North American Energy Partners' (NOA) CEO Martin Ferron on Q4 2016 Results - Earnings Call Transcript

| About: North American (NOA)
This article is now exclusive for PRO subscribers.

North American Energy Partners Inc. (NYSE:NOA) Q4 2016 Earnings Conference Call February 15, 2017 9:00 AM ET

Executives

David Brunetta – Director-Finance and Information Technology

Rob Butler – Vice President-Finance

Martin Ferron – President and Chief Executive Officer

Joe Lambert – Chief Operating Officer

Analysts

Yuri Lynk – Canaccord Genuity

Ben Cherniavsky – Raymond James

Bert Powell – BMO Capital Markets

Maxim Sytchev – National Bank Financial

Operator

Good morning, ladies and gentlemen. Welcome to North American Energy Partners Earnings Call for the Year-End and Quarter Ended December 31, 2016. At this time, all participants are in listen-only mode. Following management’s prepared remarks, there will be an opportunity for analysts, shareholders and bondholders to ask questions. The media may monitor this call in listen-only mode. They are free to quote any member of management, but they are asked not to quote remarks from any other participant without that participant’s permission. I advise participants this call is also being webcast concurrently on the company’s website at nacg.ca.

I’ll now turn the conference over to David Brunetta, Director of Finance and Information Technology at North American Energy Partners Inc. Please go ahead, sir.

David Brunetta

Thank you and good morning everyone, and thank you joining us. Welcome to the North American Energy Partners 2016 year-end and fourth quarter conference call. I would like to remind everyone that today’s comments contain forward-looking information. Additionally, our actual results may differ materially from expected results because of various risk factors, uncertainties and assumptions.

During this conference call any reference by management to EBITDA indicates consolidated EBITDA as defined in our financial statements and earnings release. For more information about our results, please refer to our December 31, 2016 management’s discussion and analysis, which is available on SEDAR and EDGAR.

On today call, Rob Butler, VP of Finance will first review our fourth quarter results; Martin Ferron, President and CEO, will then provide his comments on our outlook and strategy. Also with us on the call today are Joe Lambert, Chief Operating Officer; and Barry Palmer, Vice President of Operations. After management’s prepared section, there will be a question-and-answer session.

I will now turn the call over to Rob.

Rob Butler

Thank you, David. Good morning, everyone. Let’s now review your consolidated results for fourth quarter ended December 31, 2016, compared to the quarter ended December 31, 2015.

For the three months ended December 31, 2016, consolidated revenue was $62.2 million, down slightly from $65 million in the same period last year. Revenue was down in the current period compared to last year as a result of reduction in civil construction activity at Millennium and Aurora mines, reduced overburden removal volumes at the Steepbank and Millennium mines and the prior year completion of a site development project at the Kearl mine.

This reduced activity was partially offset by the ramp up of our expanded winter work programs at the Mildred Lake and Millennium mines, completion of civil construction work at the Mildred Lake mine, ongoing mine support activities at the Kearl mine and the completion of a new civil dam construction project at the Red Chris Copper mine in Northwest British Columbia.

For the three months ended December 31, 2016, gross profit was $6.4 million or 10.3% of revenue, down from gross profit of $9 million or 13.8% of revenue during the same period last year. The lower gross profit in the current period was driven by higher depreciation from increased winter work program activity and the completion of preventative maintenance and repair activities performed early in the quarter to prepare equipment for our winter work program.

Prior period quarter benefited from project closeout activities on a site development project. For the three months ended December 31, 2016, depreciation was $12.7 million, up from $10.3 million in the same period last year.

For this quarter operating loss was $1.2 million, compared to operating income of $0.5 million during the same period last year. G&A expense, excluding stock-based compensation cost was $5 million for the three months ended December 31, 2016, down from $6.1 million in the same period last year, reflecting the benefits gained from cost-saving initiatives implemented over the past year.

Stock-based compensation expense increased $2.1 million compared to the prior year primarily as a result of the effect of the higher share price on carrying value of our liability classified award plans. For this quarter we recorded $0.3 million of gains on the disposal of plant and equipment and assets held for sale compared to $1.2 million of losses in the previous period.

For the three months ended December 31, 2016, net loss was $0.5 million with basic and diluted loss per share of $0.02, compared to a net loss of $0.7 million last year with basic and diluted loss per share of $0.02. The net loss in the current quarter included the recording of $2.8 million in stock-based compensation expense, partially offset by $1.4 million in other income generated from the sale of other current assets. This sale was performed in the normal course of our business and it’s considered part of our consolidated EBITDA.

In comparison we recorded $0.6 million in stock-based compensation expense in the same period last year. The combined income tax benefit recorded in the current period of $0.4 million for the three months ended December 31, 2016 is comparable to the combined income tax benefit recorded in the prior period of $0.3 million for the three months ended December 31, 2015.

Total interest expense was $1.1 million during this quarter 2016, down from $1.6 million in the same period last year. We ended the quarter with net debt of $87.3 million which included $13.7 million of cash on hand. On January 25, 2017, we announced the award of an overburden removal contract which is expected to generate $45 million in revenues during fiscal 2017. On February 1, 2017, we renewed a five-year master services agreement on a sole sourced, negotiated basis with a major oil sands operator for the performance of reclamation, overburden removal, mine support services and civil construction activities.

That summarizes our fourth quarter results, and I’ll now turn the call over to Martin for his remarks.

Martin Ferron

Thank you, Rob, and good morning to everybody. Well, we may not be quite out of the woods yet, but it certainly appears that the worst of the long and steep cyclical downturn in the oil business is behind us. It’s been a tough couple of years and of course we have to deal with the impact of the terrible wildfires in the Fort McMurray area for several months in 2016.

Firstly today I’d like to review our performance during the downturn by comparing some key financial performance and position data from the start of the downturn, end of Q3 2014 to the end of 2016. Net debt was reduced by 35% from $133.3 million to $87.3 million, while the associated interest payments dropped disproportionately by 52% from $12.2 million in 2014 to $5.8 million in 2016 as a result of refinancing high cost debt.

Consolidated EBITDA margins were increased from 13% to 23%, despite the very negative impact of the terrible wildfire that I mentioned earlier and the considerable pricing concessions provided to customers during the downturn. The improvement in the EBITDA margin was driven largely by operational innovations, but it appears to position us as a low cost provider in our space.

Over 5 million shares were purchased for cancellation at an average price of $3.39 per share. And over 1.9 million shares were bought by the trustee for our long-term incentive hedging plan at around the same cost basis. Overall since we started allocating capital to share repurchases in late 2013, we bought 9.1 million shares which equates to around 25% of the initial shares issued.

Lastly, we’ve come through the downturn, with all of our pivotal master service agreements intact or significantly expanded. And therefore, we do not face any renewals until late 2020 at the earliest. These agreements should underpin our revenue expectations for at least the next three years.

So in summary, during the worst cyclical downturn that I’ve ever experienced in my near 40-year career in different oilfields around the world, we’ve significantly reduced the quantum and annual cost of our debt, dramatically improve EBITDA margins, bought a boatload of our stock back and bolstered both our dynamic customers and competitive position in our core business segment. Overall, I believe we displayed a quite unique ability to free cash flow right through the downturn.

Well, if this type of performance can be produced in a downturn, I’m just plain excited about our potential in the slowly and unfolding upturn. Back on the last earnings call in November I predicted that we were entering a growth mode that could lead to increases in revenue, EBITDA, and cash flow of around 15% a year. Today, I’m much more confident about potentially pulling this off and expect a higher growth rate in 2017.

In my letter to fellow shareholders that will be available in our annual report later this week, I addressed how this growth will be achieved and I will summarize this here. Firstly, customers are tapping the huge economies of scale on each oil sands mine to reduce the operating cost per barrel by combining real sustainable cost savings will significantly increase production levels.

Operating costs per barrel are down by at least 30% in Canadian dollar terms and over 50% in U.S. dollar terms since mid-2014. Mine operators are literally cranking out every buyable possible, creating more demand for our production link services. We’re currently benefiting from customers playing catch-up on work. That they deferred as far as possible in the downturn.

Secondly the competitive landscape has improved with several companies leaving the big truck space on the mines with us consequently being able to increase our capacity by purchasing cost of assets at very favorable prices. Fairly there’s a new mine Fort Hills coming on stream in late 2017 and gradually ramping up to a higher production level than initially announced. We’re expecting at least our fair share of associated work likely kicking off in early 2018 under the terms of the Master Service Agreement signed last year.

Next we are seeing a real pick up in potential work opportunities related to the mining of other natural resources both in Canada and the USA. We’re already on one copper mine and our address in bids will work on several other copper, gold and diamond mines. Hopefully, award news will start to emerge in the Q2, 2017 timeframe.

Next we’re selectively targeting infrastructure projects that involve extensive earthworks. We look forward to bidding the Fargo-Moorhead scope this year as part of an impressive consortium and hope that the bid for another flood mitigation project closer to our home here in Alberta will be addressed this year.

Next we plan to plant – sorry we plan to penetrate the SAGD oil sands services segment as customers spending resumes. This contracting community was decimated during the downturn and so we see good potential for us to fill the vacuum. Finally, since I completed the shareholder letter last week we have secured our first job related to the main as customer equipment. A feature – a key feature of our recent success has been accelerating at the maintenance of our own fleet.

Customers have recognized this and are now seeking to entrust us with servicing some of their maintenances needs. Both our sellers and the customers intend to trial this and then hopefully build up work volume slowly. With this though having the very real potential to be a significant area of new business for us, I’m really excited about this. It’s important to note that the growth expectations, I just took you through. Do not take into account any possible M&A activity. We are looking at several opportunities to bolt-on companies with complementary services but were balance sheet severely damaged by the downturn. We plan to allocate growth capital judiciously in this area. We believe that there are some good deals to be done, which will add considerable talk with the Q to our growth.

Staying and concluding with my favorite topic of capital allocation. We announced the latest in a real sequence of NCIB’s with our earnings. Despite the most welcome recent depreciation of our stock price. We believe that we remain significantly undervalued. I note that the average conventional oil service company is discounting enterprise value to have it on multiples; we’re on 12 of 2017 and 8 for 2018, while we showed ourselves to be – far from a conventional performer in the downturn. And we are super excited about of growth prospects both in and outside the oil sands. Yet our comparable multiples are in the fours for the both years, high fours for 2017 and low fours for 2018.

Well, that’s it for now. I would like to pass the call back to the operator Carol for any questions that you may have.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And your first question comes from the line of Yuri Lynk of Canaccord Genuity. Your line is open.

Yuri Lynk

Good morning.

Martin Ferron

Good morning, Yuri.

Yuri Lynk

Good morning, Martin. Nice quarter. Just wondering if you could expand on the opportunity you mentioned on servicing your customer’s equipment – where are we in that process, is it going to take any kind of short-term investment on your behalf too? Whether it be in technicians or garage space or what have you – and how prevalent is that practice at this point?

Martin Ferron

Yes, Yuri. It doesn’t require any new investment. So I’d actually like to hand the question over to Joe Lambert, our COO. He is the kind of mastermind behind this strategy. So I’d let him explain it to you.

Joe Lambert

Yes. Excuse me, Yuri we’re using our existing facilities in workforce, this is a trial basis, it’s adding a few people. We tore declined through our facilities and processes. They’re impressed with what we did and we’ve got some track brands in under garage that they’re coming in on trial basis. Hoping to look at doing some rebuilts maybe later in the year, so we’ll – I’d say stay tuned we’ll see how it goes. And we’ll certainly keep you guys informed on the quarters.

Martin Ferron

But it’s important to know, we have plenty of spare capacity to do this type of work in our existing workshop. So we’re excited about it.

Yuri Lynk

Okay. Is it mostly rebuild type activity that you’d be doing or would it be kind of a more recurring maintenance in terms of oil and stuff like that that would happen more regularly?

Joe Lambert

Look the under garage work we’re talking about that we’re doing on the trial right now – is more of a consumable it – the wired side of a track piece of equipment. In oil sands, it’s high rare area. And so this is really almost a consumable for that piece of equipment. Not like rebuilding for a second line so that but we are looking at the major component replacement cycles on equipment and opportunities to extend life. We’ve done some with our own equipment and extending lives of some of our bigger gear and we’ve shown that some of our clients and we believe it’s going to be of interest to them going forward.

Yuri Lynk

Okay. It’s helpful. Last question from me and I’ll jump back in the queue. Where are you Martin, what would you just say you are in terms of the M&A search, are there a number of interesting opportunities out there or you’re just in the early stage or do you have some prospects lined up just any color on if we might look at the transaction this year?

Martin Ferron

Yuri, but as a mentioned, our multiple is low and the targets are high. So if that narrow extend we’ll be more interested. But I’m scrutinizing the market almost on a daily basis and there are several companies out there subject to evaluation that would be interest to us. So kind of watch this space this year I think.

Yuri Lynk

Okay. That’s my two, I’ll turn it over. Thanks.

Martin Ferron

Thanks, Yuri.

Operator

And your next question comes from the line of Ben Cherniavsky of Raymond James. Your line is open.

Ben Cherniavsky

Good morning, Martin.

Martin Ferron

Good morning, Ben.

Ben Cherniavsky

I’m just – I’m detecting that there’s a change in the way you are perceiving the outlook your commentary about what’s in store this year was very helpful. But when I listen to that and when I read the MD&A and compare it to commentary in the last few quarters, unless I’m mistaken it sounds like you’re significantly more optimistic. And I’m just wondering what in particular if there was anything in particular that’s changed in the last two or three months that you’ve seen in the market. Is it just affirming the oil price or what else is happening out there that’s giving you this kind of confidence?

Martin Ferron

It’s not only the last couple of months. It’s really since the start of the downturn at the end of 2014 Ben. I mentioned, Ben, our stock was trading kind of in the 9’s near 10. And yet the outlook was nowhere near where it is today. At that point we didn’t have any opportunities on other resources, because they were all in the doldrums too. We were in infrastructure projects, our customers were producing far less, our competitors were stronger. So almost every feature of our operating environment has gotten better here and we’ve made ourselves a better performer. So the combination of those two things makes me very, very optimistic about what we can achieve here.

Ben Cherniavsky

So, it’s single – there’s been no silver bullet that sort of switched the light on for you guys, just a bunch of stars that are better alignment now?

Martin Ferron

Well, I think it’s a whole borrowing full of sliver bullets.

Ben Cherniavsky

Okay. And then just on the fleet. Can you give a rough idea of what the utilization rate is right now and where it’s come from? And then maybe what equipment values are like for your fleet. If the market has firmed, is there any impact on what might be worth in your market?

Martin Ferron

Yes. Right now as of today, we’re going through a very warm spell in McMurray. Unfortunately it’s unseasonably warm this week, so our utilization isn’t fantastic. But as soon as it gets cold again, hopefully by the end of the week, will be 100% utilized on all of our big trucks and excavators, shovels. So the top end of our fleets is flat out busy subject to weather. We picked up some additional trucks from our competitor at very favorable terms. So we got them also working.

So we were flat out at the heavy ends and we expect that to continue until spring break up. Then we’ll continue with some other big trucks until the overburden contract we won, that’s finished, but that might be in Q3, in early Q4. So we will rely then on the construction season kicking off kind of in the May-June timeframe and that will put the lighter end of our fleets back to work as normal. So heavy end very busy right now, light end quiet, but that’s just a seasonal norm.

Ben Cherniavsky

So what’s the light end of the fleet like, and utilization right now?

Martin Ferron

It’s pretty quiet, there’s not much construction activity going on, and never is, at this time of year, right. So seasonally, it’s the heavy equipment in the winter and light equipment in the summer.

Ben Cherniavsky

Okay. Well, I’m just trying to get a sense of what – like I understand that there is seasonality, but what underlying in the market, given that the outlook change in your results are improving. How does the needle moved on utilization rates? And for that matter, if you’re going to close to 100%, are you going to be out looking for more equipment to purchase around?

Martin Ferron

I will address the last part first. As I say, we picked up seven trucks which was a meaningful addition to our fleet at good prices, here at the start of January from a competitor, so we’ve made that adjustment. On the late end of the year fleets, this time last year we had hardly any bids, hardly any opportunity. Utilization during the summer was quiet, because customers preferred a total activity. Today we’ve got a lot of bids in-house very early and we’re expecting our customers to catch up on construction work just as they’ve done on earthworks, to put our light fleet back to work in the May-June timeframe. So that’s the real change, our expectation for high utilization of a light fleet is much higher than it was this time last year

Ben Cherniavsky

And would that be indicative of the market up there in general? I mean, are you – back to the other part of the question as your business moved – change in fleet valuations or equipment prices in your market. I’m trying to get a sense of how you guys, your situation may differ from the market as a whole. Equipment is generally getting tighter to have implications for your ability to grow the business and things like that. So if you can just shed some light on those thoughts.

Martin Ferron

Presently, our fleet capacity is fine, the opportunities that we foresee. We’re looking at cheap ways to add to that should we need to do so…

Ben Cherniavsky

Is there still equipment out there for you if you want to add?

Martin Ferron

Yes. Yes.

Ben Cherniavsky

I mean there’s still ample amount of idle capacity.

Martin Ferron

I wouldn’t say ample, not within the oil sands anyway, but possibly outside there would be opportunities. We actually picked up a shovel from Nevada, a very large EX5500 shovel at a great price last year. So we’re looking at auctions all around the U.S. and Canada and where we see real value we’re jumping in and buying these pieces at pennies on the dollar. So that’s how – go ahead.

Ben Cherniavsky

So your opportunities still exist.

Martin Ferron

Yes.

Ben Cherniavsky

That when you look outside the oil sands there are still lots of used equipment that you guys can purchase to be opportunistic.

Martin Ferron

I wouldn’t say lots; I would say opportunistically we’re finding stuff.

Ben Cherniavsky

But not as much as was available a year or two ago.

Martin Ferron

Correct.

Ben Cherniavsky

Okay. That’s what I was looking for. Thanks very much.

Martin Ferron

Sorry. It was simply long-winded in my answers.

Ben Cherniavsky

No, it’s okay. It’s all good. It helps. I just wanted to make sure I understood the market dynamics as a whole. So that’s helpful. Thanks.

Martin Ferron

Okay. Thank you.

Operator

And your next question comes from the line of Bert Powell of BMO Capital Markets. Your line is open.

Bert Powell

Good morning everybody. Martin, just a question on M&A, would you be – are you more focused on oil sands or would you be looking more into increasing the infrastructure exposure side of things?

Martin Ferron

I would say both of those. I think there’s opportunities to address both. We still see the oil sands as a great core business for us, but it’s cyclical. So if there’s any way of addressing that cyclicality by adding a business that has a difference cycle or continued spending, obviously people are excited about potential infrastructure spending both in Canada and in U.S. So if we see an opportunity to address that by our M&A, then we will certainly be looking at it.

Bert Powell

Okay. Given we got some stability with oil and your activity levels have come back in the oil sands as peepholes, your cost structures are more along – in line with the revenue realities and the prospects for infrastructure spend. Has the window – you’re not closed or closing quickly on M&A, given your expectations, I think it has to be going up.

Martin Ferron

I don’t think so. Some potential targets out there have very strong balance sheet. Banks, they covenant release for lower capital quantities.

Bert Powell

Yes.

Martin Ferron

And then they’re not very keen now to expand those facilities and give further covenant release. So the well-apt situation still exists and there’s opportunity.

Bert Powell

Okay, okay, fair enough. And then just your comments on the share buyback and you’ve done a fair bit of that, and your view that stock is still undervalued. Are you at current levels still looking to execute on your normal course to ensure bids in buybacks?

Martin Ferron

Yes, of course. Every time we announce one of these things we tend to do it fairly quickly. On this occasion we can’t stop buying until April 1. But as soon as April 1 comes, I think we’ll be in the market and executing as soon as we can.

Bert Powell

Okay. And then just back to capacity, if capacity has left the industry and there’s only a few survivors left in it, I’m wondering where outside of the kind of the capital side, what about the human capital side. Have you – is there anything that’s tightening up in the labor market that you see in your sense?

Martin Ferron

Yes, I certainly say it’s been harder than we expected to man up for our winter work. Unfortunately the fire in Fort McMurray wiped out a lot of the cheap rentals, property rentals that people were using to live in Fort McKay and go to work. So that’s been a factor. Also the dollars continued and we believe the Red Cross is still paying our benefits. So some people are kind of waiting for those payments to conclude before going back to work. That said, we have managed to find people that’s just being less easy than we expected.

Bert Powell

Okay. And just last question. Just in terms of your last quarter I think Martin, you talked about $5 million CapEx program or equipment efficiencies and I think it was a little bit of a catch-up work that was to be done in this quarter, I think you would call that out it somewhere at $0.5 million or $2 million for the fourth quarter. Just wondering how you progress them both those fronts in the fourth quarter. If there’s anything that’s carry over?

Martin Ferron

No, we allocated that – that amount of capital to the two initiatives you mentioned, the improvement of our fleet for certain types of work and then the catch-up on maintenance.

Bert Powell

Okay. That’s perfect, thank you.

Martin Ferron

Thank you.

Operator

Your next question comes from Maxim Sytchev from National Bank Financial. Please go ahead.

Maxim Sytchev

Hi, good morning, gentlemen.

Martin Ferron

Hey, Max.

Maxim Sytchev

Lot’s of questions obviously already asked but Martin just wanted to circle back in relation to stock-based comp. Is there any way to hedge it? Have you considered doing this? Just maybe any commentary there please?

Martin Ferron

Yes. A large part of our stock-based comp most of the employee based stock-based comp is equity related. And as I mentioned in my commentary, as of today we bought back 2.5 million shares. The trustee for our hedging program if you like I think is probably our second or third largest shareholder right now. So we’ve got enough shares that we bought about $3.50, $3.50 to issue for the next several years. Okay, so that’s a major hedge we put in place.

The stock-based comp hit we took in the quarter was related to the cash base, the liability based DSU program, which is really direct to compensation. And we haven’t found an effective way to really hedge that yet. But we’re certainly looking at it, it’s one of Rob Butler’s priorities for the year. So I’m sure he’ll pull it off. So where we can we’re hedging, so on – in terms of impact I think going forward the shares we bought for the trust are really going to help. Right, because we’ll be issuing them but we bought them at a much lower price and hopefully we’ll issue on that. We just got to solve for this DSU plan.

Maxim Sytchev

Okay. And that’s helpful. And then the question that I also had is in relation how should we think about the accounts receivables gyrations as that two levels pick up in 2017. Should we expect a bit of a draw or just trying to go back into the free cash flow for 2017?

Martin Ferron

Yes. It’s good question. So in Q4 couple of things happened. One, we got busy. So we started to build working capital. Two as part of the kind of concessions that we had to provide to a certain customers, we extended some payment terms. So there was only so much we could give on price. So we did give a little bit in terms of extending the payment terms, so that was a feature. And then on the copper mine we’re on, there customers are good payers, our oil sands customers. So those three things build up receivables in the quarter. But I think you’ll see us go back to a more normal situation as this year progresses.

Maxim Sytchev

Okay, that’s excellent. And on the copper mine specifically Martin, do you know if the client to have plans to spend incremental capital on the environmental initiatives that you benefited in 2016 or they’re still looking for capital or approvals just trying to get a bit more color there.

Martin Ferron

No, I think we are hoping to stay on that particular site to do more construction type work as we did in 2016. So, that’s great. We’re bidding another copper mine nearby actually. And hope we get on that one too. So yes, we’re looking at every opportunity like that we can address.

Maxim Sytchev

Okay. And the margin profile, I guess is within your comfort level. I would assume right.

Martin Ferron

Yes. It’s not a – I have to say it’s not as good as we could potentially in your sense but it is reasonable.

Maxim Sytchev

Right. And then actually do you mind maybe just commenting on the margin profile. Because I mean it’s been obviously beyond impressive in 2016. Just sort of the buckets construction typically is slightly low margin and that business is coming back to life. Is that how you’re thinking about 2017 just in terms of the puts and takes?

Martin Ferron

Yes, it’s true. I have said many times that we counted in the same margin on a person as we count on a heavy piece of equipment. So I’ll say, our light fleets and light intensity increases hopefully this summer the margin on that particular type of work will be lower. But we’ve made some improvements there also that we’re going to be put into place in this current year. So I wouldn’t expect a major impact on our overall margin. They might bring it down a point or two but it’s nothing dramatic.

Maxim Sytchev

Okay, excellent. That’s it for me. Thank you very much.

Martin Ferron

Thank you, Max.

Operator

[Operator Instructions] Your next question comes from Glenn Primack [ph] from Promus Holdings [ph]. Please go ahead.

Unidentified Analyst

Hi, good morning. I was wondering when you were able to pick up the equipment during the downturn at really good prices on your balance sheet. Did you put it on the balance sheet at really good prices or just step it up to market type price.

Rob Butler

It’s Rob. No, whatever we paid for it is what it ended up on our balance sheet out.

Unidentified Analyst

Okay, so your book values understated then? Right.

Rob Butler

Yes, we are realizing that benefit that to lower costs as we depreciate.

Unidentified Analyst

Okay, so like I understand why Martin says the stock is cheap based on where you’re buying stuff. And then where you see your businesses improved because you can address more areas and you’re live where it seems like some competitors have been seriously weakened? How about when you look at that 2017 through 2019 project based or what gets you excited? Do you put anything in there for the Canadian government wanting to export crude or would you be able to address any of that opportunity if they’re really going to build out pipeline to the – what BC or something?

Martin Ferron

No. We’re no longer in the pipeline construction business. So the benefit of that initiative would be indirect and that it would make deal signs a better oil field in terms of being able to export oil. So none of that is really factored into our expectations, it just adds to our optimism.

Unidentified Analyst

Okay, so that would add more value to what you’re doing at the mine level?

Martin Ferron

Absolutely.

Unidentified Analyst

Okay, and then those companies at mine level it seems like you talked about how they were able to reduce your operating cost. Years back like I used to use like $60, $65 would be the price that where you had economics down new mine. Do you think that has come down at all or you think that’s still a decent number to use or because I don’t know – I think they’re spending today. I don’t know they probably got it down to like sub $50?

Martin Ferron

Yes. I think the numbers come down. But I’m not expecting to see any new mines until the price increases.

Unidentified Analyst

Sure.

Martin Ferron

But I’ve said though that the production levels on existing mines have increased dramatically. One mine that’s going from 110,000 barrels in 2014 to 2020 it’s now – that’s double.

Unidentified Analyst

Yes.

Martin Ferron

Which is kind of like common – it’s like plumbing an extra mine, isn’t it.

Unidentified Analyst

It is.

Martin Ferron

Except that we’re in the same place. And look like we can address that extra activity.

Unidentified Analyst

Okay. And then SAGD, a really good base business to have, as they branch off into other things.

Martin Ferron

Well, absolutely. This core is strong. I’m very confident about it and it gives me then the optimism to look at some diversification.

Unidentified Analyst

Okay. Well you’ve done a hell of a job out there and it’s been fun on the stock. That’s it for me.

Martin Ferron

Thank you very much.

Operator

Your next question comes from Yuri Lynk from Canaccord Genuity. Please go ahead.

Yuri Lynk

Yes. Just a housekeeping question. Martin or maybe David wants to take it. Can you give me some details on the $1.4 million in other income? And if that was included in the adjusted EBITDA number or not?

Rob Butler

It’s Rob. Yes, the $1.4 million is part of our consolidated EBITDA results. It was the sale of other current assets that we had on hand that we were able to find a buyer for during that period. And it’s something we will do from time to time as the opportunity arises.

Yuri Lynk

Okay, thanks.

Rob Butler

Okay.

Operator

And we have no other questions in queue at this time.

Martin Ferron

Well, that’s it for now. Thanks for everybody’s attention and great questions today. Thanks very much. So we will catch you next time. Thank you.

Operator

Thank you. This concludes the North American Energy Partners conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!