and our covenant considerations. Our focused on company-wide working capital optimization resulted in additional free cash flow surplus during 2019 despite flat revenue. And we expect our working capital discipline, counter-cyclical balance sheet and declining activity levels to result in significant working capital harvest in 2020. For reference, during the last downturn from 2015 to 2016, we experienced a significant working capital recovery as activity levels fell and our counter-cyclical balance sheet significantly minimized liquidity concerns that we were facing most of the oil and gas industry at the time. From Q4 2014 to Q2 2016 CES saw a reduction in working capital surplus of $152.7 million, which allowed us to fully repay our outstanding senior facility and grow cash balances to over $110 million as of June 30, 2016. In 2020, we expect to harvest a significant amount of working capital once again and that's already begun, which we believe will allow us to potentially pay down our line and reduce total leverage. We continually monitor our capital allocation options in the context of market conditions, outlook and the levels of our surplus free cash flow generation. In Q1 2020, we needed difficult yet calculated decision to reduce our dividend. And as industry conditions continued to worsen, we announced that our monthly dividend was suspended on April 16, 2020. This decision will conserve approximately $16 million in cash on an annualized basis in Q2 -- sorry in Q1 2020, we also spent $4.8 million under our NCIB program and repurchased 2.3 million shares at an average cost of $2.07 per share, that repurchase representing approximately 1% of our shares outstanding. We will continue to assess share buybacks and bond repurchases in the context of our assessment and market conditions and certainty around our surplus free cash flow levels. We expect both repurchase programs to be muted until we have a better grasp of stability and recovery of our end markets. We remain responsibly cautious on our outlook for 2020 and beyond in this low price environment. However, we came into this downturn from a position of strength with an excellent first quarter and a strong balance sheet. In addition to the dividend and NCIB suspension, we've proactively implemented right-sizing measures including reductions to executive and Board of Directors compensation levels, reductions in personnel and overhead costs, and elimination of non-essential CapEx. Our goal in this downturn from a financial perspective is to preserve balance sheet -- very strong balance sheet and to optimize our industry leading operations and employee base to weather the downturn and maximize our potential for when industry conditions improve. We remain committed to the safety of our employees, support of our customers, defense of our strong financial position and preservation of shareholder value. Operator, at this time, I'd like to turn the call over to you to allow us to take any questions.

We will now begin the question-and-answer session. [Operator instructions]. The first question comes from Aaron MacNeil with TD Securities. Please go ahead.

From the prepared remarks, it seems like one of the themes of the quarter was, you picked-up you revenue customers across different business lines. I think you called out Canadian growing fluids and JACAM, Catalyst specifically. You also had some pretty strong margins. So, it doesn't seem like you got there on price. But you also mentioned that you're working with your customers to keep some of that work. So, a couple questions on that. First, I guess, some of the pricing concessions that you made, is that more of a Q2 impact and can you give us a sense of magnitude? And then second, sort of you’ve been successful in retaining some of the new customers you picked up in Q1 as activity has fallen away and wells are starting to be shut-in?

So Tony and I are from the same physical place. So as we answer the questions we might talk over a little to start, guys. Not unlike ‘15, ‘16 Aaron, 5%, 10% discounts on certain types of work and product, they might be more than that. The customers and vendors are pretty rehearsed on how fast this can change. As everyone on this call knows, it is social convention in the oilfield to renegotiate price every time oil drops, and then the service companies fight to get up back in the recovery. I can report that we've added customers since the crash began. And some of the new customers that include both drilling fluids and production chemicals, that we have retained those and actually increased our position, particularly with one of them as things have gone down there. We have 49 jobs running in the States today and seven in Canada for drilling. We can squeak by at that and probably not print red ink. And importantly, not be swimming in inventory of liquid mud, will shrink dry goods and all the consumables as we ought to. And that's why the working capital harvest happens as everyone understands. But yes, we've done -- we've been able to grow the business in terms of customer list. And while a lot of the new work is shut in the replaced competition in the production business in the U.S. Because we moved quicker, we could give them ideas that were different. And because of being a basic manufacturer, we have a little more room on the price side than all the blenders, which is what all the mom and pops are a private equity guys. So really it's Baker, Nalco and us that can get serious with the customer. It allows you to retain the relationship and all the hard work you did in the past. And then when they go back to making money, the suppliers go back to making money. That's how I would summarize all of this. The vendors can't make much and hopefully not lose too much when all the customers are losing and when the worm turns, we need to go with them.

On PureChem specifically, I suspect that some of the strong margins on a consolidated basis this quarter were a function of improvements there. So I guess I'm wondering if you'd take a balance of all the headwinds coming your way in that business versus all the operations improvements that you've made. How should we think about margins for that business in Q1 and then going forward?

In Q1, they were no longer a drag on the rest of the business, which is a huge part of why overall margins have been creeping up. The other three parts of the business had to carry it and that's no longer the case. And what that's led to Aaron is also being able to be a little more competitive on price in the other three parts, which has led to growth in market share at acceptable returns, while PureChem has kind of turned itself around, and we a lot of stuff shut-in in Canada today for PureChem, but we've been awarded a lot of new business. That as the industry kind of turns things back on, it's going to be pretty good. So, we have to retain our people and retain these relationships of trust that award this work for everyone to benefit in a recovery.

Do you think that -- given the decrease in activity, do you think that PureChem could be a drag going forward on margins, or would it be accretive to margins in the near term as activity on the drilling side decreases?

I think it's too early to be really specific, but each of the markets is a little different. The Rockies is really shut in. Some people in the Permian are more shut-in than others. I think it depends what pipeline they go to, what their own capital structure and balance sheet look like. And it's the same in Canada. We don't expect PureChem to be a drag on the business, I think is the answer Aaron. And personally, I'm for the first time in a long time really happy with the politician in Canada. I think the timing of Keystone is a homerun for the country and for the Canadian oil field, it is a path to growth for the basin that didn't exist before. And we think money will come back into the basin because of that despite Ottawa. And so that gives -- that emboldens me for PureChem a lot. We're going to run drilling fluids on wells, the drill for gas and condensate. We're going to have growth in the oil sands in the future. We're going to benefit when they drill those wells, we're going to be benefited from the deep work that use -- uses the conde to get the oil sands south. And we're going to treat a bunch of that oil sands production. So we like what things to look like in a couple years for Canada.

Aaron just to provide a little bit more color on one aspect of your question, which was related to the relative margin expectations of that business, perhaps versus the rest of the company. As Tom mentioned, it absolutely no longer is a drag. There's some quarters where it's close to being a leader in terms of margins. But Q2 is going to be really, really tough for the reasons that Tom mentioned. Our partners have worked very quickly to do those things as we highlighted to adjust cost structure. And Q2 will be felt by everybody. However, the two production chemicals businesse, we believe will start to outperform the drilling fluids businesses, as we get into Q3 and Q4, as these shut-in levels should start to subside. And that all seems that the rig counts stay at depressed levels, because as soon as those starts coming up, so too well the contributions and the margins in the drilling fluids business. But in the near term based on the limited visibility that we have, I think it's right to ascertain that the margins will be more leaders in the production chemicals businesses, both in Canada and the U.S., especially as we get through Q2 into Q3 and Q4.

Understood. Last question for me. On a purely hypothetical or even anecdotal basis, is there anything missing in the portfolio that you might have your eye on from an M&A perspective. Obviously Catalyst in 2016 turned out to be a pretty big strategic win for CES. Is there anything strategic like that out there?

I'm pausing on the answer, Aaron. There's private equity production chemical companies. There's companies that supply into refining and pipelines. I'm not sure that's going to be a big focus of the business. Pretty hard to do M&A with a dollar stock. And we think we can create massive value for ourselves, I think by doing things organically. And either buying [indiscernible 40:33] bonds or low price shares instead, but we're always looking and open to things we know where we might like to be. And now we have a bigger presence in treating pipelines. The frac market is very beat up. That's a small focus for us, and refining paper-thin margins. Diversification out of energy one day, but right now our focus is batten down the hatches survive and win on the other side.

The next question comes from Greg Coleman with National Bank Financial. Please go ahead.

I just wanted to start by talking about the market share. But I know Aaron was touching on a little bit too and your wins there. The growth strategy in Q1 was going very, very well. I know it's a fluid market and an ever changing situation. But we -- should we be thinking 30% market share in Canada and 20% in the U.S. is the realm of possibility as we start looking out into 2021 or do you think this is sort of a temporary dislocation that has to do with the current situation and will sort of be reverting back to the historic norms as the cycle recovers into the following year?

Well I hope the recoveries next year, Greg. I'll maybe jump to my summary point. In a recovery we aspire to be the number one drilling fluid company in North America, we already are in Canada. We're two in the U.S., we think we're going to one. We think that because of who we're working for, where we have infrastructure, the technology that we know we have that others aren't replicating or can’t, and that we will continue to bring new solutions to new problems faster than them. And we aspire to expand our position as the number three production chemical company for North American production, which I'll emphasize, we think will predominantly be from horizontal wells or floods and recoveries that are chemical intensive. So we like the look of the recovery. Do we like to crash to create that? Not at all. But yes, I don't think 20% is out of range at all in the U.S. We kind of have to have that to be number one in North America. And we might do better than that. We have the physical infrastructure, and the horses to do that.

Got it. And my second question has to do with -- sort of a double barreled question regarding balance sheet and capital allocation and whatnot. So the first part of it is -- and Tom, I think you really addressed this in the opening comments. But I just want to hammer home. Is it fair to assume that we're going to see the sole use of capital right now as reduction in the bank line and then building your cash balance, as opposed to paying off the -- or trying to pay down the bonds, which have a higher interest rate and also trading at a discount, because to your point, cash is king? That’s sort of point number one. And then the second part of it is expectations on the senior line. Do you believe that the peak draw on the senior line is behind us, probably around that Q1 -- calendar Q1 end period and then the balance is likely to only fall from the current 75 million level based on your understanding and expectations for working capital harvest and your CapEx spend?

Greg, we're going to let Tony take this. He is actually not even allowing me to have access to the bank account these days. So we're being very conservative, and he is in charge.

Yes, thanks, Tom. Greg, Tom outlined the high level philosophy. So, basically you are right in what you said and what Tom laid out at the beginning, cash is king and we are going to use that net working capital harvest to pay down that line. And we will come up for air as, as we need to make decisions on capital allocation. What I would emphasize though is that, is your comment about whether or not the highest draw is behind us, so we're at 93 million at the end of Q4 and we're currently at 75 million. The thing of note is the fact that we went up to 95 million, 100 million, 110 million during the period between that reporting and that $75 million draw that you saw in our press release and documents yesterday. So, that draw has already started to crest and the team -- finance team, divisional controllers, divisional presidents and Tom, we are all laser focused on bringing down that AR, controlling that inventory and we're already starting to see an acceleration of the working capital harvest. So, we believe that, that draw, that significant -- more significant draw level is absolutely behind us and we're in the middle of harvesting that working capital. But we're not taking anything for granted. We continue to optimize collections, look at risk ratings of existing and potential customers and accelerate that harvest because we want to be in a position, not necessarily in six months, but probably in four to eight weeks to come up for air, take a look at what we have in the piggy bank or what we believe is coming and then act as we think is prudent.

And then one more question, last one just shifting gears to -- well, I guess you're saying working capital here for a second, but not the harvest or rather the write-down. There's a little over $11 million written down in the quarter. Just because I'm not as intimately familiar with inventory, accounting and write-downs, is that something which was largely contained to the quarter or is that something which will be occurring over the duration of the sort of challenged period here?

That's a good question, and I think you picked-up in some of your comments, in your work that it was petroleum based commodity prices, that are commodities that drove that write-down. So, we saw there at the end of the quarter took a look at what happened to WTI, looked at the petroleum based inventory that we had, which at that time was about $20 million to $25 million worth of our inventory and ended up with that $11.1 million non-cash write-down to that inventory. I think almost all of that type of write-down is behind us. There could be a little bit more like that, but will not be anywhere near that number.

The next question comes from Keith MacKey with RBC Capital Markets. Please go ahead.

Thanks for taking my question and hope everybody is doing well. I just wanted to ask, first, just if we think back to 2016 for a moment and the revenue levels that you've achieved during those times, if that were to reoccur over the next year to year and a half, would you expect to see similar margins or different margins? And if so, what would be the main contributing factors to a differential from those results in 2016?

I think I'll start off with this one, Tom. I think, Keith, it's really difficult to compare the two. And that's simply because the business has changed and evolved. Number one, we picked up Catalyst, I think it was in August -- August, September of 2016. So it didn't -- we didn't realize the full potential or the full contribution of that business i.e. production chemical related until into the following year. And as I mentioned earlier, it's something that we've avoided doing in terms of using that exact playbook from that previous downturn because it's very different. If you look at the twin black swans that happened this time with the oil price war that I believe has subsided, although that's not being appreciated yet and the bigger thing, which is a COVID related collapse in demand, which is a bigger issue. I think the big difference is the fact that we expect drilling fluid margins to stay low for longer until we see the rig activity come back up. The big delta right now is the fact that we never saw the level of shut-ins that we're experiencing right now and believe we're going to experience for the better part of the next 4 to 8 weeks. And the corollary with that is -- and again, to address your specific margin question, we expect the production chemicals businesses to pull us out of the low margins that we're going to see in Q2 and start getting ourselves more quickly in Q3 and Q4 than what we would have realized across the board in 2016, ‘17, or 2016 in particular.

Got it. Thanks for that color, Tony. Now Tom, in your prepared remarks you did mention you added a bit of storage in Texas for liquid mud. And then you also mentioned that you can void printing red ink at the current 49 levels of drilling fluid jobs. Can you maybe just comment on your playbook or your strategy for what to do if things go below those levels? And then how that might affect the business and the margins in that scenario?

You bet. And I'll maybe elaborate a little on your last question, Keith. I think listeners should expect every single service company to struggle to turn to profit when their customers are printing headline, eye popping losses and not just write-downs. So, I think when oil creeps back to better numbers, the price concessions will be up for discussion again and you'll get some of it back Keith. So it's going to track the price of crude and there'll be a little bit of a lag because some guys will be turkeys and [not honor] what they said, but most will, and we'll get some of it. And my sort of message to everyone is we believe we can get through this shut-ins period, as Tony said, we think the next four to eight weeks are pretty tough for everyone. But we can get through that financially because of this big quarter in our pocket, because 49 jobs in the states does turn a little profit. And if we don't run too many mud plants and mistakes, if we take the pain of this $11 million write-down now on the value of oil based mud namely, we can get that stuff back in the ground in the field and not be printing terrible numbers with it or have to get prices that are unattainable so then you lose the work. We can go a little lower than this and make a little or breakeven, probably anything under 30 jobs gets pretty tough. But we're not going to blow up our people and our culture and our company for the sake of a month or two. So, if we can stay at kind of 10 jobs in Canada, and 35 jobs in the States and they're in concentrated areas, which is different than ‘15, ‘16, we were losing money at 40 jobs in the States in ‘15 and ‘16 and breaking even at 50. But they were more spread out. Now everything is in the Northeast U.S. or the Delaware. And if it stays like that, the breakeven would be in the 30s and we're going to carry some important people, because we need them later and we don't want to compete with them. And as shut-ins come back on whatever losses we might print for a month or two, we think we'd get back to breaking even or making a little and do better as people get busier and particularly as oil goes up and then you can get some pricing back that's huge.

And just finally, maybe a clarification on your U.S. market share. The current jobs are running, is it mainly because your current customers have been running more ore as you say, have you won new customers to grab additional call it organic share?

For a second -- trailing 12 month basis, our second biggest drilling fluid customer has zero rigs running today, and our market share is up. So, it isn't just that we got lucky and our people didn't lay their rigs this down. We want new work and then we've got more as a percentage of the rigs that people are running than we had before the crash.

Your next question comes from Tim Monachello with AltaCorp Capital Inc. Please go ahead.

One question from me. Tom, you mentioned in your prepared remarks that you think you can substantially increase your market position coming out of this downturn. I was just curious, if you give an overview I guess just competitive dynamics and if you've seen any change in attitude or change in sort of strategy going through this downturn from your major competitors?

Yes, that's a great question. So we're seeing some mom and pops fall away. Never thought it would happen. We've seen Baker and Schlumberger almost entirely exit, pursuing drilling fluids land in North America. They just can't move fast enough and be lean enough to make any money and get the right people, which really leaves a handful of independence in the U.S. One is public, one is private equity and then Halliburton. And then in Canada it leaves Secure and some independents. I think there'll be less people vying for the work that's up for grabs after we're going to make it, we're seeing questionable pricing coming from one of our competitors. We think that people on the ground are giving prices to customers so they can keep their jobs because they keep the work. But the work wouldn't make any money. So we think there's a disconnection from maybe head office to at least controlling pricing at the customer level there. We don't see Halliburton using their balance sheet in drilling fluids like they did in '15, '16. So if they just stay still with share, and we take it from the independents, the private equities that are hitting financial exhaustion, and the mom and pops that are going away, and then add that to our expansion into the super majors over the last year, we’re kind of willing to stick around neck out and say we're going to number one. And Tim, I should qualify that how we measure number one isn't just in market share. It's actually in what value are we trading for this business. Are we the top technical company? Are we the top financial company? Are we the top companies for culture? Are we the place that young petroleum engineers want to work if they don't go work at oil company? That's how we define number one. It's not just do we have 300 jobs and Halliburton is 299. We want to get more for what we do.

Got it. That is important distinction. In terms of Nalco, have you seen any change in the way that they come to market now that the combination with Apergy? And do you expect that that's going to have an impact on pricing as they can come with sort of a more bundled solution for production?

Well I'll start by saying we don't believe the customers want the bundled solution, Schlumberger has had that available for a long time, and they're not a relevant player. So we're not convinced that, that combination has sales synergy. Same logic as why we stayed out of equipment for mud. My experience being on mud tanks and on location and selling is if you provide the equipment for mud and chemicals and the equipment fails, they don't want to pay for the chemicals. So I think there's more risk than upside. What we are seeing that's different, Tim is that Baker is being very aggressive on price. We are seeing that from Nalco at this point, I think they want to preserve their margins. They've probably lost whatever contribution they were getting from their frac sales because there are none to get up, not because they've done anything wrong. But I listened to Baker do a call a month or two ago and they were pretty clear that they went through the last crash kind of on autopilot and that was not going to happen this time and they're acting on that. They're being aggressive on price.

The next question comes from Ian Gillies with Stifel. Please go ahead.

There's been some questions around acquisitions throughout the call. Maybe a question from a bit of a different angle. Are you seeing the opportunity to maybe add some key people that may deal with customers that you haven't dealt with historically to help expand some of those verticals or is that something you might be interested in given I mean the strength of the capital position et cetera, it seems like you should have a fair bit of flexibility to go out to try and execute some of those endeavors?

That Mr. Gillies is a great way to frame the question. Yes, we don't want to get private equity off the dime or send anyone to the lake to retire when they sell. We are just going to get the people that can get the work. And so we have to preserve our culture, our platform, our brand, our good standing with our customers. Ideally, I don't want to issue any equity to anyone ever again. So, which your investment banker colleagues won't like to hear, but M&A is low priority, low likelihood, but we can't say never. We have a duty to look at things that could create value and we always will.

And I guess the other part, I guess I'm curious on is, we never really talk about international expansion in regards to your business. There's a -- you've built out in North America by and large at this point, at what point do you think we’ll start -- starting to look outside of the current jurisdictions you're in is another avenue for growth or is it just something you're not interested in at this point?

We were looking before the crash. I was personally involved, Tony was involved, Ken and Baxter and Vern were involved, so it has got to our level. I even got Baxter to South America on a trip. So, we're out there kicking tires, he doesn't travel well, he'll be listening to this laughing. It's on the radar for us but for the next year or two, unless we literally get a sponsor that says we really want you to come do this and we'll help it but not lose money in the beginning, it's kind of on the shelf for a while, but we know that that's the next leg. We know the next leg isn't equipment. It's to do more of what we already do somewhere else.

The next question comes from Josef Schachter with Schachter Energy Research. Please go ahead.

I've got a couple for Tom and then one for Anthony. Tom, you mentioned it earlier in the commentary about the benefits potentially revenue wise from the Canadian abandonment program, where the feds are putting up money in all the main provinces in the West. What kind of business can you see there? And maybe if there's any magnitude to that revenue stream that you see and what specifically would you be bringing to the table for them?

Thanks for the question, Joseph. Not amounts of money that will move the needle. The Alberta government interestingly -- and I think it's well intended, but it's caused some consternation by the customers, they want the service companies as sort of the general contractor on their billion of abandonments, which means my customer friend at the oil company isn't in charge or in charge, which is not social contention in the oil field at all. There might be several million dollars of work to win there. It might get to 10 if we hit a home run. It's really a way for us to expand Clear’s reputation. We can do $20,000 , $30,000 revenue jobs for our environmental services, very little tail fluid needed or chemicals to abandon most of these wells. So it's not going to be a lot of revenue for mud. But if it keeps some people with Clear employed, it allows them to turn to a little bit of a positive. If it helps industry if it wins any social license in the country, I'd say it adds up to a positive, it's better than nothing. What we need is for society to be allowed to go back to functioning so people use oil. And I'm not advocating that I'm an expert on when that should happen. But that's what we need.

Now, the Canadian government with the financing package, especially for the larger companies is pushing this environmental improvement, methane, CO2 and stuff like that. With your strong science groups that you have on the chemical side, is there any way of leveraging that skill set for you to come up with items that could be potentially decent size revenues, but also helps the companies meet these ESG goals that will allow them to tap the financing that the federal government is looking at potentially doing?

We're sure thinking about those things, Joseph. I'll start by saying we won't need the governments. We're taking employee assistance money like every responsible business should be trying to access to. But we're not going to need the government's money for liquidity. However, if we could get loans that end up not needing to be repaid, that's probably a nice thing. So we're going to keep our eye on what they want to spend money on. We're working on the backside with all of our customers constantly on how to recycle water, how to use frac flowback water for the next job instead of fresh water, how to reduce corrosion in pipelines so they spring a leak less often, how to run throwing fluids in a way that never touches the ground. That is something amazingly relatively new say in the last decade in the U.S., and it's been in place in Canada for 25 years. When I started in the field, we still had pits or sumps that we put water in to flocculate solids out in and that's long since gone. We handle cleaning up frac ponds for some of the super majors already. So the environmental lens, there's opportunity. But honestly, I think it's more of a penalty to the industry in Canada than a benefit. We can't make enough to set off what damage they keep doing to the industry in my opinion. I wish I could say it could but we've been working on technology for cleanup of cuttings and tailings in the oil sands for three or four years to trying to launch a new mousetrap in this market is pretty tough.

Yes, but for those companies that are hurting, that's probably going to be suddenly beginning to push, if they're going to be able to access from the producer side, that capital for over $100 million loans. So, if the pressure is on from the feds and to those leftist approach with where you want to see NDP Greens on side rather than the conservative. So there's going to have to be some breakthrough technologically, at least trying to see if your skill sets would be able to help there. My last question for Tony. You took the big write down on goodwill, why wouldn’t you’ve just knocked off all of the goodwill and just have a much cleaner balance sheet from your people perspective looking at and seeing that on the balance sheet?

It was an objective formulaic approach and when we looked at our forecast over that period for the goodwill impairment and we looked at the assumptions that went into driving those relative cash flows, and that valuation, it became very apparent that 100% of the Canadian CGU’s goodwill would be impaired. And based on that objective approach, we got to almost all of, not quite but 75% of the U.S. cash generating unit, and we don't expect to have to revisit that.

So, you don't expect to. There's no pricing point or value point that might make you address it in future quarters?

Yes, look at for talking in another quarter about WTI going back down to minus 39 or minus 35, we could be having a different conversation. But right now, no.

The next question comes from Matthew Weekes with Industrial Alliance Securities. Please go ahead.

I think most of my questions have been asked at this point, I actually tried to exit the question queue but was not successful. But I will just ask a clarification question really quick. I'm not sure if you had mentioned earlier in the call. I know you've mentioned it for the U.S. drilling fluids business. But how many drilling fluids jobs were being run in Canada through the quarter?

We ran 84 jobs on average through Q1 and we're down to 7 today.

This concludes the question-and-answer session. I would like to turn the conference back over to Tom Simons, President and CEO for any closing remarks.

I will wrap up by reiterating that we believe we can get through this shut-in period financially, that we've got the balance sheet to bleed a little bit, so that we don't blow up our company's capabilities on the other side of this. As those shut-ins come back on for our customers, if we get into the red that'll move us back into the black. As COVID passes and the world consumes the overhang of oil, we look to resume generating substantial free cash flow for our shareholders. We aspire to be the number one drilling fluid company in North America on land and we aspire to substantially expand our position as the number three production chemical provider to North American land producers. We commit to our employees to retain our unique culture of working managers, having a sense of urgency, solving problems to win work, and then building relationships of trust with that customer. To our customers we commit to work with you so that both of our businesses survive, and our relationships survive. And to our shareholders, we’re committed to being prudent, to surviving, to building and hoarding cash and being very strong financially and operationally as normalcy returns to the world. With that, we'll wrap up the call and say thank you for your time.

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