Independence Contract Drilling (NYSE:ICD) Q3 2018 Earnings Conference Call November 6, 2018 12:00 PM ET
Philip Choyce - EVP and CFO
Anthony Gallegos - President and CEO
Taylor Zurcher - Tudor, Pickering and Holt
Daniel Burke - Johnson Rice
Ryan Pfingst - B. Riley FBR
Good afternoon and welcome to the Independence Contract Drilling, Inc. Third Quarter 2018 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Philip Choyce, Executive Vice President and Chief Financial Officer. Please go ahead.
Good morning, everyone and thank you for joining us today to discuss ICD’s third quarter 2018 results. With me today is Anthony Gallegos, our President and Chief Executive Officer.
Before we begin, I would like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks and uncertainties. A number of factors and uncertainties could cause actual results in future periods to differ materially from what we talk about today. For a complete discussion of these risks, we encourage you to read the company's earnings release and our documents on file with the SEC.
In addition, we refer to non-GAAP measures during the call. Please refer to the earnings release and our public filings for full reconciliation of net loss to adjusted net loss, EBITDA and adjusted EBITDA and for definitions of our non-GAAP measures.
And with that, I'll turn it over to Anthony for opening remarks.
Thanks, Phil. Good morning, everyone. I'm very excited to be speaking to you today as ICD's President and Chief Executive Officer. As this is our first public conference call, since closing the Sidewinder combination, and my first opportunity to speak to many of you, we plan to do a few things differently on today's call. I don't plan to spend time on ICD's third quarter results, which don't include any post combination operations anyway.
Phil will cover that in his prepared remarks, although I would be remiss if I didn't point out that we reported record quarterly revenues and sequential margin per day improvement of 18% during the third quarter. Rather this morning, I want to discuss what the Sidewinder combination means for ICD and its shareholders, employees, customers. Where we see the market for our equipment and services, and finally, I'll conclude with a few remarks on the very good progress we've made on the integration front.
To start, I've been asked by many, what is going to change at ICD after the Sidewinder combination? What is going to be different? And my answer has been simple, nothing is changing, but everything is different. To illustrate what I mean, I want to highlight three important ways the company is very different post combination. Those are growth opportunities, free cash flow generation and market presence.
To start, let's talk about growth opportunities. ICD was founded and completed its IPO as a pad-optimal growth story, building the high-specification land rigs in the Lower 48's most prolific oil and gas basins with crews delivering operational excellence with the high commitments to safety and integrity. That business strategy has not and will not change. However, the opportunities available to ICD post combination to achieve growth are fundamentally different.
As a 15 rig company with 100% utilization, ICD's only real growth opportunity pre-combination with Sidewinder with newbuild rigs, which as you know, require hard dayrates that exist in the market today, substantial capital investment and the timing and availability of capital markets to fund these investments, all key ingredients which are totally outside of ICD's ability to control. With the Sidewinder combination complete, the growth opportunities have expanded to include embedded, organic investment opportunities largely within ICD's ability to control.
Now when we talk about growth, what I'm talking about is real growth. Growth and earning power. For example, EBITDA, free cash flow and earnings per share, in other words, not just growth and rig count for the sake of getting bigger. Specifically, embedded today within ICD following the combination are five organic growth opportunities that are low-risk because they have been done before and can be executed using free cash flow. All have very attractive returns and payback periods in today's dayrate and contract tenure environment.
And perhaps more importantly, each of these provide the opportunity to further enhance the equipment's specification and capabilities of ICD's ShaleDriller fleet. For example, we have four SCR rigs today, one which is idle and three which are drilling, that we can rapidly convert to 200 Series AC status. We previously completed two similar AC conversions, one in 2015, which worked throughout the downturn, and one earlier this year. Both of these converted rigs are earning market dayrates in the Permian basin today.
Some of you heard me say before, there are SCR rigs and there are SCR rigs. Unlike the vast majority of the North American SCR rig fleet, which were built in the 1980s and 1990s, our 1500-horsepower SCR rigs were designed and constructed in the 2006 to 2010 time frame in response to the US land rig market shift toward the unconventional resource plays in United States. Consequently, our SCR rigs have modern, fast-moving mass and subs, TDS-11, AC Top Drives, 1600-horsepower mud pumps, large black yards, and all but one have omnidirectional walking systems today.
Half of them already have 7,500-psi mud systems and third shakers, and the balance are in the process of receiving those upgrades now. In other words, all of these rigs need to be pad optimal or AC drawworks and AC control systems to put them in the same class as ICD's 200 Series ShaleDriller rig. The all-in cost for all four AC conversions, including the reactivation of the idle SCR rig, is about 13.5 million, and we expect payback period less than 3 years on this investment.
Looking forward, it is our goal to have all four AC conversions completed by year-end 2019 with timing of the conversion of the three operating rigs dependent upon vendor lead times and coordination with the rigs' existing clients’ drilling schedule. In regards to these AC conversions, I am pleased to announce that our Board of Directors has authorized our ordering the long lead time items necessary to complete all four 200 Series AC conversions within this time frame.
Our fifth organic growth opportunity relates to an upgrade of an idle 1500-horsepower AC rig. This rig is an original 100 Series rig, built by the predecessor of ICD. ICD has completed several of these upgrades from 100 to 200 Series previously, so we know exactly what to do. The all-in cost for this conversion will range between $8 million and $10 million to bring it up to pad-optimal status. While the returns from this investment will also be very good, we are not planning to complete this conversion until the four SCR conversions are spoken for. Like all investments, which we will make, we will look for a suitable contract environment and appropriate return metrics before pleading with this fifth embedded project.
I just mentioned that these rig conversions would further increase the specification and capabilities of ICD's ShaleDriller fleet. You may be wondering what I mean by this statement. You have previously heard ICD speak of the potential to build a 300 Series newbuild rig. A rig with greater setback capacity, 25,000 feet or more, a larger hook load, perhaps 1 million pounds, three mud pumps operating simultaneously powered by four engines with the capability of utilizing drilling optimization software available to ICD in the market today.
Rigs like this are few in number, but they are earning a premium leading edge dayrates in the market today over a typical pad-optimal rig, working for customers that require these capabilities. We have completed the engineering work and the cost to further upgrade these five rigs to this higher specification, making them amongst the highest specification drilling rigs in the industry.
The incremental cost of these further upgrades is approximately 2.5 million per rig, so we can make this upgrade and capability for customers required of these attributes and willing to contract at the required dayrate, and contract tender to meet our internal return and payback hurdles. In addition to these embedded rig conversion opportunities, I want to highlight an additional, perhaps underappreciated benefit of the Sidewinder fleet that came over with the combination. Nine of these pad-optimal Sidewinder rigs are larger rigs, already equipped with large rig floors and larger setback capacity.
So the engineering and capital necessary to further enhance the racking and hook load capacity to market and operate these rigs and 300 Series rigs is minimal. Overall, the 300 Series niche in the rig markets is not big today, but it is growing. I'm not necessarily saying that we will undertake this further 300 Series upgrade to all of these rigs in the near or medium term, the market will tell us that. The bigger point I'm trying to make is that ICD now has the option to attack this market niche today, right now, and we will without having to invest in a newbuild rig that will likely require $24 million-plus investment to meet these specifications.
Now, I don't want to suggest that ICD will never pursue a newbuild program. If the market supports it and dayrates and contract tenders justify the investment from the return and payback perspective, we would obviously be looking at that. Which brings me to my second point, although nothing has changed as a result of this strategic combination, everything is different. And that is free cash flow generation.
We expect to realize significant transaction synergies, which combined with the repricing of legacy contracts to current market dayrates and the addition of a couple of auto rigs will fuel growth in EBITDA, free cash flow and earnings per share, even after considering interest expense, maintenance CapEx and the investment CapEx required to complete the five rig conversions, I just discussed. Significantly, we do not need the market to improve from where it is today to achieve substantial free cash flow generation in the near future.
We expect to be generating significant free cash flow in 2019 even after the rig conversion CapEx, and we'll be in an enviable position of determining the most advantageous use of this cash, debt reduction, further investment in existing rigs, other uses. We will make these determinations based upon investment returns, payback periods and optimizing our balance sheet. And if market dayrates ultimately move toward newbuild economics, we believe our 34 rig pad-optimal fleet would generate more than sufficient free cash flow necessary to fully fund a four to five rig per year newbuild program, greater than 10% annual growth in our rig count. The point being, this type of free cash flow generation and optionality and growth funded organically by free cash flow was never really on the table for ICD pre-combination.
Now with respect to my third point, nothing has changed, but everything is different, I'd like to address our market presence. ICD has a premier customer list of large independents and super majors. We will continue to market our pad-optimal fleet to these leading operators in our target markets of Texas and the contiguous states. However, the gravity of the opportunities available to ICD are fundamentally different because of our post-combination scale.
By our estimates, we are now the fifth largest provider of pad-optimal drilling rigs in the markets where we operate today. Where previously, we were only able to offer customers one or two rig packages at a time due to our limited fleet size, we now can market larger rig packages to our customers with the most aggressive development programs. This is a huge change for ICD. The time, effort and drama associated with prequalifying with customers, negotiating MSAs, vendor setup activities and like can be negatives from a customer perspective when a service provider has limited ability to offer equipment. Today, ICD has the fleet size to make these efforts more worthwhile for our customer and our company.
In addition, with the Sidewinder fleet now in the fold, we now can offer a wider range of drilling rig options to our customers based upon the dynamic nature of their drilling programs. In other words, given the diversity in our rig fleet today, we can offer the optimal tool for the drilling program, ranging from very fast-moving efficient drilling rigs to larger rigs with more capability in terms of setback capacity and overall scale. All being outfitted with walking systems, 7500-psi mud systems, et cetera, which make them pad-optimal.
Consequently, we have rebranded our ShaleDriller fleet and are now marketing our fleet to reflect this change in dynamic. Today, we have 34 rigs, including the rig conversion opportunities I previously discussed. We have 1,000-horsepower AC rig that we branded 100 Series ShaleDriller. This 100 Series rig is equipped with an omnidirectional walking system and other bells and whistles required in our target market, but it has 1000-horsepower AC drawworks.
We have 22 rigs, which we’ve branded as 200 Series ShaleDrillers, meeting the pad-optimal drilling specifications the market always addresses, including AC, 1500 horsepower, 75,000-pound hook load, 500,000-pound setback, 1,600-horsepower pumps and omnidirectional walking. These remain the workforces in our fleet and in further sort of attacking the market niche now, the rigs with greater setback and hook load, the 300 Series market ICD has spoken up during past calls, and I just discussed, we have nine slightly larger rigs, which we have branded our 300 Series ShaleDriller rig.
These 300 Series rigs have greater racking and setback capacity for our customers who require these capabilities, which just like the rig reconversions I discussed earlier, can be upgraded to 25,000 feet or greater racking capacity, 1 million pound hook loads, 3 mud pumps, and 4 engines with very modest CapEx. This class of rig in our fleet could grow to 14 rigs depending upon the extent of the rig conversions I discussed earlier. Again, we no longer have to build a new rig to attack this market niche, we are attacking it right now as we speak.
Moving along to the market. So as you can sit through the pad-optimal rig market today, I'd like you to think about it along a continuum with current spot market dayrates with a vast majority of these rigs in the $23,000 to $24,000 range today, that is the 200 Series ShaleDriller market. But with the subset of these rigs that are equipped with 3 pumps, 4 engines and greater racking capacity earning dayrate premiums for customers that require these capabilities.
The leading edge dayrates that many of us hear about in the market mid-20s plus. In addition, ICD is now marketing its existing rig fleet using low rig packages into all subsets of this pad-optimal rig market. Most importantly, ICD has the ability from free cash flow to fund capital investment into incremental equipment, upgrade packages, including third pumps, fourth engines, setback and hook-load upgrades along this market continuum, where meaningful investment turns and attractive payback periods can be secured for our company.
Moving on to overall market dynamics. The overall market has remained strong in spite of investor community concerns this year regarding take away capacity in the Permian. We only have one of our marketed rigs that is idle, and that rig is getting ready for reactivation into our drilling fleet at the end of the year. This rig has a commitment today, and we expect to sign a 1-year contract for this rig this week, the rig will work in the Haynesville.
During the past three months, we re-contracted three rigs, including two SCRs, and in all cases, secured higher dayrates compared to the rig’s previous contracted dayrate. Including in these three contract renewals is a two-year contract extension in the Permian at current market rates for one of our 200 Series rigs. The counterparty for this two-year contract extension was one of the biggest oil companies in the world. So we really aren't seeing any contraction in demand in the Permian right now, and in if fact, we have seen an increase in inquiries over the past month or so, and not just in the Permian, we are seeing it also in the Haynesville, where we have a meaningful presence, and in Eagle Ford, where we've drilled before and can easily mobilize into.
Now I'd like to give everyone a brief update on where we are on the integration of front. And the combination between ICD and Sidewinder closed October 1. But we had worked on formulating the groundwork for integration throughout the summer. In other words, we were locked and loaded for execution at day one. In many respects, this is not a challenging process. From a cultural standpoint, the two companies are very similar in their commitment to safety, integrity and operational excellence.
I could not be more pleased with how our senior management and operational teams have meshed and how they view the world through a similar lens. Our operations are also in the same geographic markets of West Texas and Haynesville, and our corporate offices are both in Houston. All this means that we've already dealt with many of the cultural and other dislocation challenges and risks, that often exist when combining companies of similar size.
Having said that, there is an awful lot of work that has to be done to completely integrate our operations, and I'm very pleased with the progress we've made so far. Our managers and workforces are aligned and committed to making this integration as seamless as possible.
Earlier on, prior to close of the transaction, we identified and selected best practices and systems in both companies and key managers to lead the combined company. We are now fully engaged in harmonizing safety, management, maintenance, procurement, HR and accounting systems as well as combining offices. In fact, integration meetings with all rig-based staff was completed last week through our meetings that were held in Fort Worth during the month of October.
As you know, integrating two companies doesn't happen overnight. But we expect to be substantially complete by the first quarter of 2019, following the completion of our fiscal year 2018 audit, and upgrade and migration into our new ERP system. Our focus on selecting and streamlining best practices early on has already brought to light additional consolidation and operational synergies, which we were not able to identify during the pre-transaction due diligence.
Where we previously said, we were expecting $8 million to $10 million in consolidation synergies, we now think we will likely exceed the $10 million range now. With this, on a run rate to realize 10 million annualized by the end of the second quarter of 2019. And of course, we will always be looking and searching for additional ways to optimize our operation and save money, leveraging our larger scale as we move forward. Our most important focus as we navigate these efforts will be maintaining our safety-first commitment to our employees and customers and maintaining operational excellence.
So as I wrap up these prepared remarks, I would like to reiterate, how excited I am to be leading the ICD organization. And it's not just because of our opportunities for organic growth, free cash flow generation and market penetration, but also because of the talented, dedicated men and women I have been able to meet and work with each day since taking the helm of the company. Across the organization, ICD employees are energized to be part of a growing company with premium, high-specification drilling equipment, and committed to our core values of safety and operational excellence. I see it every day as I visit our rig sites, and participate in employee integration and planning meetings. The future is very bright for ICD.
And with that, I'll turn the call over to Phil to walk us through the financial details.
Thanks, Anthony. As Anthony mentioned, our third quarter results and balance sheet do not reflect any legacy Sidewinder operations or the closing of this strategic combination. So, I won't spend a lot of time on them on this call as our press release includes most of the details. But I do want to highlight the following. We reported record quarterly revenues and operating days. Overall, everything came in line with our prior guidance.
Adjusted net loss was $0.05 per share for the quarter and adjusted EBITDA was 6.8 million. This excludes merger-related expenses of 1.9 million and an impairment on assets classified for sale as a result of the Sidewinder combination. Revenue per day of $20,538 and fully burdened cost per day of $12,986, resulted in margin per day of $7,552, representing a 80% sequential margin improvement from the second quarter. Improvements were driven by contract drills to higher rates and cost coming in on the low end of our guidance range.
Excluding merger expenses, SG&A came in on the higher end of guidance, principally relating to incentive compensation accruals. And on the balance sheet side, our debt balance reflected completion and mobilization of Rig 214, and associated working capital investment, which began drilling during the quarter. Now moving on to what we look like post-combination.
We are operating 31 rigs right now, including three SCR rigs that are scheduled for conversion next year. As Anthony mentioned, one of our AC rigs is currently being reactivated and we expect it to mobilize for drilling operations by the end of the year. Anthony discussed two additional idle rigs, one SCR and one AC rig that are not currently in our marketed fleet that we plan to convert. We expect the first of these rigs could enter the fleet at the end of the second or beginning of the third quarter of next year. We would expect the second could enter the fleet at the end of 2019, depending on market conditions and the timing of our other rig conversions.
We had a pro forma backlog at September 30, including Sidewinder rigs of $156 million, representing approximately 20 rig years of work at an average dayrate and backlog of approximately $21,100. We believe our contract expiration and role schedule positions us well to realize improving dayrates as legacy contracts we rate to higher market rates over the next 12 months. During the third quarter of next year, all but three of our operating rigs will recontract to market dayrates. For our idle rig that we are reactivating at year-end, we're at the final stages of contract execution and expect to sign this contract later this week, but this contract is not yet included in our backlog.
I want to highlight material information relating to our balance sheet, post combination. At closing, we funded $130 million term loan, proceeds were utilized to repay ICD's outstanding debt balance and assume Sidewinder debt of $58.5 million. We entered into a new $40 million revolving line of credit with an initial borrowing base of approximately $35 million. At closing, we drew down $5 million on this revolver.
At closing, we paid $11.5 million in transaction expenses, relating to legal and banker fees, term loan and revolver commitment fees, DNO and reps and warranties insurance and other related matters. This was funded with net proceeds from the term loan and revolver and cash on hand. After the dust settled on October 1, our balance sheet reflected the term loan debt, $5 million of revolver debt and approximately $11 million of cash, including Sidewinder cash acquired in the combination. We also acquired other net working capital of approximately $9 million.
Going forward, financial liquidity will be provided by cash on hand, availability under our revolving credit facility and a $15 million committed delay feature under our term loan. At closing, after payment of transaction expenses, this overall liquidity was approximately $60 million. During the fourth quarter, we'll experience a few idle days associated with rigs we are transitioning to new customers post combination. And as I mentioned, we have one idle rig that will not begin operations until year-end.
With that background, revenue days should range between $2,790 and $2,805 during the quarter, reflecting a small amount of transition time between contracts for a couple of rigs. Average revenue per day should range between $20,000 and $20,500 per day with a slight sequential decline relating to fleet mix, pending the four SCR conversions and legacy contracts assumed in the strategic combination. We expect fully burdened operating cost per day to range between $13,200 and $13,600 per day, slightly higher than what we experienced during the third quarter, with the sequential increase relating primarily to transitory issues and labor pool investments while we combine and integrate operations of those combinations.
In addition, in connection with the partner realignment as part of our integration efforts, approximately, $150 of the per day increase relates to reclassification of costs that previously were accounted for as SG&A expenses. These per day expectations exclude pass through revenue and expenses, in addition, our cost per day exclude unabsorbed cost of our Galayda Yard, which we intend to sell in connection with the post combination consolidation of roofline as well as costs associated with the transition and disposition of idle equipment in connection with the strategic combination. We estimate cost for these items during the quarter will be approximately $600,000 in the aggregate.
Excluding integration and combination expenses, SG&A expenses for the quarter should approximate $5.5 million, including $200,000 of non-cash stock-based compensation expense. This does reflect the realization of some transaction synergies during the quarter, however, we do not expect to begin realizing a significant amount of these synergies until the first and second quarters of next year. And as Anthony mentioned in his prepared remarks, we don't expect the fully realized synergies on a run-rate basis until the beginning of the third quarter of next year.
Estimating depreciation expense is a little tricky, and it will be very dependent on the final purchase price allocation associated with the Sidewinder combination and related appraisals. We estimate all of this work but it is not yet complete, our best estimate at this time is the depreciation expense for the quarter will be between $11.5 million and $12.5 million.
Interest expense including amortization of commitment fees should approximate $3.5 million, and tax expense should continue to be de minimis, likely $100,000 or less. Approximately $250,000 of interest expense is non-cash. Our fourth quarter results also will reflect substantial charges associated with closing cost, executive and other severance, non-cash stock investing and integration costs. These charges are not included in the guidance I just provided, and we will break these out separately when we report our fourth quarter results.
For purposes of calculating per share information, our fully diluted shares for the quarter should be approximately 75.7 million shares. And finally, on the CapEx front, fourth quarter CapEx for the combined company will be approximately $6 million, relating to maintenance and the few items associated with the idle rig that is being reactivated at the end of the quarter and approximately $2.5 million in deposits, on the long lead time items required for the conversion of our four remaining SCR rigs, which we plan to complete by the end of 2019.
And with that, I'll turn the call back over to Anthony.
Thanks, Phil. I have no further comments at this time. Operator, let's go ahead and open it up for questions.
[Operator Instructions] And our first question comes from Taylor Zurcher with Tudor, Pickering and Holt.
As it relates to the Series 300 versus sort of Series 200 rigs, thinking ahead, obviously, the Series 300 sort of market class is much smaller today. And if we think about it over the next couple of years, do you see the market moving more towards these bigger rig specifications, moving forward?
And then secondarily, I mean, it sounds like the SCR to AC conversions will be converted to the Series 300-type rig. But are you getting any interest from customers today to upgrade some of your existing Series 200 rigs to the 300 status as well?
Taylor, it's Anthony here. Thank you for that question, really good question. So on the 200 Series situation, the 200 Series Class rig, as you know, is the workhorse in our fleet. It meets the requirements, exceeds a lot of the requirements for much of the work that's performed today in the US unconventional shale plays. There are opportunities, work requirements on the fringe today that do require greater setback capacity, for example, higher hook-load capacity and things like that. It’s certainly not the mainstay today, there's some interesting work going on in South Louisiana that does require that kind of spec.
There's some wells in the Haynesville, for example, that require that spec. But for the most part, we feel like the 200 Series class rig today meets the heart of the market that be in the US unconventional play. We always see opportunities to upgrade the 200 Series where we see those most often as adding a third pump, things like that. Those are upgrades that we will undertake, we have undertake, we'll continue to undertake provided we get paid for it. So feel really good about the fleet composition today, certainly, want to have an eye and a bias toward where the market may be going, but do want to emphasize that we go there only on the basis that we can get paid for it.
Okay, great. That's helpful. And one follow up there. Phil, I think you referenced the two idle rigs, one in terms of when they might roll out into the fleet after being upgraded, one, sort of, Q1/Q2, and one, perhaps, by the end of the year. For the three SCRs that are working today, could you give us a sense as to when the way you view those rigs might be upgraded and actually deployed to the market as new 300 Series rigs?
Yet, I think, the first SCR is one of the idle rigs, that one will go out, we're thinking midyear. And for the other three, they would start perhaps mid-year through the rest of the year. The timing really has to do with the delivery, the long lead time items. And then with the three operating SCR rigs, they're actually on drilling contracts, and a couple of them, we [indiscernible]. So if there's a timing issue on when those contracts expire and when we can do those conversions. But I would expect them beginning middle of the year through the end of the year, kind of, as the contracts expire.
Okay, great. And I'll maybe squeeze one more in on the cost guidance. I think you referenced some transitory items that are leading to the sequential increase there. Should we think about Q4 as being sort of a peak in terms of the cost per day and that number moving closer to $13,000 a day, I guess, over the back half of the year? Any help there would be helpful.
Yes. So I think it'll be next quarter and perhaps the first quarter. We're really -- we're making some labor pool investments to make sure that as we -- the transition crews amongst rigs and things, integrate the crews out in the field that we handle that properly. We're going to get some operating synergies as part of the synergies we talked about. There are operating cost synergies as well, those will come into play more in the second quarter going forward next year. So as those come into play, I think you're going to see us go below the guidance that we just provided.
And our next question comes from Daniel Burke with Johnson Rice.
I’ll just start with a straightforward one. Philip, can you give us a sense of CapEx for next year? I guess it's contingent upon the -- maybe the decision to go to full 300 Series on the SCRs, but just a range would be helpful.
Well, with the caveat, we don't have a budget yet that our board has approved. I'd probably put it in the following buckets. There's probably 10 million next year on the base SCR upgrades. Though we have 2.5 million spend this year. There's about $6 million of maintenance CapEx across the fleet. There's probably another, I would guess, $8 million to $12 million of other CapEx that we might do, third pump upgrades or buying drill pipe or things like that. And then kind of the -- how many of these 300 Series upgrades would we do to the SCR conversions? And that could be another $10 million potentially.
Got it. I wanted to make sure just that I understood the comment about taking the SCR rigs all the way up to 300 specs. I guess as I heard you explain it, Anthony, you all have board approval to advance those upgrades to 200 Series, but won't speculatively upgrade to 300 Series would need a customer commitment to advance to that stage? Is that correct?
Yes, Daniel. Difference is, we may have to make a read on where the market is going. We're stepping into this very conservatively, meaning we've laid out a plan, we have time lines. Of course, the marketing team needs to be able to market these rigs. So we thought through the critical path, all the components required to make the upgrades. What we've moved forward on today are the long lead time items that are required. But remember, we believe the first one 224 would come out kind of toward the latter part of Q2 next year. So we have a couple of months here where we can make final determinations on the exact rig specification that we will go forward on.
And in that time period, the marketing team will be visiting with customers. Of course, we're going to see CapEx budgets continue to be released over the next several weeks, couple of months, and that's going to give us a real good read to make that decision. But the point I'm trying to make is that we are stepping into this, we're stepping into it with a plan, and it's a very conservative plan. But at the end of the day, we’ll be driven by the market and in the contracts we think we can secure or will secure.
Got it. And then not to overly focus on this one piece of the business, but I guess to ask, on the three SCRs working today, how much downtime per rig do you think you'll experience to complete the upgrades?
Probably about 45 days. 30 to 45 days.
[Operator Instructions] Our next question comes from Ryan Pfingst with B. Riley FBR.
So with synergies looking better-than-expected and just with how the integration has gone so far, do you guys have an updated EBITDA or EBITDA per share growth estimate for 2019 that you could share with us?
We talked about 20%-plus, and I think that's still there for us. Nothing's really changed fundamentally on that.
Okay, great. And then with the acquisition close behind us, I know a lot is still on your plate, but if you had the chance to turn back to the 16th ShaleDriller rig and getting that to work at some point?
Yes, Ryan, 16th ShaleDriller rig is still an option, but it's one of the various alternatives we have from an investment perspective. So I guess the only thing or what has changed for us is with the combination and the close, we believe, we have some really attractive options or alternatives from a returns perspective that we're going to want to execute on first before we head down that path.
And I'd just add to that. When you think about that 16th rig and you look at the capital opportunity -- organic growth opportunities in front of us, that's the most expensive one. And so it's probably the least likely to happen until -- it's not going to happen until the other ones are kind of taken care of.
And at this time, I'm showing no further questions. I would like to turn the conference back to Anthony Gallegos for any closing remarks.
Okay, guys, really appreciate everybody dialing in. As we bring the call to a close, I'd like to reiterate, it's a great day to be involved with ICD. As an employee, there's a tremendous buzz in the company. We have more opportunities for career advancement. As a customer, we can provide you more rigs than ever before and have a wider array of drilling options to make available to you. Because of our larger size, we're better positioned to enter into larger strategic relationships with our premium customer base. As an investor, we have better financial security, vis-à-vis our stronger balance sheet and low risk line of sight to substantial growth and free cash flow generation over the next couple of years.
We appreciate everybody dialing in and spending a few minutes with us this morning. We look forward to seeing you all on the road at upcoming investor relations conferences and updating you on our results and progress and early next year as we discuss our fourth quarter results. With that, we'll end the call.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.