Q2 2020 Ensign Energy Services Inc Earnings Call
Tom All participants are in listen only mode. After the speakers presentation to be a question answer session asked a question during associated press Star one of your telephone if you're quite a further systems. Please press star zero.
They tend the cars over to your speakers day, Nicole Romano Investor Relations. Thank you. Please go ahead.
Thank you.
Good morning, welcome to ends on second quarter earnings conference call and webcast on our call today bucket as president and CEO and my Great Chief Financial Officer or view enzyme second quarter highlights financial results, followed by our operational update and outlook well then open the call for questions.
Our discussion today may include forward looking statements based upon current expectation that involve a number of business risks and uncertainty.
Factors that could cause results to materially different include but are not limited to political economic and market conditions crude oil and natural gas prices foreign currency fluctuations weather condition, the company's defensive lawsuit.
Well in natural gas companies to pay accounts receivable.
Balances and raise capital or any other for seeing condition.
Unforeseen conditions, which could impact the use of the services supplied by the company.
Additionally, our discussion today may refer to non-GAAP measures such as adjusted EBITDA. Please your second quarter earnings release on SEDAR filings for more information on forward looking statements on the company's uses non-GAAP measures.
Thought I'll pass it onto Bob.
Thanks Nicole.
Good morning, everybody, it's not lost in any one of the call that this world is still being severely impacted by cobot 19, which continues to Rick havoc with the macro demand for energy.
In light of a cold at 19 pandemic, we're happy to report that the team in the field and the office has been able to stay operational with essentially little or no impact to fuel operations revenue.
Also in the second quarter, we completed phase three of the overhead restructuring plan, which puts our fixed cost overhead structure, 35% below where it was last year second quarter.
So I'll put the call back over to Mike Great.
CFO for detailed financial summary, the quarter, where do you Mike. Thanks, Bob results for the second quarter of 2020 were negatively impacted by the coal that 19 pandemic.
Google measures implemented to combat the spread of the covert 19, including stayed home restrictions led to a significant slowdown and global economic activity, but subsequently reduced the demand for crude oil and natural gas over the short term.
The significant reduction in demand contributed to a sharp decline in global crude oil and natural gas prices over the first half of the quarter. As a result, the company's operating days were lower in the second quarter of 2020, when compared to the second quarter of 2019.
Customers quickly responded to steep declines in commodity prices in an uncertain industry outlook by reducing capital expenditures and winding down drilling programs.
Operating days overall were lower in the second quarter of 2020 with Canadian operations experiencing a 71% decrease the United States, a decrease of 66% and international operations, a 41% decrease compared to the second quarter 2019.
Six months of 2020 operating days were also lower with Canadian operation experiencing a 21% decrease the United States operations, a 44% decrease in international operation showing a 15% decrease compared to the first six months in 2019.
The company generated revenue of 194.8 million in the second quarter of 2020, 48% decrease compared to revenue of 377.5 million generated in the second quarter the prior year.
For the six months of 20 to 20 of the company generated revenue of 578.6 million, 30% decrease compared to revenue of 822.5 million generated in the first six months of the prior here.
Adjusted EBITDA for the second quarter, 2020 was 58.1 million, 43% lower than adjusted EBITDA of 101.8 million in the second quarter 2019.
Adjusted EBITDA for the first six months of 22000 totaled one and 149.3 million, 32% lower than adjusted EBITDA of 219.1 million generated in the first six months of 2019. The decrease in adjusted EBITDA was primarily due to crude due to the decrease in activity across global operations.
Depreciation expense in the first six months of 2020 was on 182 million an increase of 3% compared to 177.2 million for the first six months of 2019.
General and administrative expense in the second quarter of 2020 was 33% lower than in the second quarter of 2019 generic expenses decreased as a result of cost saving initiatives waste subsidies received from various governments and organizational restructuring.
Total debt for the second quarter of 2020 decrease year over year by 107.3 million to 1.56 billion. The decrease in total debt was partially offset by 30.1 million in foreign currency exchange fluctuations.
Net capital proceeds for the second quarter 2020 was 3.7 million consisting of three point 13.2 million maintenance capital offset by proceeds of 17 million from disposals.
Capital expenditures for the 2020 year remains a 50 million of which approximately 40 million will be maintenance capital.
I'll turn the call Dr. Bob.
Thanks, Mike So let's.
Right around the world under an operational update worldwide, we have 55 drill rigs under contract with roughly 45 drilling rigs active today and also 33, well service rigs active today across our five basic regions around the globe.
20 in the U.S. are running at three in California, one the Rockies 16 in southern.
Nine or on IVC for 29 under contract we have 11 rigs in Canada 13 under contract seven in Australia eight under contract ones are waiting on location and we have four in the middle east to equate to reign.
Not operating in Oman at this point in Latin America, where we operate in Venezuela, and Argentina, we have just one running and.
Argentina at this point in time, it's coming back to the U.S.U.S. business unit has certainly been hit the hardest and has had the largest year over year impact enzymes earnings while we had a generous EBITDA pop in the.
Quarter as Mike pointed out in the U.S. fit was bitter sweet as we saw roughly 10 rigs have their contracts cancel those operators shutdown drilling programs. While we had some hope that drilling may clawed back in the fourth quarter 20, we're doubtful that will occur in 2020 and depending on commodity prices.
We see any rebound being a 2020 event 2021 event I'm, sorry, not a twentytwenty event.
Well servicing business unit continues to drive utilization with 25 of its 49, well service rigs active.
We have 12 in California kind of the Rockies two in the Permian and one in Eagle Ford.
We continue of course to drive cost efficient efficiencies through the business, but that meaningful gains are getting tougher and tougher to capture.
Enzyme continues to expand its performance based contract PVC platform. This is where the rig is offered at a market competitive day rate with performance bonuses earned for beating established metrics with the platform ends on decides what as yet what edge technology is best introduced and turned on at the rig edge technology.
So its way no risk to the operator, we also put our eight P.M. team or advance performance management team on projects to enhance performance specifics and worked with the operators engineering teams.
While we're on the technology theme, our edge technologies now installed and ready for use on over 50 of our rigs worldwide also happy to report that are edge, autopilot, which would charge out at about $2700. A day on our current basis outside of a PVC has been successfully been tested on two wells now and is now being installed on a rig which will be.
PVC contract here in the next few months.
In the Middle East as we announced a few weeks back we took out halliburton's, 40% ownership in the JV July 1st we have to 3400 horsepower Super spec rigs operating in fully contracted wait until mid 2024, and we also have or rain rigs one of which was a JV rig contract to know until late 2023.
Our Amman business has been pulled back to standby mode with skeleton staff as we await indications with when rigs maybe going back to work.
In Venezuela, and our Latin American business units of Venezuela's still shutdowns subject to us opex sanctions in Argentina, we have one rig operating for a measure in the new can area.
Which looks like it'll be visits on that 2021 at this point, we have some active bids for other rigs, but nothing from at this point.
Strongly up we have eight out of our 16 rigs in Australia seven operating today, one waiting on location as I mentioned before we're experiencing challenges moving across between states in Australia due to covert 19 travel restrictions, but have not impacted operations as of yet.
In Canada, we have 11 rigs at a 99 running today.
We have gained market share in the last few months into running close to 25%.
Market share in Canada, as our high spec rigs start to go back to work after breakup, Canada had arguably one of the worst second quarters at record for rig activity and system only 50 running today.
The back half of 2020 looks painfully optimistic, but our scheduling our schedule booking is still quite loose.
The Canadian emergency, which subsidy or helping to keep crews active where we can find work, but operators budgets remain tight fisted for obvious reasons.
Our directional drilling business here it has two or three jobs on the go today and we should get to five jobs in the fourth quarter.
While servicing is running about eight rigs over the summer with an expected bump to 15 in the back half as you management programs of the W.A. and the SRP site reclamation plan start to actually hit the ground.
Well the government funded abandonment program as well intended it has had its challenges through the application process in any case. This will help put more of our well service rigs.
Move.
Some of our crews back to work here over the next three or four months and into 2021.
For an outlook, it's clear with almost every drill company and the office space reporting larger Ts in the quarter. This is the proxy that operators will continue to pull in there or is it reduced drilling programs at least until well into 2021 as reported ends on had roughly 20 million CAD.
Yes, and Ibcs and second quarter alone.
We expect the combination of each Aston ibcs to drop off about 30% to 40% quarter over quarter until mid 2021, as we move forward, while a few months back without that Q3 would be the trough or not so sure of that anymore.
That I'll turn it over to acuity back to the operator.
Thank you at this time I'll like to remind everyone in order to ask a question. Please press Star then one of your telephone keypad again start went to ask a question you pause just a moment to compile the kuni roster.
Again, if you like to queue for question. Please press star one.
Your first question comes through Keith Mackie with RBC. Your line is open.
Hi, good morning.
Okay.
Hey, just a quick question on the Oman rigs so they rolled off contract is it just a matter of timing due to due to the pandemic thats keeping those from going back into the field or do you have to re contract and kind of entirely.
Well, we were we were awarded the contract which got put on pause.
Six months ago, I suspect that it'll be.
Rebid again once they may get.
They are understanding together and when they want to do the project.
Our guess is pushed into 2021 at least at this point.
Okay. Thanks, Thanks for that and just.
Moving to Western Canada looking at.
Where where the rig activities running you mentioned about 50 rigs across the industry, we see kind of 20, some in the montney from from the data that we have.
And you guys seem to be running a little bit behind where you'd normally be the montney as far as market share goes.
So question there is that more of a matter of customer mix.
Or or have you seen incremental rate pressure. There. That's that's made that region a bit more competitive than than maybe it was last year.
Yes, I would I would say that its customer mix.
Now have a rig active in the Montney rig 60.
Working for a measure and it's not lost on us that.
I think it's fair to say that we fell behind in the money on market share and that is changing.
Okay. Okay. Thanks for that.
That's pretty much all I had thanks, and thanks to the color.
Vicki.
Again, if you like to ask a question. Please press Star one. Your next question goes through ATP capital. Your line is open with Waqar seed.
Yes, thanks for taking my question.
Mike What's your guidance for DNA with.
The you increased share in the pediatrics.
Not change.
There will be an increase just given the value of those rigs, but do not have a specific number.
Okay, and then what portion of these wage subsidies.
$5.1 billion, how much was that in the DNA line and now mentioned the Opex line.
Oh, probably close to 15% to 20% was in the DNA line.
On the remainder would be under the oilfield services expense.
Yeah.
Makes sense.
And.
Could you comment on.
Great and margin environment in the us business.
Yeah.
It really hasn't changed much from our last call Waqar.
We're finding that.
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We're not.
Sara-lee bidding on on rate we're bidding on.
Performance and experience in an area and.
As to the contracts were negotiating and talking about now have a PBC performance based contract.
Theme to them so.
I would say that not much has changed.
Just the big thing in the second quarter was we had 10 or 12 rigs come off.
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Within each year for the contract was cancelled some additional.
Our rigs were put onto an IVC base, where the operator.
Has the option to bring them back to work within the contract rather than paying the lump sum GTF.
Okay and.
These rigs on standby, earning standby revenues is the Opex for then zero and.
Any revenue that come in is is really the hundred percent margin on how should we be thinking about.
Those revenues.
Essentially we have.
Stack off costs, where we rent a yard or in most cases, where we're in the operators areas. So the costs are essentially nominal zero.
Okay.
And Oh, you still seeing additional rigs going on standby or do you think that standby number kind of space Matt.
Well as I mentioned, we're seeing.
Probably a 30% to 40%.
Quarter over quarter.
Rob.
Some of that will be the ibcs that fall off.
And some of it may be more rigs, but I think we've kind of hit the bottom as far as number of rigs.
Active or running I don't we're not seeing any visibility into into.
Number of active rigs dropping but as I mentioned, we'll we'll be seeing each yes into future quarters.
Fall off by about 30% to 40% sequentially quarter over quarter as we move forward.
Okay.
Thank you very much appreciate tenants.
Your next question goes from John Gibson with BMO capital. Your line is open.
Good morning Marinol.
Well, Joe just on the.
On your debt repayment versus liquidity I know your bonds are trading at attractive levels, but just given your soft activity level or do you expect to lean more towards managing liquidity or or buying back bonds and.
This down sort of changed in the last few weeks.
No I mean similar to previous quarters, I mean, we don't have specific program.
That kind of on a.
On a day to day basis, so liquidity as important.
Specifically in those markets. So we'll continue to monitor as we go.
Great and then just on the wealth management program.
How impactful doing this could be and I guess would it be more but Q4 thing.
I guess, just a little more color on sort of what it can sharpen your financials here.
That was on the abandonment program, you're talking about yeah, just on the rebuilds yeah, Yeah, Yeah, I think that hits.
We are wishing for it to be a third quarter event and I think that was the plan but.
Application process has been just.
Horrendous.
We've been working with the government in the associations to get that cleanup I think you'll have more impact in the fourth quarter.
And then.
Leading well into 2021, but I'm I'm sensing that I mean for us will probably add.
Seven or eight rigs into the back half on the well servicing side and so yes.
More pleasant.
Back half for well servicing than originally thought.
That amount of Auryxia.
See great and then last one for me and I'll just speak you kind of touched on this already but just on the 30, 40% to 40% decline in IVC. Early term revenue you referenced is this more related to IB revenue were really turned payments or the combination of both and I guess I'm trying to get out is.
Do you expect to see more early term payments next quarters.
Yeah, I think the.
As far as a lump sum.
Well the balance between Dts and the Ibcs.
We will change where the the.
Number of rigs with a.
Heart flats.
Yes.
We will diminish at a faster pace in the Ibcs. So.
You will see the Ibcs.
As the term on the contract falls off so does the IVC falloff. So just to give you some sense of modeling you can probably take.
The $20 million that we're in the second quarter.
And adjust that by 30% to 40% quarter over quarter sequentially as we move through the rest of year and into half of 2021.
Okay, Great I appreciate the ports.
Okay.
Since your last question comes from Jeff federally with Peters Company. Your line is open.
Morning, guys couple of clarification questions first off on Capex seer $50 million budgets for the year, there's other groups or a net number.
Gross number.
And so last quarter, Bob you mentioned about a 10 million dollar per quarter cadence for span.
Looking at the second half of the year your capex would be about half of that.
What do you expect on a go forward basis of the current activity that your normalized Capex would look like.
Yeah, I would say it would probably be in that seven and a half per quarter range.
And it's all completely driven by how many.
Active rigs you think you're going to be running right.
So if you if you think of 45 to 50 rigs running on a go forward annual basis, you're probably looking at about seven and a half as high as kind of quarter.
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With that range.
Is there anything else from an asset sales standpoint, do you expect to transact in the foreseeable future.
Well, we have some other real estate assets that are going on the market I mean keep in mind that Tdm facility. We just sold was on the market for almost four years.
I've been evidence so you said foreseeable future I'm not.
Seeing anything in the foreseeable future.
If we think of that is six months to a year.
It's going to take some time to dispose of these properties.
And then on the U.S. side, just just to clarify comfortable done corn. So in Q2, you said you had 10 rig contract rig contracts that were terminated for that 13.2 million units.
Correct.
Great and have you seen thus far in Q3 any additional contracts terminated.
There are.
There are a few under negotiation.
When I said in negotiation the operator.
May want to hang onto the rig or may or may decide to.
Flat summit.
Yes, but.
It would be notional.
Two or three.
Okay.
And did I hear correctly earlier that you currently have nine rigs under IP right, we see in the U.S.
Correct.
Okay and.
Do you expect that there's going to be any other rigs go under IVC. I know you mentioned sort of stabilized active rig count going forward, but are you concerned or do you have any visibility for additional rigs to go idle.
Well, the two or three I mentioned that might go to let some DTF.
The other consequence review they go to IVC.
Right, where the operator okay.
Yes.
So those two or three would currently you're running today, it's not like there on IBCM potentially going to be bought out they would actually be running and could go into the other to kind of course.
Correct.
Okay great.
Thanks for the color appreciate it.
Yeah function.
And we are no further questions at this time.
Alright, thanks, operator.
Thanks for the questions everyone for wrap up comments as we mentioned, we continue to drive costs down and operational efficiency efficiency metrics up we continue to move to institutionalize the PVC contracts in a very tough environment, while we remain optimistic for the back half of 20 to 20, we certainly do not see the macro changing as business until well into 2020.
In one.
Thank you for listening in on a second quarter call look forward reporting to you with our third quarter three months time.
This concludes today's conference call you may now disconnect.
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