Q4 2023 Ensign Energy Services Inc Earnings Call

Operator: Ladies and gentlemen, welcome to the Ensign Energy Services Inc. Q2 2020 results conference call. At this time, all lines are in a listen-only mode.

Ladies and gentlemen, welcome to the Ensign Energy Services, Inc. First quarter 'twenty 'twenty suite helps.

Conference call.

At this time all lines are in a listen only mode.

Operator: Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Friday, March 1st, 2020. I would now like to turn the conference over to Vista Relations. Please go ahead. Thank you, Julie.

Following the presentation, we will conduct a question and answer session.

If at any time during this call do you require immediate assistance. Please press star zero for the operator.

Call is being recorded on Friday March 1st 'twenty 'twenty four I would now like to turn the conference over to be called Romanow Investor Relations. Please go ahead.

Vista Relations: Good morning, and welcome to Ensign Energy Services' fourth quarter and year-end 2023 conference call and webcast. On our call today, Bob Geddes, President and COO, and Mike Gray, Chief Financial Officer, will review Ensign's fourth quarter and year-end 2023 highlights and financial results, followed by our operational update and outlook. We'll then open the call for questions.

Thank you Julie.

Morning, and welcome to Ensign Energy services fourth quarter and year end 2023 conference call and webcast on our call today, Bob Geddes, President and C O O and Mike Gray Chief Financial Officer will review <unk> fourth quarter and year end 2023 highlights and financial results followed by our operational update.

Outlook, well then open the call for questions.

Vista Relations: Our discussion today may include forward-looking statements based upon current expectations that involve several business risks and uncertainties. The 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 defense of lawsuits, the ability of oil and gas companies to pay 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 fourth quarter and year-end earnings release and CDAR 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. Good morning, everyone.

Our discussion today may include forward looking statements based upon current expectations that involve several business risks and uncertainties. The 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 fourth quarter and year end earnings release, and SEDAR filings for more information on forward looking statements in the company's use of non-GAAP financial measures.

With that I'll pass it on to Bob <unk>, Nicole good morning, everyone.

Robert H. Geddes: Let me start off by saying that Ensign is pleased to report that we delivered on what we promised in 2023. In 2023, we delivered superior operational results that enabled $217 million of debt reduction. This against the backdrop of a year where the market started strong but quickly fell off as commodity prices hampered drilling projects in North America. Canada was affected by early summer forest fires, which affected operations on seven rigs, and Canada played catch-up in the back half of 2023 in a subdued market going into the fourth quarter. The U.S. faced similar challenges manifesting not only from unstable commodity prices but also from record M&A activity. International companies performed reasonably well, in contrast.

Let me start off by saying that anxiety is pleased to report that we delivered on what we promised in 2023 and.

In 2023, we delivered superior operational results have enabled 270 $217 million of debt reduction this against the backdrop of a year, where the market started strong but quickly fell off as commodity prices hampered drilling projects in North America.

Canada was affected with the early summer forest fires, which affected operations on seven or eight on Canada play catch up in the back half of 2023, and a subdued market going into the fourth quarter. The U S face similar challenges manifesting not only from unstable commodity prices, but also from record M&A activity International performed Bruce.

While in contrast.

Robert H. Geddes: Nonetheless, Ensign delivered our best fourth-quarter EBITDA since 2012 and delivered our third highest free cash flow since 2012 and 2006. This is the result of a highly efficient and well-maintained fleet of high-spec rigs and highly trained professional crews that delivered on keeping the budget on sustaining catbacks and low downtime. As I mentioned earlier, this performance provided us with the ability to pay down $270 million of debt, our largest annual debt reduction in Ensign's history, and a testament to management's focus on our debt reduction target of reducing debt by $600 million through the 2023-25 year period. I also want to applaud our operations team worldwide, who logged in a record safety year for Ensign. I've taken a little bit of the steam there, Mike, and I'll turn it over to you on the rest of the financials. That's good. Thank you, Bob.

Nonetheless enzyme delivered our best fourth quarter EBITDAR since 2012 and delivered our third highest free cash flow since 2012 and 2006. This result of our highly efficient and well maintained fleet of high spec rigs and highly trained professional crews that delivered on keeping the budget on sustaining capex and no downtime as I mentioned earlier.

This performance provides us the ability to pay down $217 million of debt, our largest annual debt reduction in enzymes history, and a testament to managements plays a focus on our debt reduction target of reducing debt by $600 million through the 'twenty to 'twenty three 'twenty three 'twenty five year period, I also want to applaud our operations team worldwide.

Whom logged in a record safety year for enzyme.

I.

It took a little bit of the steam there Mike I'll turn it over to you on the on the rest of the financials.

Thanks, Bob.

Michael R. Gray: Enzyne's results for the fourth quarter and 2023 year-end reflected steady oilfield services activity and improved financial results year over year. Despite recent volatility in commodity prices, the outlook is constructive, and the operating environment for the oil and natural gas industry continues to support steady demand for oilfield services. Total operating days were down in the fourth quarter of 2023, with Canadian operations reporting a decrease of 9 percent, and United States operations a 35 percent decrease, which was offset by a 24 percent increase in international operating days compared to the fourth quarter of 2022. For the year ended December 31st, 2023, total operating days were down, with Canadian operations reporting a 9% decrease, and United States operations a 12% decrease, which is offset by a 24% increase in international operating days compared with the year end, December 31st, 2022.

<unk> results for the fourth quarter, and 2023 year end reflected steady oilfield services activity and improved financial results year over year. Despite recent volatility in commodity prices. The outlook is constructive in the operating environment for the oil and natural gas industry.

To support steady demand for oilfield services.

Total operating days were down in the fourth quarter of 2023 with Canadian operations reporting a decrease of 9% United States operations, a 35% decrease which was offset by a 24% increase in international operating days compared to the fourth quarter of 2022.

For the year ended December 31, 2023 total operating days were down with the Canadian operations reporting a 9% decrease in United States operations, a 12% decrease which was offset by a 24% increase in international operating days compared with the year ended December 31 2022.

Michael R. Gray: The company generated revenue of $430.5 million in the fourth quarter of 2023, an 8% decrease compared with revenue of $468 million generated in the fourth quarter of the prior year. For the year ended December 31st, 2023, the company generated revenue of $1.79 billion, a 14% increase compared with revenue of $1.58 billion generated in the prior year. Adjusted EBITDA for the fourth quarter of 2023 was $129 million, lower by 1% than adjusted EBITDA of $130 million in the fourth quarter of 2022.

The company generated revenue of $430 5 million in the fourth quarter of 2023, an 8% decrease compared with revenue of $468 million generated in the fourth quarter of the prior year.

For the year ended December 31, 2023, the company generated revenue of $1 79, Billion% to 14% increase compared with revenue of 1.58 billion generated in the prior year.

Adjusted EBITDA for the fourth quarter of 2023 was 129 million lower by 1% and adjusted EBITDA of $130 million in the fourth quarter of 2022.

Michael R. Gray: Adjusted EBITDA for the year ended December 31, 2023, was $490.2 million, a 31% increase compared to adjusted EBITDA of $373.6 million generated in the year ended December 31, 2022. The 2023 increase in adjusted EBITDA is primarily due to improving industry conditions. Adjusted EBITDA margins for the fourth quarter of 2023. It was 30%. This was the company's highest revenue since Q1 of 2012. G&A expense for the fourth quarter of 2023 was $14.9 million, compared with $12.8 million in the fourth quarter of 2022. G&A expense totaled $58 million for the year ended December 31, 2023, compared with $48.6 million for the same period in 2022. G&A expense increased due to annual wage increases and the negative foreign exchange translation on converting U.S. denominated general and administrative expenses.

Adjusted EBITDA for the year ended December 31, 2023 was $490 2 million or 31% increase compared to adjusted EBITDA of $373 6 million generated in the year ended December 31 2022.

<unk> thousand 23 increase in adjusted EBITDA is primarily due to improving industry conditions adjust.

Adjusted EBITDA margins for the fourth quarter of 2023 was 30%. This was the company's highest since Q1 of 2012.

G&A expense for the fourth quarter of 2023 was $14 9 million compared with $12 8 million in the fourth quarter of 2022.

G&A expense totaled $58 million for the year ended December 31, 2023, compared with $48 6 million for the same period in 2022, G&A expense increased due to annual wage increases and the negative foreign exchange translation on converting U S denominated general and administrative expenses.

G&A expense as a percentage of revenue was three 2% for the year ended December 31, 2023, which is consistent with 2022 and as a company best since 2006.

Net capital expenditures for the fourth quarter of 2023 and totaled $28 8 million compared to net capital expenditures of $46 million in the corresponding period of 2022 net capital expenditures during the fiscal year ended 2023 totaled $160 7 million compared to $126 $8 million in the corresponding period of.

Michael R. Gray: G&A expense as a percentage of revenue was 3.2% for the year ended December 31, 2023, which is consistent with 2022 and is a company best since 2006. Net capital expenditures for the fourth quarter of 2023 totaled $28.8 million, compared to net capital expenditures of $40.6 million in the corresponding period of 2022. Net capital expenditures during the fiscal year ended 2023 totaled $160.7 million, compared to $126.8 million in the corresponding period of 2022.

<unk> 2022.

Our capex budget for 2024 is set at $147 million, which is primarily relates to maintenance capital.

Net repayments against our debt totaled $217 6 million since December 31, 2022 exceeding the company's 2023 debt reduction target of $200 million.

Since the first quarter of 2019, when the company's total debt net of cash peaked at $1 69 billion. The company has reduced net debt by $498 2 million over the past five years, while completing two counter cyclical and accretive acquisitions over the same five year period, which totaled $162 7 million.

Our net debt to adjusted EBITDA for the year ended 2023 with 2.4 Threep.

Michael R. Gray: Our CAPEX budget for 2024 is set at $147 million, which primarily relates to maintenance capital. Net repayments against debt totaled $217.6 million since December 31, 2022, exceeding the company's 2023 debt reduction target of $200 million. Since the first quarter of 2019, when the company's total debt, net of cash, peaked at $1.69 billion, the company has reduced net debt by $498.2 million over the past five years while completing two counter-cyclical and accretive acquisitions over the same five-year period, which totaled $162.7 million. Our net debt adjusted EBITDA for the year ended 2023 was $2.43.

This is the lowest ratio since 2015 and will continue to reduce as the company hits its deaths targets.

The company's debt reduction for 2024 is approximately $200 million our target debt reduction for the period 2023 to the end of 2025 is approximately $600 million if industry industry conditions change this target will be increased or decreased.

The company expects its blended interest rate and the federal reserve banks hold interest rates at the current levels to be approximately 8%, which will allow us to continue to reduce our interest expense going forward.

Lastly, the company.

Redeemed its senior notes in December of 2023, completing the transformation of the balance sheet.

No Tyler I'll turn the call back to Bob Alright, Thanks, Mike.

Members. So we continue to run between 100, and 510 drill rigs globally and about 54, well servicing rigs in North America.

Michael R. Gray: This is the lowest ratio since 2015 and will continue to reduce as the company hits its debt targets. The company's debt reduction for 2024 is approximately $200 million. Our target debt reduction for the period 2023 to the end of 2025 is approximately $600 million. However, if industry conditions change, the target will be increased or decreased. The company expects its blended interest rate, if Federal Reserve Banks hold interest rates at the current levels, to be approximately 8%, which will allow us to continue to reduce our interest expense going forward. Lastly, the company redeemed its senior notes in December of 2023, completing the transformation of the balance sheet.

We see the macro improving ever so slightly as economies improve and demand increases generally while oil pricing is being managed well by OPEC. The reverse is true of natural gas.

Various factors of course sets such as associated gas and constrained takeaway capacity keeps pricing pressure on natural gas and hence very true gas drilling projects on the go today, let's focus on the Canada for a moment oil is relatively strong with T. M X, Canada coming on stream. This year the differential tightened further enhancing operator's cash flow to fund drilling.

Activity. In addition, we've got the coastal link LNG pipeline coming on soon by the way to the completion of the LNG Kitimat to sit idle facility on the East coast are.

Expected out of 24, and 25 supporting that notion cap recently announced a slight increase in capital spending year over year, and we'll be sure to get our share of that.

Robert H. Geddes: On that note, I will turn the call back to Bob. All right. Thanks, Mike. Nice numbers. So we continue to run between 105 and 110 drill rigs globally and about 54 well servicing rigs in North America. We see the macro improving ever so slightly as economies improve and demand increases generally. While oil pricing is being managed well by OPEC, the reverse is true of natural gas. Various factors, of course, such as associated gas, pot payout financial statements, monetary, and takeaway capacity, are keeping pricing pressure on natural gas, enhancing riders through gas on the go today.

Exactly the opposite of course true natural gas, we're seeing a lot of gas weighted projects getting reevaluated impacting certain projects in Western Canada currently running 51 drill rigs in Western Canada and now that we're into March we are a slave to the weather at this point like cold weather will help to extend the work we have.

Today that holds true nothing.

Nonetheless, we have visibility to see 20, plus rigs running over breakup and uptick year over year, and we expect to build back up to 50 rigs late summer and then build up into what we think is a much healthier environment in the back half of 2024.

We recently repositioned two of our ADR 300 highest spec singles from California to Canada, and long term contracts with upgrades funded by the operator, we expect the margin to the rigs to be complete in the rigs ready for operation in the coming months.

Robert H. Geddes: Let's focus on Canada for a moment. Oil is relatively strong, with TMX Canada coming on stream this year. The differential will tighten further, enhancing operators' cash flow to fund drilling activity. In addition, we've got the Clostal Link LNG Pipeline coming on soon, but it awaits the completion of the LNG Kitomat facility on the East Coast. Expected down to 24 into 25. Supporting that notion, CAP recently announced a slight increase in capital spending year over year, and we'll be sure to get our share of that. Exactly the opposite, of course, of true natural gas.

As we have expressed in prior calls and with day rates still very low.

We requested operators find the capital upgrades to their request, which ultimately deliver record wells and reducing well costs for them. We just cannot make full cycle returns a major equipment upgrade you requested by operate operators in such a cyclical environment. We apply the same philosophy globally, let's go to well servicing our Canadian well servicing fleet was.

<unk> is the first quarter by that 10 days stretch of minus 40 of which brought wall servicing field operations to a halt we have 60 mile service rigs currently running today and expect to see that improve to roughly 18 to 20 post breakup move.

Robert H. Geddes: We're seeing a lot of gas-related projects getting reevaluated. We are currently running 51 drill rigs in Western Canada now that we are into March. We are a slave to the weather at this point. The cold weather will help to extend the work we have. Today, that holds true.

Moving to the U S. We currently have 40 rigs active in the U S 31 in the Permian five in the Rockies four in California.

Both the Rockies and California continue to have permit delays. So we expect a steady state of roughly nine to 10 rigs running between those two areas into the near future not much change in.

Robert H. Geddes: Nonetheless, we have visibility to see 20-plus rigs running over breakup, an uptick year over year, and we expect to build back up to 50 rigs late summer and then build up into what we think is a much healthier environment in the back half of 2024. We recently repositioned two of our ADR 300 high-spec singles from California into Canada on long-term contracts with upgrades funded by the operator. We expect the mods to the rigs to be complete, and the rigs ready for operation in the coming months.

In the Permian, where the rig count is definitely bottomed out at just above 300 rigs operating we will wait to see how all the M&A activity plays out it certainly won't manifest itself into more activity any time soon.

Still seeing a very competitive bidding market, but rates seem to have found some base in most cases with depletion curve starting to accelerate production at its peak docs with a low inventory in oil pricing very compelling one would expect more drilling has to take place at some point in time.

On the international market, our Kuwait business unit operates two 3000 horsepower ultra high spec rigs and are contracted into 2025 and both rigs continued to generate solid returns there.

Robert H. Geddes: As we have expressed in prior calls, and with day rates still very low, we request that operators fund the capital upgrades they request, which ultimately deliver record wells and reduce that well cost for them. We just cannot make full cycle returns on major equipment upgrades requested by operators in such a cyclical environment. We apply the same philosophy globally.

In Bahrain, our two 2000 horsepower Super spec rigs are contracted out to mid 2025.

In Oman, we have the three ADR is tied up in long term contracts. They continue to set records on wall times and deliver it well on the performance based contracts we have in place there.

Robert H. Geddes: Let's go to well servicing. Our Canadian well servicing fleet was impacted in the first quarter by that 10-day stretch of minus 40, which brought well servicing field operations to a halt. We have a 60-mile service bridge currently running today and expect to see that improve to roughly 18 to 20 post-breakup. Moving to the U.S., we currently have 40 rigs active in the U.S., 31 in the Permian, 5 in the Rockies, and 4 in California. Both the Rockies and California continue to have permit delays, so we expect a steady state of roughly nine to ten rigs running between those two areas into the near future. Not much change. In the Permian, where the rig count has definitely bottomed out at just above 300 rigs operating, we will wait to see how all the M&A activity plays out. It certainly won't manifest itself into more activity any time soon.

Australia has eight rigs active today with another one of our 1500, starting up in the second quarter.

Ciena has two of our high spec ADR to thousands of active on long term contracts into 2025, and running very very well with very few operational issues moving north into Venezuela. We just started up last week one of our 1200 horsepower electric 80 yards for a major on a short term contract obviously within the confines of a note.

Act exemption.

On the drilling solutions side, we continue to grow this high margin.

Growing technology side of our business, 25% year over year, our edge drilling rig control system continues to be installed at a pace of a rig a month and we continue to see demand for aes, which charges out at $1000 a day.

Along with growing demand for edge autopilot platform.

Which with all the bells and whistles charges out of $2400. A day. We're currently backup backlog out at least four months an 80 S. Installs were also in discussion to put our edge autopilot platform on the middle east rigs and tie that into performance based contracts.

Robert H. Geddes: We are still seeing a very competitive bidding market, but rates seem to have found some base in most cases. With depletion curves starting to accelerate, production at its peak, ducks with a low inventory, and oil prices very compelling, one would expect more drilling to take place at some point in time. On the international market, our Kuwait business unit operates two 3,000-horsepower ultra-high-spec rigs and is contracted into 2025, and both rigs continue to generate solid returns there. In Bahrain, our two 2,000-horsepower superspec rigs are contracted out to mid-2025. In Oman, we have the 3 ADRs tied up in long-term contracts. They continue to set records for weld times and deliver well on the performance-based contracts we have in place there. Australia has rigs active today, with another one of our 1,500 starting up in the second quarter. Argentina has two of our high-spec ADR-2000s active on long-term contracts into 2025 and running very well with very few operational issues.

And our environmental product line, we have four products that are available at ensign rigs of which deliver high margins and significantly reduce emissions. We also commissioned two new LNG best system's natural gas best systems battery energy storage systems.

The acronym there, which charge out in the $5000 a day range and help to reduce emissions by as much as 60%.

Best systems, our battery energy storage systems, as I mentioned that helps store and modulate electrical power delivery on natural gas engine applications and also have an application on diesel engine applications. The best system on an Ala carte basis charges out in that 1700 to $2000 range.

First and power substation arrives next month.

For further drive emission reductions, while generating a solid rate on return on investment for all of our electric rigs connecting on the high line power projects. These units charge out for about 220 $500 a day.

So that's a that's a the operational update for Ensign I'll turn it back to the operator for any questions.

Thank you ladies and gentlemen.

Robert H. Geddes: Moving north into Venezuela, we just started up last week one of our 1,200-horsepower electric ADRs for a major on a short-term contract, obviously within the confines of an OFAC exemption. On the drilling solutions side, we continue to grow this high-margin, growing technology side of our business 25% year-over-year. Our edge drilling rig control system continues to be installed at a pace of a rig a month, and we continue to see demand for ADS, which charges out at $1,000 a day, along with Growing Demand for Edge Autopilot Platform, with all the bells and whistles, charges out at $2,400 a day. We are currently backlogged for at least four months on ADS installs.

Please press the star followed by the one on your Touchtone phone.

To withdraw your question. Please press the star followed by the two if you're using a speaker phone. Please lift the handset before pressing any keys one moment. Please for your first question.

Your first question comes from Aaron Macneil from TD Cowen. Please go ahead.

Hey, good morning, Thanks for taking my questions Bob one of your competitors guided down on U S margins pretty materially for Q1.

I know some of that was a reduction of idle, but contracted rigs, but the company also spoke to less leverage of our fixed costs and modest pricing reductions is that an expectation that we should also have for enzymes and U S business and how would you characterize the sequential change in bulk.

Robert H. Geddes: We're also in discussions to put our Edge Autopilot platform on the Middle East rigs and tie that into performance-based contracts. On our environmental product line, we have four products that are available at Ensign Rigs, which deliver high margins. Thank you. We also commissioned two new NG BESS systems, natural gas BESS systems, battery energy storage systems, is the acronym there, which charge out in the $5,000 a day range and help to reduce emissions by as much as 60%. BESS systems are battery energy storage systems, as I mentioned, that help store and modulate electrical power delivery on natural gas engine applications and also have an application in diesel engine applications.

Pricing and leverage over your fixed costs are.

B C mix in that context.

Right right well I think there's some certainly some truth to the fact that.

As rigs come off contract Youre bidding into a pretty active market, so you're not able to raise prices.

In some cases prices are moving down ever so slightly but we're seeing we're seeing that trend slowed down a lot in the last in the last month.

Certainly it came out of the gate.

You know we were catching bids.

On the cost side, we've also seen.

We we've applied a few unique ways to to reduce costs on our our mud pumps example, mud pumps and top drives are the single biggest items that.

Operator: The best system on an Alicard basis charges out in that $1,700 to $2,000 range. Our first NPower substation arrives next month. For further driving emission reductions while generating a solid rate of return on investment for all our electric rigs connecting on high-line power projects, these units charge out for about $2,000 to $2,500 a day. So that's the operational update for Ensign. I'll turn it back to the operator for any questions. Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the 1 on your touch-tone phone. If you'd like to withdraw your question, please press the star followed by the 2. If you're using a speakerphone, please leave the handset before pressing any key.

Caused downtime and cost a lot of money to maintain as we drove these record wells we've seen that in.

In the fourth quarter of 'twenty, three and into 24 level off so we're starting to see some benefits of some of the.

Unique things that we've been applying there so I would suggest that our.

Margin compression.

Would be very slight in the first quarter.

Understood.

Moving to Canada got a couple of questions. There can you remind us what youre doing to mobilize some idle AC triples.

And I know that the capital programs maintenance focus, but do they require.

<unk> funded upgrades to get those to work and then you mentioned the ADR single mobilization. So similar question on the Clearwater, What's your current market penetration in the play and do you expect you're getting.

Aaron MacNeil: One moment, please, for your first question. Your first question comes from Aaron MacNeil from TD Cohen. Please go ahead. Hey, morning.

Robert H. Geddes: Thanks for taking my question. Bob, one of your competitors guided down on U.S. margins pretty materially for Q1. I know some of that was a reduction in idle but contracted rigs, but the company also spoke to less leverage over fixed costs and modest pricing reduction. Is that an expectation that we should also have for Ensign's U.S. business, and how would you characterize the sequential change in both? pricing and leverage over your fixed costs or change in IBC mix in that. Right, right? Well, I think there's certainly some truth to the fact that as rigs come off contract, you're bidding into a pretty active market, so you're not able to raise prices.

Share of that market.

Yeah. So the first question the high spec levels no, we don't need any capital upgrades to put rigs to work we've got a.

A little bit of excess capacity, there that can be contracted.

On the Clearwater Manville.

You know you saw us move to a variety of three hundreds out of California.

Which are super spec singles, so that kind of rig.

So we're we're feeding into that market.

Obviously those rigs.

Our perfect Clearwater mantle of rigs.

We're still finding some operators are looking at them for more pad drilling with pad drilling you will see the evolution of Super high spec doubles start too.

Robert H. Geddes: In some cases, prices are moving down ever so slightly. But we're seeing that trend slow down a lot in the last month. Certainly, it came out of the gate.

Aaron MacNeil: You know, we were catching bids. On the cost side, we've also seen... We've applied a few unique ways to reduce costs on our mud pumps, for example. Mud pumps and top dryers are the two single biggest items that... We've seen that in the fourth quarter of 2003 and into 2004, levels off, so we're starting to see some benefits of some of the unique things that we've been applying there. So I would suggest that margin compression would be very slight. Understandable. Moving to Canada, got a couple questions there.

Increase its capacity I think we're running about.

Close to 60% of our highest spec doubles at this point in time on our highest spec singles and we don't have a lot of them.

We're running about 80% capacity on those.

Got it okay. Thanks, guys I'll turn it back.

Thanks Sharon.

Your next question comes from Cold.

From Stifel. Please go ahead.

Hi, good morning, all so there's a pretty significant.

Significant improvement sequentially in gross margins.

Aaron MacNeil: Can you remind us what you're doing to mobilize some idle AC triples? And I know that the capital programs have a maintenance focus, but do they require, you know, customer-funded upgrades to get those to work? And then you mentioned the ADR single mobilization. So, similar question on the Clearwater.

Anything one time ish nonrecurring in there.

And if not you know what really drove that and was it more Canada or the U S.

No Theres no one times really comes down to cost control and the operations and the team doing a great job out there.

So all I'm trying to get the rate increases that we saw kind of over 2023, So cost control has really been our big.

Robert H. Geddes: What's your current market penetration in the play, and do you expect your share of that? Yeah, so the first question, the high spectrum, no, we don't need any capital upgrades to put rigs to work.

As of August <unk>.

Particularly with our debt target so that's.

That's what we'll continue to focus on going forward.

Okay got you. So I guess going forward than you you kind of see margins being in a reasonable range over the next few quarters reasonably similar range.

Robert H. Geddes: We've got a little bit of excess capacity there that can be contracted on the Clearwater Manville. You saw us move two of our ADR-300s out of California, which are super-spec singles, that kind of rig. So we're feeding into that market. Obviously, those breaks are perfect Clearwater Manhole rigs.

Yes, we should start to Hum like you said there might be some deviations as with the U S. But for the most part we should see margins continue along.

Okay got it. Thanks, that's all for me I'll turn it back.

Robert H. Geddes: And we're still finding some operators looking at more pad drilling. With pad drilling, you'll see the evolution of super high-spec doubles start to increase their capacity. I think we're running about... Close to 60% of our high-spec doubles at this point in time, and our high-spec singles, we don't have a lot of them.

Thanks, Paul.

Your next question comes from Joseph sector from Schachter Energy Research. Please go ahead.

Super Thanks, very much for taking my questions and congratulations.

Aaron MacNeil: We're running about 80% capacity on those. Okay, thanks guys. We'll turn it back on. Your next question comes from Cole Pereira from Stifel. Please go ahead. Hi, good morning all.

The first day, so when you put out an announcement in the market rejoices.

Thanks, Jeff.

Thanks Joseph.

It's nice to see a deal like this.

Cole J. Pereira: So there's a pretty significant improvement sequentially in gross margins. Anything one-time-ish, non-recurring in there, and if not, what really drove that, and was it more Canada or the U.S.? No, there's no one-time things.

Congratulations to the team.

<unk> a couple of questions starting with the well servicing with the consolidation by your competitor.

Do you see over time as they.

Rationalize that we're going to see more discipline in terms of pricing for the rigs.

Michael R. Gray: It really comes down to cost control and the operations and the team doing a great job out there, as well as trying to get the rate increases that we saw kind of in 2023. So, cost control has really been our big focus, in particular with our debt targets, so that's what we'll continue to focus on going forward. Okay, gotcha. So I guess going forward, then you kind of see margins being in a reasonable range over the next few quarters, a reasonably similar range. Yeah, we should start. Like I said, there might be some deviations with the U.S., but for the most part, we should see margins continue to widen. Okay, I got it. Thanks. That's all for me.

What's your outlook there in terms of.

How much how profitability could expand in 'twenty four 'twenty five.

Yeah, I I think that consolidation.

And rationalization of fleets does have an effect.

Especially when you look at the Newbuild metrics and the rates you need to make a reasonable rate of return. If you could find a bank are willing to give you some money or or some private equity.

On a raise so yeah. It leaves a little bit of running room for margin expansion in the well servicing business.

Okay.

Going to the debt.

<unk> paid down $217 million Youre talking 200 million this year.

Cole J. Pereira: I'll turn it back. All right. Thank you. Thank you. Your next question comes from Josef Schachter from Schachter Energy Research. Please go ahead.

Unofficial target we should be looking at like is it $500 million $600 million for two years from now.

Josef I. Schachter: Thanks very much for taking my questions. Congratulations on one of the first days when you put out an announcement. The market rejoices. Thanks, Josef. It's nice to see a day like this, so congratulations to the team.

And that would be at a point, where you would.

You would be looking at potential shareholder return stock buybacks and dividends.

Josef I. Schachter: A couple of questions, starting with well servicing. With the consolidation by your competitor, do you see over time, as they rationalize, that we're going to see more discipline in terms of pricing for the rigs? What's your outlook there in terms of how profitability could expand in 24, 25 years? Yeah, I think that consolidation and rationalization of fleets does have an effect, especially when you look at new build metrics and the rates you need to make a reasonable rate of return if you could find a banker willing to give you some money or some private equity on a raise. So yeah, it leaves a little bit of running room for margin expansion in the Well Service program. Going into debt, you paid down $217 million; you're talking $200 million this year.

Some magic number or numbers that you have.

Comfortable with talking about.

Yes, so when you look at the balance sheet, we did the refinancing the term loan which took out the senior notes.

And our target in 2023 was $200 million 'twenty 'twenty four is $200 million in 2025 is going to be $200 million.

That will get us to sub.

Sub 1 billion close to 800 million, which would be less than two times debt to EBITDA.

And when we look historically, where we've been that will be kind of in the historical norms. So at that point in time, then potential conversations could take place, but they will have to happen at the board level and we have to achieve our targets together.

Okay.

Going on in terms of M&A.

Josef I. Schachter: Is there an official target we should be looking at, like $500 million or $600 million, two years from now? And that would be at the point where you would be looking at potential shareholder returns, stock buybacks, and dividends. Is there some magic number that you're comfortable with talking about?

In terms of consolidating that Youll see us talk hunters to either parts of the U S business, our Canadian business because it looks like.

Weaker players.

Probably going to need to add.

A little bit of help here do you see anything that fits for Europe.

Michael R. Gray: Yeah, so when you look at the balance sheet, we did the refinance with the term loan, which took out the senior notes. And our target in 2023 was $200 million. 2024 is $200 million, and 2025 is going to be $200 million. That will get us to under a billion, close to $800 million, which would be less than two times debt-to-EBITDA. And when we look historically at where we've been, that will be kind of in the historical norms.

Your business book.

Oh, not not with ours I mean, we're laser focused on on that.

Free cash flow towards debt reduction.

And.

The more general comment about consolidation.

There's probably not much more in Canada, there's probably tuck ins for certain companies.

In the U S. Perhaps the same way you've got you've got a more competitive environment in the U S. You've got five big guys and you've got a 50.

Josef I. Schachter: So at that point in time, potential conversations could take place, but that will have to happen at the board level, and we have to achieve our targets to get there. Anything going on in terms of M&A, in terms of consolidation, that you see as tuck-unders to either parts of the U.S. business or Canadian business, because it looks like leaker players are probably going to need a little bit of help here. Do you see anything that fits your business book?

People below that.

So you know it's a.

And then there is a break type a bifurcation.

You start to bifurcate on drilling rig types.

Super triples in that and there are you know their.

35, $30 million to $35 million to build now so.

Robert H. Geddes: Oh, not with ours. I mean, we're laser-focused on free cash flow towards debt reduction. And, you know, on the more general comment about consolidation, there's probably not much more in Canada. There are probably tuck-ins for certain companies in the U.S., perhaps the same way. You've got a more competitive environment in the U.S. You've got five big guys, and you've got 50... People below that.

You see discipline in certain rig types, but on the on the bottom end.

There'll be there's always some consolidation, there's always something happening that Joseph but.

You're probably not going to see much from us we're focused on that.

Okay. Thank you. Thanks guys. Thanks. Thank you from me, thanks, very much and congratulations on the great here.

Thanks, Doug.

Your next question comes from Keith Mackey from RBC capital markets. Please go ahead.

Robert H. Geddes: So, you know, there's rig type bifurcation, you know, you start to bifurcate on drilling rig types. And they're, you know, they're $30 to $35 million to build now. You see discipline in certain rig types, but on the bottom end, there's always some consolidation. There's always something happening there, Josef.

Good morning, Bob I was just hoping you can maybe compare and contrast, the U S and Canadian high spec triple markets in terms of pricing, whereas pricing now where do you expect it to go I know, there's been more optimism around the Canadian market relative to the U S. But we have no.

Josef I. Schachter: You're probably not going to see much from us. For more information, call 1-800-634-7483. Okay, thank you. That does everything for me.

Southern natural gas are.

Directed Capex cuts recently so.

Context, and color you can give around that would be helpful.

Yeah, Yeah, well the the Canadian.

Josef I. Schachter: Thanks very much and congratulations on the great... Thanks. Your next question comes from Keith Mackey from RBC Capital Markets. Please go ahead. Good morning.

Hi, spec triple market is a tighter market.

Then it is in the U S.

The numbers are probably very similar.

Keith Mackey: Bob, I'm just hoping you can maybe compare and contrast the U.S. and Canadian high-spectral markets in terms of pricing. Where is pricing now? Where do you expect it to go? I know there's been more optimism around the Canadian market relative to the U.S., but we have noted some natural gas-directed CapEx cuts recently. So, any context and color you can give around that.

We're all trying to find and hang on to a.

At $30000 a day base you know mid.

Mid Twenty's to 30 base.

And then you've got your Ala carte items refining.

The Ala carte items like drill pipe and things like that especially.

Especially in the U S, where we have a drill pipe degradation, it's almost become a consumable on water based mud in the Permian.

Robert H. Geddes: Yeah, yeah, well, the Canadian high-spec triple market is a tighter market than it is in the U.S. The numbers are probably very similar, you know, we're all trying to find and hang on to a $30,000 a day base, you know, mid-20s to 30 base. And then you've got your a la carte items.

We're only getting like a year and a half out of it $2 7 million dollar strength. So we're you know, we're a charter where having a charge $8000 a day for that so we're finding that our.

What what switch changes some of the other.

Robert H. Geddes: We're finding a la carte items like drill pipe and things like that. Especially in the U.S., where we have drill pipe degradation, it's almost become a consumable. Water-based muds in the Permian, we're only getting like a year and a half out of a $2.7 million string. So we're having to charge $8,000 a day for that. And we're finding that what's changed is some of the other things that are now outside of the day rate that used to be inside of the day rate. So in Canada, I would say, you go through bidding cycles, and there'll be another bidding cycle coming up this summer for a lot of the high-spec triples going into the fall. We think that there's some momentum moving up into the fall from current numbers, but $30,000 is where we kind of need to get to. On new replacement, you know, the runway is, I mean, you've got to get to $45,000 a day before you get your head around any new construction, so there's still a $15,000 delta. Yeah, understood.

Items that are now outside of the day rate they used to be inside of the day rate.

So in Canada, I would say you know when you get through bidding cycles and.

There'll be another bidding cycle coming up this summer.

For a lot of the highest spec triples.

Into the fall.

You know we are we think that there's some momentum moving up into the fall.

From from current numbers, but 30 is a is where we kind of need to get to.

On new replacement are you know the runway is I mean, you've got to get the $45000 a day before you get your head around any any new construction. So there's there's still a 15000 dollar delta there right.

Okay.

Yeah understood.

Mentioned consolidation amongst U S customers.

Can you just maybe run through your exposure to that a little bit and some thoughts on what you think might happen in your plans to mitigate any issues as they arise and that kind of thing.

Keith Mackey: And you mentioned consolidation among US customers. Can you just maybe run through your exposure to that a little bit and some thoughts on what you think might happen and your plans to mitigate any issues as they arise and that kind of thing? Well, you know all the big ones, Exxon Pioneer; we're a big driller for Pioneer. What we find is that between Pioneer and a few other large clients who have gone through or are in the process of M&A activity, we're in their upper quartile of performance. We believe we'll probably be the last ones laid down. We all know that when mergers happen, 1 plus 1 never equals 2. It usually equals about 1.5 for a year, and then it starts to build up from there.

Mhm.

You know all the big ones are the Exxon pioneer.

We're a we're a big driller for pioneer you know of.

What we find is you know between pioneer and and a few other large clients who you know they have.

Gone through are in the process of M&A activity.

We're in there are upper quartile of performance so.

We believe we will will probably be the last one is laid down we all know that when mergers happen.

One plus one never equals two it's usually equals about 1.5 for for a year and then it starts to build up from there. So we're we're happy that we're performing in the upper quartile.

Robert H. Geddes: So we're happy that we're performing in the upper quartile. And that's our defense, basically. Okay, thanks for the comments. I'll turn it back. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the 1. The next question comes from John Gibson from BMO Capital Markets; please go ahead. Morning all, and congratulations on the strong quarter here. With TAPEX moving lower in 24, I know there might be some concerns on Activity Levels and Pricing, but could you potentially see your debt reduction targets once again exceeded this year, pending Activity Levels hold relatively flat?

And that's our that's our defense basically.

Okay. Thanks for the comments I will turn it back.

Thanks Keith.

Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one you're.

Your next question comes from John Gibson from BMO Capital markets. Please go ahead.

Okay.

Good morning, all and congrats on the strong quarter here with Capex moving lower in 'twenty four I know there might be some puts and takes on activity levels and pricing, but could you potentially see debt reduction targets. Once again exceeded this year pending activity levels hold relatively flat from here.

John Gibson: So let's get the crystal ball out, Mike. Yeah, I mean, for sure, the activity definitely picks up. We can see it go.

Well, let's get the Crystal ball.

I mean for sure I mean, if activity definitely picks up we can take off I think from a capex point of view, we're quite confident and that's been for to keep the rigs that we have run and run them. So yes.

Michael R. Gray: I think from a CAPEX point of view, we're quite confident in that spin to keep the rig that we have running. So, yeah, I think there's some room for improvement. Like you said, we're laser-focused on it, so we'll be making sure that we perform to get that done. Yeah, any upgrade or growth capital that we talk about, we always demand less than one year payout on that, or it doesn't get approved. So that discipline is, to Mike's point, allowing us to stay on track with a debt reduction target with confidence.

Yes, I think theres some room for improvement.

But like you said, we're we're laser focused on it so.

Making sure that we performed to get those done any.

Any upgrades growth capital that we are we talk about it we always a demand less than one year payout on that or it doesn't get approved so that discipline is to Mike's point, allowing us to stay on to a debt reduction target with confidence.

John Gibson: Okay, great. Second for me on the drilling solutions side, you talked about, I think, 25% year-over-year growth. Was that a revenue number? And, I guess, what impact did that have on your margin?

Okay great.

Second <unk> drilling solutions side, you talked about I think 25% year over year growth.

Was that a revenue number and I guess what impacted this have on your margins are maybe in Q4 and in 2023 in general.

Robert H. Geddes: Q4 and 2023 in general. Right, yeah, and that was a top-line number, but keep in mind we make about 75% gross margin on our technology and, you know, we've got 200 rigs around the world, running 100 every day. The edge.

Right, Yeah, and that was a top line number but keep in mind, we make about 75% gross margin on our AR technology and.

We've.

We've got 200 rigs around the world running 100 every day.

The the edge yeah. The way I look at it is we've got a like kind of like the Microsoft Office suite installed on half of those rigs currently we keep on working on installing more and more of it and then our sales team goes out and talks to the operator, but what do you want to turn on excel, Powerpoint et cetera et cetera.

Robert H. Geddes: The way I look at it is we've got kind of the Microsoft Office suite installed on half of those rigs currently. We keep on working on installing more and more of it. And then our sales team goes out and talks to the operator about what they want to turn on, Excel, PowerPoint, et cetera, et cetera, and we feed into that.

And we see it into that.

John Gibson: I would say we're kind of 10% of the way there. We don't segregate down to that level as far as numbers go, unless you want to expand on that now. I guess just to follow on when you think about adding new systems. I know you talked about a backlog there, but what could this number look like in 2024? Again, just a pivot level stick flat for.

I would say you know, we're kind of 10% of the way there.

As you know we don't.

Segregate down to that level as far as the numbers go.

So Mike unless you wanted to expand on that now.

I guess just to follow on when you think about it.

Adding new systems, I know you talked about a backlog there but.

What could this number look like in 2024 again.

Activity levels stay flat from here.

So.

Some numbers I can give you I mean, we've got.

Robert H. Geddes: So... Some numbers I can give you. I mean, we've got, and we're going to be up to about 20 of our ADS. Today I'm going to talk to you a little bit about what we're doing here at the University of Minnesota. I'm going to talk to you a little bit about what we're doing here at Minnesota State University, You build a number there. Okay, great. I'll turn it back on. Thanks, John. And there are no further questions at this time. I will turn the call back over to Bob, President and COO, for closing remarks. Thank you. So to wrap up, despite current geopolitical tensions in various places around the globe and the world's desire to reduce emissions, All while expressing a desire for a better quality of life, we think the demand for oil and the apparent... production amongst OPEC players will manifest itself into steady drilling activity through 2024. Gas, that's a different story.

Where we're gonna be up to about 20 of our Ats.

Implementations by the end of the year, they charge out at $1000 a day.

We've got 50 rigs today.

Running at about a $750 a day of drilling solution revenue application.

And then you tack on 25% year over year growth, that's kind of our target.

You.

Bill the number there.

Okay, Great I'll I'll turn it back thank you.

Thanks, Sean.

Yeah.

There are no further questions at this time I will turn the call back over Bob <unk>, President and CEO for closing remarks.

Thank you so to wrap up despite current geopolitical tensions in various places around the globe and the world's desire to reduce emissions.

While express expressing a desire for a better quality of life, we think the demand for oil and the apparent discipline with production amongst the whole tech players will manifest itself into steady drilling activity through 2024 gas that's a that's a different story.

Robert H. Geddes: Ensign has a fleet of over 200 high-spec drill rigs and a fleet of close to 100 well-service rigs of varying capacity, situated in eight different countries around the globe, all ready to perform. Management stays laser-focused on delivering best-in-class performance, which will provide free cash flow to maintain our fleet in top condition and keep to our debt reduction targets of $200 million a year.

Enzyme has a fleet of over 200 high spec drill rigs in our fleet of close to a 100 well service rigs at varying capacity situated in eight different countries around the globe already to perform management stays laser focused on delivering best in class performance, which will provide free cash flow to maintain our fleet in top condition and keep to our debt reduction target.

A $200 million a year. Thanks for joining the call look forward to talking to you in the spring.

Operator: Thanks for joining the call. I look forward to talking to you in the... Ladies and gentlemen, this concludes the conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you. www.keithmackey.com Please see the complete disclaimer at https://sites.google.com.au, Thank you. Thank you.

Ladies and gentlemen, this concludes today's conference call for today, we thank you for joining and you may now disconnect. Your line. Thank you.

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Yes.

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