TSE:ESI Ensign Energy Services Q2 2024 Earnings Report C$1.87 +0.02 (+1.08%) As of 05/2/2025 04:00 PM Eastern Earnings HistoryForecast Ensign Energy Services EPS ResultsActual EPS-C$0.02Consensus EPS -C$0.04Beat/MissBeat by +C$0.02One Year Ago EPSN/AEnsign Energy Services Revenue ResultsActual Revenue$391.79 millionExpected Revenue$387.80 millionBeat/MissBeat by +$3.99 millionYoY Revenue GrowthN/AEnsign Energy Services Announcement DetailsQuarterQ2 2024Date8/2/2024TimeN/AConference Call DateFriday, August 2, 2024Conference Call Time12:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptInterim ReportEarnings HistoryCompany ProfilePowered by Ensign Energy Services Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 2, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good afternoon, ladies and gentlemen, and welcome to the Amazigh Energy Services Second Quarter 2024 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for a question. I would now like to turn the conference over to Nicole Romano, Investor Relations. Operator00:00:33Please go ahead. Speaker 100:00:35Thank you, Jenny. Good morning, and welcome to Ensign Energy Services' 2nd quarter conference call and web cast. On our call today, Bob Geddes, President and COO and Mike Gray, Chief Financial Officer, will review Ensign's 2nd quarter highlights and financial results, followed by our operational update and outlook. We'll then open the call for questions. Our discussion today may include forward looking statements based upon current expectations that involve several business risks and uncertainties. Speaker 100:01:05The factors that could cause results to differ materially include, but are not limited to, political, economic and market conditions crude oil and natural gas prices foreign currency fluctuations weather conditions the company's defensive lawsuits, the ability of oil and gas companies to pay accounts receivable balances or other unforeseen conditions, which could impact the demand for the services supplied by the company. Additionally, our discussion today may refer to non GAAP financial measures such as adjusted EBITDA. Please see our Q2 earnings release and SEDAR Plus filings for more information on forward looking statements and the company's use of non GAAP financial measures. With that, I'll pass it on to Bob. Speaker 200:01:46Thanks, Nicole. Good morning, everyone. I'll provide some introductory commentary. The Q2 was one of the strongest quarters in Ensign's history, buoyed by strong and increasing demand for our Canadian rigs, especially our high spec singles, doubles and triples, which provided a 15% increase year over year for the quarter. We also saw a year over year increase in our highly active international business unit where we operate in 6 different countries and where we saw marginal year over year increases in activity. Speaker 200:02:13In contrast, our U. S. Business unit is seeing reduced activity across the board as M and A activity sorts itself out through the rest of 2024. With steady margins and solid activity levels generally around the globe, we have been able to address another $80,000,000 of debt reduction in the quarter and stay on the path to reduce $600,000,000 of debt over the next 3 years with a solid cash flow stream into a building book and increasing margin construct. I'll pass it over to Mike to expand on that. Speaker 300:02:41Thanks, Bob. Customer consolidation in the U. S. Has impacted Ensign's operating and financial results over the short term. However, despite the short term headwind, the outlook for oilfield services is constructive and the operating environment for the oil and natural gas industry continues to support relatively steady demand for services. Speaker 300:02:58Overall, operating days declined in the Q2 of 2024 due to a 32% decrease in the United States to 2,912 operating days. Partially offsetting this decrease, Canadian operations recorded 2,451 operating days, an increase of 15% and international operations recorded 12.55 days, a 1% increase compared to the Q2 of 2023. For the 1st 6 months ended June 30, 2024, overall operating days declined with the United States recording a 32% decrease, offsetting by a 5% increase in Canada and a 9% increase in international when compared to the same period in 2023. The company generated revenue of $391,800,000 in the Q2 of 2024, a 9% decrease compared to revenue of $432,800,000 generated in the Q2 of Speaker 200:03:46the prior year. For the Speaker 300:03:481st 6 months ended June 30, 2024, the company generated revenue of $823,100,000 a 10% decrease compared to revenue of 916,800,000 dollars generated in the same period of 2023. Adjusted EBITDA for the Q2 of 2024 was $100,200,000 14% lower than adjusted EBITDA of $116,600,000 in the Q2 of 2023. Adjusted EBITDA for the 6 months ended June 30, 2024 totaled 217,700,000 dollars 11% lower than adjusted EBITDA of $243,900,000 generated in the same period in 2023. The decrease in 2024 is due to year over year declines in drilling activity. Depreciation expense for the 1st 6 months 24 was $170,800,000 an increase of 12% compared to $152,700,000 in the 1st 6 months of 2023. Speaker 300:04:39General and administrative expenses in the Q2 of 2024 was $15,500,000 up from $14,600,000 in the Q2 of 2023. G and A expenses increased primarily as a result of the annual wage increases. Interest expense decreased by 19% to $25,500,000 from $31,600,000 The decrease is a result of lower debt levels and reduced effective interest rates. During the Q2 of 2024, dollars 78,900,000 of debt was repaid and a total of $90,300,000 was repaid for the first half of twenty twenty four. From January 1, 2023 to June 30, 2024, a total of $307,900,000 of debt has been repaid, leaving $292,100,000 of the 600,000,000 debt reduction target expected to be achieved by the end of 2025. Speaker 300:05:27Net purchase of the property and equipment for the Q2 of 2024 totaled $40,300,000 consisting of $2,400,000 in upgrade capital, dollars 46,100,000 in maintenance capital, offset by disposition proceeds of $8,100,000 Gross capital expenditures for 2024 are targeted to be approximately $147,000,000 dollars primarily related to maintenance expenditures and selective growth projects. On that note, I'll turn the call back to Bob. Thanks, Mike. Speaker 200:05:54So let's start with Canada operational update. First off, we're seeing a nice macro construct building in our Canadian business unit. The combination of expanded pipeline capacity both for oil and natural gas, the tightening differential and with the low Canadian dollar, the net effect that more drilling will occur in the Western Canadian Centimeters Basin moving forward. It's safe to say that the demand for our high spec singles and high spec triples is at the highest it has been in quite some time, at least a decade. This has also helped to drive the high spec double market to enjoy utilization of 60%. Speaker 200:06:3060% is a typical threshold where contractors are able to raise pricing and have it stick. Almost a third of Ensign's Canadian fleet is high spec doubles, so we have lots of product to feed into this construct. Our fleet of high spec singles and high spec triples are essentially booked well into 20 25 and we have some discussions going on with operators to mobilize some underutilized and fungible assets out of the U. S. Where the operator will cover the full ride and any costs required to get on to their first location. Speaker 200:06:58We are currently already back to the same peak level we saw last winter, which rarely occurs in the Canadian market so soon after breakup. We expect to also add a few more rigs between now year end. As mentioned, we have almost 90% of the current active fleet contracted until the end of Q1 2025. And in most cases, we have ratcheting rate increases compounding as we move through the fall season and into the winter drilling season. Our well servicing business in Canada has a strong schedule ahead for its rigs in the heavy oil area and in the back half of the year is expected to pick up as we capture more of the OWA work. Speaker 200:07:35Our rental fleet of tubulars, tanks and other high margin ancillary equipment continues to grow as more and more specialty equipment is called for, usually high torque tubulars to attach to our high spec ADR drill rigs. With accelerated wear an issue on tubulars as a result of a high penetration rates, it is becoming the norm for tubulars to be charged separate from the rig rate. Moving on to our international business unit, lots of exciting news in this area. We have a fleet of 30 plus drill rigs that operate in 6 different countries around the globe. In the Middle East, we have 100 percent of our high spec ADR fleet actively working on long term contracts. Speaker 200:08:16And with half of them on performance based contracts, we're able to get paid for the performance our high performance drilling team provides when coupled with our Edge Autopilot drill rig control systems. In Argentina, we're running at 100 percent utilization with both our 2,000 horsepower high spec ADRs operating under long term contracts. We have one of our drill rigs working in Venezuela with another ready to start up in the next month. There are obviously some daily developments in Venezuela, which are captivating the world, but so far we have seen no impact on the operation in the field. Australia is staying steady with little change. Speaker 200:08:49Moving to the United States, we have a fleet of 77 high spec ADRs in U. S. Stretching from the California market up into the Rockies and with the main focus on the Permian. We operate roughly 37 rigs today and expect a little change through the rest of 2024. The challenge in the U. Speaker 200:09:05S. Is that in addition to the depressed natural gas prices, we saw $500,000,000,000 of M and A activity in the last 18 months occur, which has manifested itself into less work in the short term. The natural gas story may take a bit longer to correct itself. The good news is that we have mainly been an oil focused driller in the U. S. Speaker 200:09:22Market. Coming back to the effects of M and A, until the combined entities get through a budget cycle and start addressing decline rates, we don't expect solid improvements in the U. S. Market until early to mid-twenty 25. Our U. Speaker 200:09:35S. Business unit continues to expand its PBI contract base and now has over half the fleet on a PBI contract that builds off our Performance Driller team coupled with our Edge Autopilot Driller Control Technology. Not only do we get a rate for Edge Autopilot technology, we capture the upside value generated to the operator through performance metrics. Our well site I'm sorry, our well service business unit, which is focused primarily on the Rockies and California well servicing market continues to enjoy high utilization in the upper 80s. Our directional drilling business, which is essentially a mud motor rental business, continues to provide some of the best motors of high quality rebuilds in the Rockies. Speaker 200:10:16Moving on to our Edge Autopilot drilling rig control systems, we continue to deploy Edge Autopilot, which employs algorithms and AI on new rigs and continue to expand the Edge Autopilot platform on each of the rigs that already have our Edge Autopilot drilling rig control technology. This part of our business continues to grow at a rapid pace year over year. It delivers results with reduced well times and increased P rates with reduced well tortuosity. With that, I'll move to questions. Operator00:10:49Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question is from Aaron Mateo from TD Cowen. Please ask your question. Speaker 400:11:23Hey, morning. Thanks for taking my questions. Bob, the debt repayment commitments don't leave a ton of wiggle room for growth capital. I think you've spent maybe $4,000,000 today. Speaker 500:11:35In your view, Speaker 400:11:36are you having to turn down organic capital opportunities with bid returns that your customers are asking for? Or do you think you're generally keeping pace with what your customers need? Speaker 200:11:47Yes. No, for sure, we're keeping pace. And then in conversations, we have the because we are drilling wells faster, the operator is willing to help invest in any upgrades in that growth CapEx side. So the market continues to absorb that conversation well. Speaker 400:12:09Okay. Sort of switching gears here, we've seen H and P do a big international deal and sort of indicate they may move rigs to international markets. I guess, what's your appetite to engage in that given that you already have such a big international presence? Speaker 200:12:25Yes. Yes. Well, as you know, we started that movement 20 years ago with the OD and E acquisition and have expanded that running 30 plus rigs. It is and we operate in 6 different countries outside of North America. It is a challenging business for sure. Speaker 200:12:44International comes with its own investing challenges. I would say that we've been feeding rigs out of North America. For instance, our Argentinian rigs are rigs that we bought through Rowan acquisition that were upgraded by the client and shipped to Argentina. So we've been quietly doing this for some time. We shipped 10 ADR, smaller ADRs out of Canada when the coal seam gas fell apart and we shipped them to Australia. Speaker 200:13:16So it's I'm glad to see another contractor understand that you need to get outside of North America. H and P is a strong well run company, so I'm sure they'll do well. Speaker 400:13:34And again, I guess maybe the better question to ask is like what sort of a checklist that you'd have to go to wish list you'd have to go through to maybe move a rig in your fleet to an international market? And then where do Speaker 200:13:48you think would represent the best opportunities for the fleet? Well, that's a good question because it's a dynamic process. We look at Australia as being a pretty static business with small and steady growth as they develop natural gas into their utility grid. The Middle East is steady. Bahrain, we have 2 rigs. Speaker 200:14:11Those are well contracted, same with Kuwait, Oman. We've got 3 ADRs there. 1 is coming down here for a short period of time. We already have another operator saying they'd like to pick it up plus add a few more to it. So I'm not worried about when you perform, you always find work. Speaker 200:14:38So those rigs are continuing to work. But we're not interested in going into new countries. We are always interested in expanding our footprint in the countries we're in. That makes more sense for us. Speaker 400:14:50Okay. Thanks. I'll turn it back. Speaker 200:14:53Thanks, Aaron. Operator00:14:58Okay. Your next question is from Makar Sajan Raj from ACV Capital Markets. Please ask your question. Speaker 500:15:06Thank you for taking my question. Bob, so you mentioned that you have 37 rigs running in the U. S. Right now. How does that number compare to the average in Q2? Speaker 200:15:25You mean in historical Q2s, is that what your question is, Ricard? Speaker 500:15:29Yes, that's correct. Like this Q2, twenty twenty four, what was the average number of rigs running? Speaker 200:15:39In all of the U. S, is that what you mean? Speaker 400:15:41Yes, we're Speaker 200:15:44hanging on to about 7% market share. We're down year over year for the quarter by about, oh gosh, 10 rigs year over year for the quarter in the U. S. Speaker 500:15:57Okay. Now your revenues quarter over quarter in the U. S. Were flat at around $208,000,000 Your rig count was down. So what's the gap? Speaker 500:16:06Is it all well service? Hours were up 35%. Did that kind of help the quarter over quarter revenue comparison? Or there was something else as well or rates the rate scope went up? Or what was the cause of flat revenues? Speaker 300:16:24We saw the increase in well servicing. Then we also this is the increase as Bob was talking about drill pipe being outside the contract now. So some ancillary add ons and then well servicing would be the largest contributors to that gap. Speaker 500:16:41And is that sustainable into the subsequent quarters as well in Q3 and Q4? Outside of contract day rates that you're seeing revenue pickup as well as well servicing hours in Q3? Speaker 200:16:59For sure. The things like the drill pipe, for example, La Car have manifested itself from the accelerated penetration rates and the use of flocked water versus oil based mud systems and a lot of these cases, it tears drill pipe apart pretty quickly. We used to get 6 to 7 years out of drill pipe. We get maybe 2 to 3 years max out of drill pipe in some case less than that. And every contractor is feeling that same push. Speaker 200:17:37Everyone's drill pipe costs are up about 3 times what they were 5 years ago. And that's why the move to put it outside the contract to get a rate for it. In some cases, we have the operator provide the pipe and we just manage it for them. And then we've got the other end of the extreme. We'll give them a rate as high as $8,000 a day for managing the pipe, handling the destruction and the replacement of the pipe through the process. Speaker 200:18:11So it's somewhere in between, but it will continue to be a charge as we continue to have these high penetration rates in these 4 mile, 3 and 4 mile laterals, not going away. Speaker 500:18:26That makes sense. And then could you talk about asset sales? So Mike, there was a $40,000,000 real estate portfolio that you were interested in selling. We saw $8,000,000 of asset sales in Q2, dollars 3,000,000 in Q1. What should we be expecting for the second half? Speaker 300:18:53We're working through it. We have 2 properties up in Niskiyou that are actually marketed right now and we're working through a process in the U. S. So I would expect movement of that in Q4, not the whole balance, but a portion of the balance I believe will be closing in Q4. Speaker 500:19:14Okay. That makes sense. And then the $147,000,000 CapEx number that remains unchanged. Do you see anything in the horizon that could move it up or down? Speaker 300:19:27I think there is I mean with the U. S. Muted activity that will probably put I think a cap on some of the CapEx that was required for the U. S. But also I mean there's some international opportunities here and there. Speaker 300:19:38So for most part that should be fairly steady. If anything, if it does increase, it's usually tied to an EBITDA event, so net positive to the balance sheet and the income statement. So once again, if it's a positive impact, then we'll definitely look at stuff, but it should be really steady around there. Speaker 200:19:55Yes, we won't invest in any CapEx. It doesn't pay for itself in less than a 1 year period. Right. That's good. Yes. Speaker 500:20:05And then just one Speaker 200:20:14Well, it seems like it's bottomed. It depends on the area and the type of rig. But I would say that it feels like it's hit bottom. We've been catching the falling knife in the last quarter as the markets haven't moved. The Permian is still running 304, but it's not going up, but it isn't going down. Speaker 200:20:40So as operators merge together, of course, the first thing they do is they remove a few rigs, get to the end of the year, put together a new pro form a budget on the consolidated business and then walk into 2025. So we kind of expected all the 7 activity would provide that result. So it's not a surprise, but I would say rates have stabilized at the bottom end. And with drill pipe outside now and part of the total gross rig rate, we're still in the low 30s on a gross basis. Speaker 500:21:23Okay. And on these M and As like we've seen a number of these big mega mergers. Now where do you stand with respect to your exposure to the acquirers versus the target company? Speaker 200:21:41Well, we're on the right side of that equation on probably 80% of our portfolio, which is a nice place to be. The other nice place to be is to have industry reports showing Ensign as the highest penetration rate driller of the top 6 in the U. S. So the we're in conversations with companies that are the acquirer, where the acquiree, we did a lot of work for and they're going, hey, we want to hang on to those rigs. Speaker 500:22:17That's great. Well, thank you very much. Thanks for the answers. Speaker 200:22:21Thanks, Robert. Operator00:22:25Thank you. Your next question is from Steve McKay from RBC Capital Markets. Please ask the question. Speaker 600:22:34Thanks. And just a question about your debt repayment target, maintain the $600,000,000 to $20.25 And of course, you always note that industry conditions could move that up or down. But based on prevailing industry conditions we see now with rig counts where they are, if that stays flat from here, do you see any risk to that $600,000,000 debt repayment target? Speaker 300:23:03No, when we look at the interest savings year over year, that's starting to decrease quite a bit. I mean, it was down almost 20% year over year. So you have some buffer being built in on the P and L from interest savings. If activity remains sort of steady as it is, your CapEx is going to remain kind of in that 150 range. So consensus for 2024 is 450 is 25, I mean, who knows where that's going to be plus or minus, but when you look at that with $150,000,000 in CapEx, dollars 90,000,000 or less in interest expense, there's about $210,000,000 of free cash flow to go towards repayments. Speaker 300:23:37And then we do have some non operational stuff like asset sales and some working capital movements to kind of aid in that. So yes, when we look at it, I mean, if everything kind of remains steady, we foresee this being quite easily to be achievable. Speaker 600:23:55Yes, okay. Sounds good. And just a question on your, you mentioned the free cash flow number. There's also some mandatory debt repayments and liquidity reductions forthcoming. Speaker 100:24:07At the end of the Speaker 600:24:08year and into Q1 next year, if the street consensus is right, what kind of breathing room do you foresee having in terms of liquidity? Speaker 300:24:19We never get into specifics. I mean, we'll have ample liquidity that continues around the business as we've had in the past. Speaker 600:24:28Fair enough. And just one more question on your maintenance CapEx per rig in the U. S. What approximately is that Speaker 200:24:38running these days? Good question. We like to think of the operating rig on an annual basis requiring about 1 to 1.25 depending on the type of rig it is. Speaker 600:24:55Got it. Is that Canadian or U. S? Speaker 200:24:58That'd be U. S. For U. S. And CAD for Canadian, yes. Speaker 600:25:04Got it. Okay. Thanks very much. That's it for me. Speaker 200:25:08Thank you. Operator00:25:16Your next question is from Joseph Schechter from Schechter Energy. Please ask your question. Speaker 700:25:22Good morning, Bob, Mike and Nicole. Challenging day to have your conference call given what's going on in the market. I wanted to ask a macro question. November 5 is a big day in the States and energy industry could have 180 difference in terms of go forward strategy based on what happens that day that night. Are you getting any commentary from companies saying that we'll keep what's going on into Q4, but Q1 is up in the air depending upon the results of November 5? Speaker 200:25:59That's a good question, Joseph. I think that what we're seeing is the macro fundamentals of demand play out. Not to get into too much of the pulpits, but we saw one of the contestants suggest that they've changed their platform on fracking and they're okay with fracking now. So we're not getting any feedback from our operators. A lot of them are saying we're certainly not going to accelerate drilling in the Q4. Speaker 200:26:34And I think that's driven more so not by the election, but by, I guess, the staying with their plan to deliver shareholder return, not to accelerate CapEx and just staying disciplined. So I don't think the election has much impact is what we're seeing. Speaker 700:26:58Thanks for that. That's it for me. Operator00:27:05Thank you. There are no further questions at this time. Please proceed. Speaker 200:27:10All right. Thank you, operator. Closing statements. Looking forward, it's an exciting time for Ensign with robust Canadian and international market fundamentals and improving long term outlook in all of our U. S. Speaker 200:27:22Markets and excellent visibility for sustained free cash flow with growing margins to continue executing on our debt reduction plan. With the application of Edge Autopilot combined with an expanding performance based contract base backed up with our superior performance drilling teams in the field, Ensign is delivering value to operators, which supports rate increases moving forward. Again, the focus continues to be accelerating debt reduction into a steadily improving construct for the drilling and well servicing businesses globally. Like to thank our professional crews and our employees along with our customers for helping Ensign achieve the performance and industry leading milestones that we that industry does recognize us for. I look forward to our next call in 3 months' time. Speaker 200:28:05Stay safe. Thank you. Operator00:28:09Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallEnsign Energy Services Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsInterim report Ensign Energy Services Earnings HeadlinesEnsign Energy Services Inc. - First Quarter 2025 Earnings Conference Call and WebcastApril 21, 2025 | finance.yahoo.comCEO buys as Ensign Energy Services shares tumble with the marketApril 11, 2025 | theglobeandmail.comTrump wipes out trillions overnight…Is there anybody more powerful than Donald Trump right now? In a single tariff announcement, he wiped out nearly $5 trillion in wealth from the S&P 500 and $6.4 trillion from the Dow Jones… Not to mention the countless trillions of dollars lost in every market around the world… leaving the major political powers scrambling in fear of Trump’s next move.May 4, 2025 | Porter & Company (Ad)Ensign Energy Services President Acquires 2.6% More StockApril 6, 2025 | finance.yahoo.comCIBC Sticks to Their Hold Rating for Ensign Energy Services (ESI)March 10, 2025 | markets.businessinsider.comEnsign Energy Services (ESI) Receives a Hold from TD CowenMarch 10, 2025 | markets.businessinsider.comSee More Ensign Energy Services Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Ensign Energy Services? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Ensign Energy Services and other key companies, straight to your email. Email Address About Ensign Energy ServicesEnsign Energy Services (TSE:ESI), together with its subsidiaries, provides oilfield services to the crude oil and natural gas industries in Canada, the United States, and internationally. The company offers shallow, intermediate, and deep well drilling, as well as specialized drilling services, including horizontal, underbalanced, horizontal re-entry, and slant drilling for steam assisted gravity drainage applications; and equipment and services. It provides coring and oil sands drilling services to the mining, and oil and natural gas industries; directional drilling services; equipment rental services; shallow to deep well services, such as completions, abandonments, production workovers, and bottom hole pump changes for oil and natural gas producers; and interactive pressure drilling services with self-contained systems comprising nitrogen generation and compression equipment, and surface control systems. In addition, the company rents drill strings, loaders, tanks, pumps, rig mattings, blow-out preventers, waste bins, and wastewater treatment equipment for the drilling and completions segments of the oilfield industry. Further, it offers transportation and well servicing services. The company operates land drilling rigs, specialty coring rigs, and well servicing rigs. Ensign Energy Services Inc. was incorporated in 1987 and is headquartered in Calgary, Canada.View Ensign Energy Services ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Amazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback PlanMicrosoft Crushes Earnings, What’s Next for MSFT Stock?Qualcomm's Earnings: 2 Reasons to Buy, 1 to Stay AwayAMD Stock Signals Strong Buy Ahead of Earnings Upcoming Earnings Palantir Technologies (5/5/2025)Vertex Pharmaceuticals (5/5/2025)Realty Income (5/5/2025)Williams Companies (5/5/2025)CRH (5/5/2025)Advanced Micro Devices (5/6/2025)American Electric Power (5/6/2025)Constellation Energy (5/6/2025)Marriott International (5/6/2025)Energy Transfer (5/6/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 8 speakers on the call. Operator00:00:00Good afternoon, ladies and gentlemen, and welcome to the Amazigh Energy Services Second Quarter 2024 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for a question. I would now like to turn the conference over to Nicole Romano, Investor Relations. Operator00:00:33Please go ahead. Speaker 100:00:35Thank you, Jenny. Good morning, and welcome to Ensign Energy Services' 2nd quarter conference call and web cast. On our call today, Bob Geddes, President and COO and Mike Gray, Chief Financial Officer, will review Ensign's 2nd quarter highlights and financial results, followed by our operational update and outlook. We'll then open the call for questions. Our discussion today may include forward looking statements based upon current expectations that involve several business risks and uncertainties. Speaker 100:01:05The factors that could cause results to differ materially include, but are not limited to, political, economic and market conditions crude oil and natural gas prices foreign currency fluctuations weather conditions the company's defensive lawsuits, the ability of oil and gas companies to pay accounts receivable balances or other unforeseen conditions, which could impact the demand for the services supplied by the company. Additionally, our discussion today may refer to non GAAP financial measures such as adjusted EBITDA. Please see our Q2 earnings release and SEDAR Plus filings for more information on forward looking statements and the company's use of non GAAP financial measures. With that, I'll pass it on to Bob. Speaker 200:01:46Thanks, Nicole. Good morning, everyone. I'll provide some introductory commentary. The Q2 was one of the strongest quarters in Ensign's history, buoyed by strong and increasing demand for our Canadian rigs, especially our high spec singles, doubles and triples, which provided a 15% increase year over year for the quarter. We also saw a year over year increase in our highly active international business unit where we operate in 6 different countries and where we saw marginal year over year increases in activity. Speaker 200:02:13In contrast, our U. S. Business unit is seeing reduced activity across the board as M and A activity sorts itself out through the rest of 2024. With steady margins and solid activity levels generally around the globe, we have been able to address another $80,000,000 of debt reduction in the quarter and stay on the path to reduce $600,000,000 of debt over the next 3 years with a solid cash flow stream into a building book and increasing margin construct. I'll pass it over to Mike to expand on that. Speaker 300:02:41Thanks, Bob. Customer consolidation in the U. S. Has impacted Ensign's operating and financial results over the short term. However, despite the short term headwind, the outlook for oilfield services is constructive and the operating environment for the oil and natural gas industry continues to support relatively steady demand for services. Speaker 300:02:58Overall, operating days declined in the Q2 of 2024 due to a 32% decrease in the United States to 2,912 operating days. Partially offsetting this decrease, Canadian operations recorded 2,451 operating days, an increase of 15% and international operations recorded 12.55 days, a 1% increase compared to the Q2 of 2023. For the 1st 6 months ended June 30, 2024, overall operating days declined with the United States recording a 32% decrease, offsetting by a 5% increase in Canada and a 9% increase in international when compared to the same period in 2023. The company generated revenue of $391,800,000 in the Q2 of 2024, a 9% decrease compared to revenue of $432,800,000 generated in the Q2 of Speaker 200:03:46the prior year. For the Speaker 300:03:481st 6 months ended June 30, 2024, the company generated revenue of $823,100,000 a 10% decrease compared to revenue of 916,800,000 dollars generated in the same period of 2023. Adjusted EBITDA for the Q2 of 2024 was $100,200,000 14% lower than adjusted EBITDA of $116,600,000 in the Q2 of 2023. Adjusted EBITDA for the 6 months ended June 30, 2024 totaled 217,700,000 dollars 11% lower than adjusted EBITDA of $243,900,000 generated in the same period in 2023. The decrease in 2024 is due to year over year declines in drilling activity. Depreciation expense for the 1st 6 months 24 was $170,800,000 an increase of 12% compared to $152,700,000 in the 1st 6 months of 2023. Speaker 300:04:39General and administrative expenses in the Q2 of 2024 was $15,500,000 up from $14,600,000 in the Q2 of 2023. G and A expenses increased primarily as a result of the annual wage increases. Interest expense decreased by 19% to $25,500,000 from $31,600,000 The decrease is a result of lower debt levels and reduced effective interest rates. During the Q2 of 2024, dollars 78,900,000 of debt was repaid and a total of $90,300,000 was repaid for the first half of twenty twenty four. From January 1, 2023 to June 30, 2024, a total of $307,900,000 of debt has been repaid, leaving $292,100,000 of the 600,000,000 debt reduction target expected to be achieved by the end of 2025. Speaker 300:05:27Net purchase of the property and equipment for the Q2 of 2024 totaled $40,300,000 consisting of $2,400,000 in upgrade capital, dollars 46,100,000 in maintenance capital, offset by disposition proceeds of $8,100,000 Gross capital expenditures for 2024 are targeted to be approximately $147,000,000 dollars primarily related to maintenance expenditures and selective growth projects. On that note, I'll turn the call back to Bob. Thanks, Mike. Speaker 200:05:54So let's start with Canada operational update. First off, we're seeing a nice macro construct building in our Canadian business unit. The combination of expanded pipeline capacity both for oil and natural gas, the tightening differential and with the low Canadian dollar, the net effect that more drilling will occur in the Western Canadian Centimeters Basin moving forward. It's safe to say that the demand for our high spec singles and high spec triples is at the highest it has been in quite some time, at least a decade. This has also helped to drive the high spec double market to enjoy utilization of 60%. Speaker 200:06:3060% is a typical threshold where contractors are able to raise pricing and have it stick. Almost a third of Ensign's Canadian fleet is high spec doubles, so we have lots of product to feed into this construct. Our fleet of high spec singles and high spec triples are essentially booked well into 20 25 and we have some discussions going on with operators to mobilize some underutilized and fungible assets out of the U. S. Where the operator will cover the full ride and any costs required to get on to their first location. Speaker 200:06:58We are currently already back to the same peak level we saw last winter, which rarely occurs in the Canadian market so soon after breakup. We expect to also add a few more rigs between now year end. As mentioned, we have almost 90% of the current active fleet contracted until the end of Q1 2025. And in most cases, we have ratcheting rate increases compounding as we move through the fall season and into the winter drilling season. Our well servicing business in Canada has a strong schedule ahead for its rigs in the heavy oil area and in the back half of the year is expected to pick up as we capture more of the OWA work. Speaker 200:07:35Our rental fleet of tubulars, tanks and other high margin ancillary equipment continues to grow as more and more specialty equipment is called for, usually high torque tubulars to attach to our high spec ADR drill rigs. With accelerated wear an issue on tubulars as a result of a high penetration rates, it is becoming the norm for tubulars to be charged separate from the rig rate. Moving on to our international business unit, lots of exciting news in this area. We have a fleet of 30 plus drill rigs that operate in 6 different countries around the globe. In the Middle East, we have 100 percent of our high spec ADR fleet actively working on long term contracts. Speaker 200:08:16And with half of them on performance based contracts, we're able to get paid for the performance our high performance drilling team provides when coupled with our Edge Autopilot drill rig control systems. In Argentina, we're running at 100 percent utilization with both our 2,000 horsepower high spec ADRs operating under long term contracts. We have one of our drill rigs working in Venezuela with another ready to start up in the next month. There are obviously some daily developments in Venezuela, which are captivating the world, but so far we have seen no impact on the operation in the field. Australia is staying steady with little change. Speaker 200:08:49Moving to the United States, we have a fleet of 77 high spec ADRs in U. S. Stretching from the California market up into the Rockies and with the main focus on the Permian. We operate roughly 37 rigs today and expect a little change through the rest of 2024. The challenge in the U. Speaker 200:09:05S. Is that in addition to the depressed natural gas prices, we saw $500,000,000,000 of M and A activity in the last 18 months occur, which has manifested itself into less work in the short term. The natural gas story may take a bit longer to correct itself. The good news is that we have mainly been an oil focused driller in the U. S. Speaker 200:09:22Market. Coming back to the effects of M and A, until the combined entities get through a budget cycle and start addressing decline rates, we don't expect solid improvements in the U. S. Market until early to mid-twenty 25. Our U. Speaker 200:09:35S. Business unit continues to expand its PBI contract base and now has over half the fleet on a PBI contract that builds off our Performance Driller team coupled with our Edge Autopilot Driller Control Technology. Not only do we get a rate for Edge Autopilot technology, we capture the upside value generated to the operator through performance metrics. Our well site I'm sorry, our well service business unit, which is focused primarily on the Rockies and California well servicing market continues to enjoy high utilization in the upper 80s. Our directional drilling business, which is essentially a mud motor rental business, continues to provide some of the best motors of high quality rebuilds in the Rockies. Speaker 200:10:16Moving on to our Edge Autopilot drilling rig control systems, we continue to deploy Edge Autopilot, which employs algorithms and AI on new rigs and continue to expand the Edge Autopilot platform on each of the rigs that already have our Edge Autopilot drilling rig control technology. This part of our business continues to grow at a rapid pace year over year. It delivers results with reduced well times and increased P rates with reduced well tortuosity. With that, I'll move to questions. Operator00:10:49Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question is from Aaron Mateo from TD Cowen. Please ask your question. Speaker 400:11:23Hey, morning. Thanks for taking my questions. Bob, the debt repayment commitments don't leave a ton of wiggle room for growth capital. I think you've spent maybe $4,000,000 today. Speaker 500:11:35In your view, Speaker 400:11:36are you having to turn down organic capital opportunities with bid returns that your customers are asking for? Or do you think you're generally keeping pace with what your customers need? Speaker 200:11:47Yes. No, for sure, we're keeping pace. And then in conversations, we have the because we are drilling wells faster, the operator is willing to help invest in any upgrades in that growth CapEx side. So the market continues to absorb that conversation well. Speaker 400:12:09Okay. Sort of switching gears here, we've seen H and P do a big international deal and sort of indicate they may move rigs to international markets. I guess, what's your appetite to engage in that given that you already have such a big international presence? Speaker 200:12:25Yes. Yes. Well, as you know, we started that movement 20 years ago with the OD and E acquisition and have expanded that running 30 plus rigs. It is and we operate in 6 different countries outside of North America. It is a challenging business for sure. Speaker 200:12:44International comes with its own investing challenges. I would say that we've been feeding rigs out of North America. For instance, our Argentinian rigs are rigs that we bought through Rowan acquisition that were upgraded by the client and shipped to Argentina. So we've been quietly doing this for some time. We shipped 10 ADR, smaller ADRs out of Canada when the coal seam gas fell apart and we shipped them to Australia. Speaker 200:13:16So it's I'm glad to see another contractor understand that you need to get outside of North America. H and P is a strong well run company, so I'm sure they'll do well. Speaker 400:13:34And again, I guess maybe the better question to ask is like what sort of a checklist that you'd have to go to wish list you'd have to go through to maybe move a rig in your fleet to an international market? And then where do Speaker 200:13:48you think would represent the best opportunities for the fleet? Well, that's a good question because it's a dynamic process. We look at Australia as being a pretty static business with small and steady growth as they develop natural gas into their utility grid. The Middle East is steady. Bahrain, we have 2 rigs. Speaker 200:14:11Those are well contracted, same with Kuwait, Oman. We've got 3 ADRs there. 1 is coming down here for a short period of time. We already have another operator saying they'd like to pick it up plus add a few more to it. So I'm not worried about when you perform, you always find work. Speaker 200:14:38So those rigs are continuing to work. But we're not interested in going into new countries. We are always interested in expanding our footprint in the countries we're in. That makes more sense for us. Speaker 400:14:50Okay. Thanks. I'll turn it back. Speaker 200:14:53Thanks, Aaron. Operator00:14:58Okay. Your next question is from Makar Sajan Raj from ACV Capital Markets. Please ask your question. Speaker 500:15:06Thank you for taking my question. Bob, so you mentioned that you have 37 rigs running in the U. S. Right now. How does that number compare to the average in Q2? Speaker 200:15:25You mean in historical Q2s, is that what your question is, Ricard? Speaker 500:15:29Yes, that's correct. Like this Q2, twenty twenty four, what was the average number of rigs running? Speaker 200:15:39In all of the U. S, is that what you mean? Speaker 400:15:41Yes, we're Speaker 200:15:44hanging on to about 7% market share. We're down year over year for the quarter by about, oh gosh, 10 rigs year over year for the quarter in the U. S. Speaker 500:15:57Okay. Now your revenues quarter over quarter in the U. S. Were flat at around $208,000,000 Your rig count was down. So what's the gap? Speaker 500:16:06Is it all well service? Hours were up 35%. Did that kind of help the quarter over quarter revenue comparison? Or there was something else as well or rates the rate scope went up? Or what was the cause of flat revenues? Speaker 300:16:24We saw the increase in well servicing. Then we also this is the increase as Bob was talking about drill pipe being outside the contract now. So some ancillary add ons and then well servicing would be the largest contributors to that gap. Speaker 500:16:41And is that sustainable into the subsequent quarters as well in Q3 and Q4? Outside of contract day rates that you're seeing revenue pickup as well as well servicing hours in Q3? Speaker 200:16:59For sure. The things like the drill pipe, for example, La Car have manifested itself from the accelerated penetration rates and the use of flocked water versus oil based mud systems and a lot of these cases, it tears drill pipe apart pretty quickly. We used to get 6 to 7 years out of drill pipe. We get maybe 2 to 3 years max out of drill pipe in some case less than that. And every contractor is feeling that same push. Speaker 200:17:37Everyone's drill pipe costs are up about 3 times what they were 5 years ago. And that's why the move to put it outside the contract to get a rate for it. In some cases, we have the operator provide the pipe and we just manage it for them. And then we've got the other end of the extreme. We'll give them a rate as high as $8,000 a day for managing the pipe, handling the destruction and the replacement of the pipe through the process. Speaker 200:18:11So it's somewhere in between, but it will continue to be a charge as we continue to have these high penetration rates in these 4 mile, 3 and 4 mile laterals, not going away. Speaker 500:18:26That makes sense. And then could you talk about asset sales? So Mike, there was a $40,000,000 real estate portfolio that you were interested in selling. We saw $8,000,000 of asset sales in Q2, dollars 3,000,000 in Q1. What should we be expecting for the second half? Speaker 300:18:53We're working through it. We have 2 properties up in Niskiyou that are actually marketed right now and we're working through a process in the U. S. So I would expect movement of that in Q4, not the whole balance, but a portion of the balance I believe will be closing in Q4. Speaker 500:19:14Okay. That makes sense. And then the $147,000,000 CapEx number that remains unchanged. Do you see anything in the horizon that could move it up or down? Speaker 300:19:27I think there is I mean with the U. S. Muted activity that will probably put I think a cap on some of the CapEx that was required for the U. S. But also I mean there's some international opportunities here and there. Speaker 300:19:38So for most part that should be fairly steady. If anything, if it does increase, it's usually tied to an EBITDA event, so net positive to the balance sheet and the income statement. So once again, if it's a positive impact, then we'll definitely look at stuff, but it should be really steady around there. Speaker 200:19:55Yes, we won't invest in any CapEx. It doesn't pay for itself in less than a 1 year period. Right. That's good. Yes. Speaker 500:20:05And then just one Speaker 200:20:14Well, it seems like it's bottomed. It depends on the area and the type of rig. But I would say that it feels like it's hit bottom. We've been catching the falling knife in the last quarter as the markets haven't moved. The Permian is still running 304, but it's not going up, but it isn't going down. Speaker 200:20:40So as operators merge together, of course, the first thing they do is they remove a few rigs, get to the end of the year, put together a new pro form a budget on the consolidated business and then walk into 2025. So we kind of expected all the 7 activity would provide that result. So it's not a surprise, but I would say rates have stabilized at the bottom end. And with drill pipe outside now and part of the total gross rig rate, we're still in the low 30s on a gross basis. Speaker 500:21:23Okay. And on these M and As like we've seen a number of these big mega mergers. Now where do you stand with respect to your exposure to the acquirers versus the target company? Speaker 200:21:41Well, we're on the right side of that equation on probably 80% of our portfolio, which is a nice place to be. The other nice place to be is to have industry reports showing Ensign as the highest penetration rate driller of the top 6 in the U. S. So the we're in conversations with companies that are the acquirer, where the acquiree, we did a lot of work for and they're going, hey, we want to hang on to those rigs. Speaker 500:22:17That's great. Well, thank you very much. Thanks for the answers. Speaker 200:22:21Thanks, Robert. Operator00:22:25Thank you. Your next question is from Steve McKay from RBC Capital Markets. Please ask the question. Speaker 600:22:34Thanks. And just a question about your debt repayment target, maintain the $600,000,000 to $20.25 And of course, you always note that industry conditions could move that up or down. But based on prevailing industry conditions we see now with rig counts where they are, if that stays flat from here, do you see any risk to that $600,000,000 debt repayment target? Speaker 300:23:03No, when we look at the interest savings year over year, that's starting to decrease quite a bit. I mean, it was down almost 20% year over year. So you have some buffer being built in on the P and L from interest savings. If activity remains sort of steady as it is, your CapEx is going to remain kind of in that 150 range. So consensus for 2024 is 450 is 25, I mean, who knows where that's going to be plus or minus, but when you look at that with $150,000,000 in CapEx, dollars 90,000,000 or less in interest expense, there's about $210,000,000 of free cash flow to go towards repayments. Speaker 300:23:37And then we do have some non operational stuff like asset sales and some working capital movements to kind of aid in that. So yes, when we look at it, I mean, if everything kind of remains steady, we foresee this being quite easily to be achievable. Speaker 600:23:55Yes, okay. Sounds good. And just a question on your, you mentioned the free cash flow number. There's also some mandatory debt repayments and liquidity reductions forthcoming. Speaker 100:24:07At the end of the Speaker 600:24:08year and into Q1 next year, if the street consensus is right, what kind of breathing room do you foresee having in terms of liquidity? Speaker 300:24:19We never get into specifics. I mean, we'll have ample liquidity that continues around the business as we've had in the past. Speaker 600:24:28Fair enough. And just one more question on your maintenance CapEx per rig in the U. S. What approximately is that Speaker 200:24:38running these days? Good question. We like to think of the operating rig on an annual basis requiring about 1 to 1.25 depending on the type of rig it is. Speaker 600:24:55Got it. Is that Canadian or U. S? Speaker 200:24:58That'd be U. S. For U. S. And CAD for Canadian, yes. Speaker 600:25:04Got it. Okay. Thanks very much. That's it for me. Speaker 200:25:08Thank you. Operator00:25:16Your next question is from Joseph Schechter from Schechter Energy. Please ask your question. Speaker 700:25:22Good morning, Bob, Mike and Nicole. Challenging day to have your conference call given what's going on in the market. I wanted to ask a macro question. November 5 is a big day in the States and energy industry could have 180 difference in terms of go forward strategy based on what happens that day that night. Are you getting any commentary from companies saying that we'll keep what's going on into Q4, but Q1 is up in the air depending upon the results of November 5? Speaker 200:25:59That's a good question, Joseph. I think that what we're seeing is the macro fundamentals of demand play out. Not to get into too much of the pulpits, but we saw one of the contestants suggest that they've changed their platform on fracking and they're okay with fracking now. So we're not getting any feedback from our operators. A lot of them are saying we're certainly not going to accelerate drilling in the Q4. Speaker 200:26:34And I think that's driven more so not by the election, but by, I guess, the staying with their plan to deliver shareholder return, not to accelerate CapEx and just staying disciplined. So I don't think the election has much impact is what we're seeing. Speaker 700:26:58Thanks for that. That's it for me. Operator00:27:05Thank you. There are no further questions at this time. Please proceed. Speaker 200:27:10All right. Thank you, operator. Closing statements. Looking forward, it's an exciting time for Ensign with robust Canadian and international market fundamentals and improving long term outlook in all of our U. S. Speaker 200:27:22Markets and excellent visibility for sustained free cash flow with growing margins to continue executing on our debt reduction plan. With the application of Edge Autopilot combined with an expanding performance based contract base backed up with our superior performance drilling teams in the field, Ensign is delivering value to operators, which supports rate increases moving forward. Again, the focus continues to be accelerating debt reduction into a steadily improving construct for the drilling and well servicing businesses globally. Like to thank our professional crews and our employees along with our customers for helping Ensign achieve the performance and industry leading milestones that we that industry does recognize us for. I look forward to our next call in 3 months' time. Speaker 200:28:05Stay safe. Thank you. Operator00:28:09Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.Read morePowered by