Ensign Energy Services Inc. Q2 2024 Earnings Call
Good afternoon, ladies and gentlemen.
Speaker Change: Did you Ann joined HPE services second quarter 2024 results conference call.
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Investor Relations: Investor Relations. Please go.
Speaker Change: That helps.
Jenny: Thank you Jenny.
Speaker Change: Morning, and welcome to Ensign Energy services second quarter conference call and webcast.
Speaker Change: But our call today, Bob Geddes, President and CLO and make great Chief Financial Officer will review second quarter highlights and financial results.
Speaker Change: Well then open the call for questions.
Speaker Change: Our discussion today may include forward looking statements based upon current expectations that involve several business risks and uncertainties.
Speaker Change: The factors that could cause results to differ materially include but are not limited to political economic and market conditions crude.
Speaker Change: 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.
Speaker Change: Additionally, our discussion today may refer to non-GAAP financial measures such as adjusted EBITDA.
Speaker Change: Please see our second quarter earnings release, and SEDAR SEDAR filings for more information on forward looking statements in the company's use of non-GAAP financial measures.
Speaker Change: With that I'll pass it onto Bob.
Bob Geddes: Thanks, Nicole good morning, everyone I'll provide some introductory commentary the second quarter was one of the strongest quarters in Amazon'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 year over year increase in our highly active.
Bob Geddes: The international business unit, where we operate in six different countries and where we saw March all year over year increases in activity. In contrast, our U S business unit is seeing reduced activity across the board as M&A activity sorts itself out through the rest of 2024 with.
Bob Geddes: With steady margins and solid activity levels generally around the globe, we have been able to address another $80 million of debt reduction in the quarter.
Bob Geddes: They are on the path to reduce 600 million of debt over the next three years.
Bob Geddes: Solid cash flow stream into a building book, an increasing margin construct.
Over to Mike to expand on that customer.
Mike: Customer consolidation in the U S has impacted enzymes operating and financial results over the short term. However, despite the short term headwinds the outlook for oilfield services is constructive in the operating environment for oil and natural gas industry continue to support relatively steady demand for services.
Speaker Change: Offsetting this decrease Canadian operations recorded 2000, and 451 operating days, an increase of 15% and international operations recorded 1255 days and a 1% increase compared to the second quarter of 2023.
Speaker Change: For the first six months ended June 32020 for overall operating days declined, but the United States recording a 32% decrease.
Speaker Change: Offsetting by a 5% increase in Canada, and a 9% increase in international when compared to the same period in 2023.
Speaker Change: The company generated revenue of $391 8 million in the second quarter of 2024% to 9% decrease compared to revenue of $432 8 million generated in the second quarter of the prior year.
Speaker Change: For the first six months ended June 32024, the company generated revenue of $823 1, Million% to 10% decrease compared to revenue of $916 8 million generated in the same period of 2023.
Speaker Change: Adjusted EBITDA for the second quarter of 2024 was $100 2 million, 14% lower than adjusted EBITDA of $116 6 million in the second quarter of 2023 adjusted.
Speaker Change: Adjusted EBITDA for the six months ended June 32024th totaled $217 7 million, 11% lower than adjusted EBITDA of $243 9 million generated in the same period in 2023.
Speaker Change: The decrease in 2024 is due to year over year declines in drilling activity depreciation.
Speaker Change: Depreciation expense for the first six months of 2024 was $178 million, an increase of 12% compared to $152 7 million in the first six months of 2023.
Speaker Change: General and administrative expenses in the second quarter of 2024 was $15 5 million up from $14 6 million in the second quarter of 2023 G&A.
Speaker Change: G&A expenses increased primarily as a result of the annual wage increases interest expense decreased by 19% to $25 5 million from $31 6 million. The decrease was the result of lower debt levels and reduce the fact that interest rates.
Speaker Change: During the second quarter of $2024 $78 9 million of debt was repaid.
Totaled $90 3 million was repaid for the first half of 2024 from January one 2023 to June 32020 for a total of $307 9 million of debt has been repaid.
Speaker Change: Leaving $292 1 million at the $600 million debt reduction target is expected to be achieved by the end of 2025.
Speaker Change: Purchases of property and equipment for the second quarter of 2024 totaled $40 3 million consisting of $2 $4 million in upgrade capital.
Speaker Change: $46 1 million in maintenance capital offset by a disposition proceeds of $8 1 million gross capital expenditures for 2024 are targeted to be approximately $147 million.
Speaker Change: Primarily related to maintenance expenditures and selective growth projects on that note I'll turn the call back to Bob Thanks, Mike.
Bob Geddes: So let's start with Canada operational update first off we're seeing a nice macro construct building in our Canadian business unit.
Bob Geddes: The combination of expanded pipeline capacity, both for oil and natural gas the tightening differential and with the low Canadian dollar. The net effect is that more drilling will occur in the western Canadian sedimentary 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.
Bob Geddes: This has also helped to drive the highest spec double market to enjoy utilization of about 60%.
Speaker Change: 60% is a typical threshold for contractors are able to raise pricing and have it stick almost a third of enzymes. Canadian fleet is highest spec doubles. So we have lots of product to feed into this construct.
Speaker Change: Our fleet of high spec singles on high spec triples are essentially booked well into 2025, 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 at any cost required to go into their first location.
Speaker Change: We are currently already back to the same peak level, we saw last winter, which rarely occurs in the Canadian market. So soon after breakup.
Speaker Change: We expect to also add a few more rigs between now and year end as mentioned, we have almost 90% of the current active fleet contracted until the end of the first quarter 2025 and in most cases, we have ratcheting rate increases compounding as we move through the fall season and into the winter drilling season.
Speaker Change: Our well servicing business in Canada has a strong schedule ahead for its rigs in the heavy oil area.
Speaker Change: And in the back half of the year is expected to pick up as we capture more of the <unk> work.
Speaker Change: Our rental fleet of tubular tanks, and other high margin ancillary equipment continues to grow as more and more specialty equipment is called for it usually high torque tubular to attached to our highest spec ADR drill rigs.
Speaker Change: With accelerated accelerated where at issue on tubular is as a result of the high penetration rates. It is becoming the norm for tubular has to be charged separate from the rig rate.
Speaker Change: Moving onto our international business unit lots.
Speaker Change: Lots of exciting news in this area, we have a fleet of 30, plus drill rigs that operate in six different countries around the globe and the middle East we have a 100% of our highest spec ATR fleet actively working on long term contracts.
Speaker Change: 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 are running at 100% utilization with both our 2000 horsepower high spec <unk> 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 in the world, but so far we have seen no impact on the operation in the field.
Speaker Change: Dahlia, staying steady with little change moving to the United States. We have a fleet of 77 high spec <unk> and U S stretching from the California market up into the Rockies and was the main focus in the Permian.
Speaker Change: We operate roughly 37 rigs today and expect little change through the rest of 2024.
The challenge in the U S is that in addition to the depressed natural gas prices, we saw half a trillion dollars of M&A activity in the last 18 months occur which has manifested itself into less work in the short term.
Speaker Change: Natural gas story may take a bit longer to correct itself. The good news is that we have mainly been in oil focused driller in the U S market.
Speaker Change: Coming back to the effects of the M&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 2025.
Speaker Change: Our U S business here to continues to expand its TVA contract base and now has over half the fleet on a tbi contract that builds off our performance driller team coupled with our edge autopilot drilling very control technology, not only do we get it right for our edge autopilot technology, we captured the upside value generated to the operator through performance metrics.
Speaker Change: Our well site as our well service business, which is focused primarily on the Rockies and California wall servicing market continues to enjoy high utilization in the upper <unk>.
Speaker Change: Directional drilling business, which is essentially a mud motor rental business continues to provide some of the desk motors with high quality rebuilds in the Rockies.
Speaker Change: Moving onto 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.
Speaker Change: 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 delivers results with reduced dwell times and increased fee rates with reduced tortuosity.
Speaker Change: So with that I'll move to questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one I know touched on Pony.
Speaker Change: You will hear three telecoms acknowledging your request questions will be taken in the order receipt should you wish to cancel your request. Please press star followed by the Tianjin.
Speaker Change: Using a speaker Cowen. Please go ahead, the handset before pressing Andy keys.
Speaker Change: Once again that is star one should you wish to ask a question.
Speaker Change: Your first question is from Aaron Macneil with TD Cowen. Please ask your question.
Aaron MacNeil: Hey, good morning, Thanks for taking my question.
Speaker Change: Bob.
Speaker Change: The debt repayment commitments don't leave it kind of wiggle room for growth capital. Thank you spent maybe coronary in today.
Speaker Change: In your view are you having to trim down organic capital opportunities. It's been returns that your customers are asking for or do you think you are generally keeping pace with what your customers need.
Speaker Change: Oh, yes, no for sure we're keeping pace and any conversations we have because we we are.
Speaker Change: Going wells faster the operator is willing to help invest in any upgrades.
Speaker Change: And that growth Capex side, so the market continues to absorb that conversation well.
Speaker Change: Okay.
Speaker Change: Sort of switching gears here, we've seen HST.
Speaker Change: International deal and it started to indicate they may move rigs to international markets I guess, what's your appetite to engage in that given that you already have.
Speaker Change: Big International presence.
Speaker Change: Yeah, well as you know, we we started that movement 20 years ago with the.
Speaker Change: With the Odeon acquisition and have expanded that running 30 plus rigs.
Speaker Change: And we operate in six different countries outside of North America. It is.
Speaker Change: It is a challenging business for sure international comes with its own.
Speaker Change: Interesting.
Speaker Change: Challenges I would say that we've been feeding rigs out of North America for instance, our argentinean rigs or rigs that we bought through the <unk> acquisition that were upgraded by the client and shipped to Argentina. So we've been quietly doing this for some time, we shipped $2.
Speaker Change: Our smaller ADR is out of Canada, when the coal seam gas.
Speaker Change: <unk> fell apart and we shipped them to Australia.
Speaker Change: It's.
Speaker Change: I'm glad to see another contractor I understand that.
Speaker Change: You need to get outside of North America.
Speaker Change: <unk> has a strong well run companies so im sure they will do well.
Speaker Change: And again I guess, maybe just another question to ask is like what sort of a checklist.
Speaker Change: So you'd have to kind of a wishlist you'd have to go through to maybe.
Speaker Change: Yes move our rig fleet.
Speaker Change: In the international market, and then where do you think represent the best opportunities for the fleet.
Speaker Change: Well that's a good question because it's a dynamic process.
Speaker Change: We look at Australia, as being pretty static business with us small and steady growth is a developed natural gas utility grid, the middle East is as steady.
Speaker Change: Bahrain, we have two rigs those are well contracted same with Kuwait.
Speaker Change: Oman, we've we've got.
Speaker Change: Tree three.
Speaker Change: <unk> is there one is coming down here for a short period of time, we already have another operator, saying.
Speaker Change: Saying they'd like to pick it up plus add a few more to it.
Speaker Change: So I'm not worried about it.
Speaker Change: When you perform you always find work so.
Those rigs are going to work, but we're not interested in going into new countries.
Speaker Change: We are always interested in expanding our footprint in the countries. We're in that makes most sense for us.
Speaker Change: Okay.
Speaker Change: I'll turn it back.
Erin: Thanks Erin.
Speaker Change: Thank you. Your next question is from Macquarie.
Speaker Change: Capital markets.
Speaker Change: <unk>.
Speaker Change: Thank you for taking my question.
Speaker Change: Bob So you mentioned that you have 37 rigs running in the U S.
Speaker Change: Right now how does that number compare to the average in Q2.
Speaker Change: You mean in historical Q2s is that what your question is regard yes.
Speaker Change: Yes, that's correct.
Speaker Change: Q2 24.
Speaker Change: The average number of rigs running.
Speaker Change: And all of the U S is that what you mean, yeah yeah.
Speaker Change: Yes, we're hanging on to about 7% market share we're down year over year for the quarter.
Speaker Change: By about Oh, gosh, 10 rigs a year over year for the quarter in the U S.
Speaker Change: Okay.
Speaker Change: Now the revenues quarter over quarter in the U S was flat at around $208 million your rig count was down so what's the gap is it service.
Speaker Change: I always went up 35% is did that kind of how the.
Speaker Change: Quarter over quarter revenue per bed is then.
Speaker Change: There was something else as well.
Speaker Change: Or what was the cause of flat revenues.
We always saw the increase in well servicing and will also increase as Bob was talking about.
Speaker Change: Drill pipe being outside the contract now so.
Speaker Change: So let me add ons, and then well servicing would be the largest and the.
Speaker Change: The largest contributors to that gap.
Speaker Change: And is that sustainable into the subsequent quarters as well in Q3 and Q4.
Speaker Change: These.
Speaker Change: Outside of the contract.
Day rates that you're seeing.
Speaker Change: Revenue revenue pick up as well as well as servicing in Q3.
Speaker Change: For sure.
Things like the drill pipe for example, a car has manifested itself from the accelerated.
Penetration rates and the use of.
Speaker Change: Flock water versus.
Speaker Change: Oil based mud systems and a lot of these cases.
Speaker Change: It tears drill drill pipe apart pretty quickly we used to get.
Speaker Change: Six to seven years out of drill pipe.
Speaker Change: Maybe two to three years Max out of drill pipe and some case less than that.
Speaker Change: And every up every contractor is.
Speaker Change: Feeling that same push everyone's.
Speaker Change: Drill pipe costs are up about three times, what they were five years ago.
Speaker Change: And that's why the move to put it outside the contract to get to get a rate for it.
Speaker Change: Some cases, we have the operator provide the pipe and we just manage it for them.
Speaker Change: We've got the other end of the extreme.
Speaker Change: We will give them a rate as high as $8000 a day.
Speaker Change: We're managing the pipe handling the destruction and the replacement of the pipe.
Through the process, so it's somewhere in between but.
Speaker Change: It will it will continue to be a charge.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Anzine Energy Services 2nd quarter 2020 results conference call. At this time, all lines are endless in only mode.
Speaker Change: As we continue to have these high penetration rates in these four mile three and four mile laterals.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Ensign Energy Services 2nd 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. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would now like to turn the conference over to Nicole Romanow, Investor Relations. Please go ahead.
Speaker Change: Going away.
Speaker Change: That makes sense.
Speaker Change: And then.
Speaker Change: Yeah.
Operator: Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to get up for a question. If anyone has any difficulties hearing the conference, please press star or zero for operator assistance at any time.
Speaker Change: Could you talk about.
Speaker Change: So.
Speaker Change: Mike.
Speaker Change: $40 million real estate portfolio that you were.
Speaker Change: Interesting interesting.
Speaker Change: And in selling we saw $8 million of asset sales in Q2 3 million in Q1.
Nicole Romanow: I would now like to turn a conference over to Nicole Romanow, Investor Relations.
Speaker Change: What should we be expecting for the second half.
Nicole Romanow: Thank you, Jenny.
Speaker Change: We're working through it.
Nicole Romanow: Thank you, Jenny. Good morning and welcome to Ensign Energy Services' second quarter conference call and webcast. On our call today, Bob Geddes, President and COO, and Mike Gray, Chief Financial Officer, will review Ensign's second quarter highlights and financial results, followed by our operational update and outlook. We'll then open the call for questions.
Nicole Romanow: Good morning and welcome to Anzine Energy Services 2nd quarter conference call and webcast. On our call today, Bob Geddes, President and FIRO, and Mike Gray, Chief Financial Officer, will review Anzine's 2nd quarter highlights and financial results, followed by our operational update and outlook.
Speaker Change: We have two properties up in NICU that are actively marketed right now.
Speaker Change: Working through a process in the U S. So I would expect movement of that in Q4.
Speaker Change: Not the whole balance, but a portion of the balance I believe will be closing in Q4.
Nicole Romanow: 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. 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 the just to deput that.
Speaker Change: Okay that makes sense, and then $147 million Capex number that remains unchanged do you see anything in the hopper.
Nicole Romanow: 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 accounts receivable balances, or other unforeseen conditions which could impact the demand for the services supplied by the company.
Speaker Change: Horizon that could move it up or down.
Speaker Change: Okay.
Speaker Change: I think there is I mean with the us muted activity that would probably but I think a cap on some of the capex that was required for the U S.
Speaker Change: But also I mean, there is some international opportunities here and there so for the most part of that should be fairly steady.
If anything if it does increase its usually.
Speaker Change: Tied to an EBITDA event, so a net positive to the balance sheet and the income statement.
Nicole Romanow: Additionally, our discussion today may refer to non-GAAP financial measures such as adjusted EBITDA. Please see our second quarter earnings release and CDAR 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 Change: Once again, if it if it has a positive impact and we will definitely look at stuff but.
Nicole Romanow: Please see our 2nd quarter earnings release and seed our plus filings for more information on forward-looking statements and the company's use of non-GAAP financial measures.
Speaker Change: The growth that you are on there yeah, we won't invest any capex it doesn't pay for itself in less than a one year period.
Speaker Change: Right.
Bob Geddes: With that, we'll pass on to Bob.
Speaker Change: Yes.
Bob Geddes: Thanks, Nicole. Good morning, everyone.
Speaker Change: And then just one final question on the pricing side in the U S. Like just.
Bob Geddes: Thanks, Nicole.
Bob Geddes: Good morning, everyone. I'll provide some introductory commentary. The 2nd quarter was one of the strongest quarters in Anzine's history, buoyed by a 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 six different countries and where we saw marginal year-over-year increases in activity.
Bob Geddes: I'll provide some introductory commentary. The second quarter was one of the strongest quarters in Ensign's history, buoyed by strong and increasing demand for 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 six different countries and where we saw marginal year-over-year increases in activity. In contrast, our U.S. business unit is seeing reduced activity across the board as M&A activity sorts itself out through the rest of 2024.
David environment, what do you see right now.
Speaker Change: Well it seems like it's bottomed.
Speaker Change: It depends on the area and the type of rig, but I would say that.
Speaker Change: It's it's it feels like it's hit bottom, we've been catching a falling them falling knife in the last quarter.
Speaker Change: The markets haven't moved the Permian still running three or four but.
Mike Gray: In contrast, our U.S. business unit is seeing reduced activity across the board as M&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 million of debt reduction in the quarter and stay on the path to reduce 600 million of debt over the next three years with a solid cash flow stream into a building book and increasing margin construct.
Speaker Change: It's not going up but it isn't going down so as as operators.
Bob Geddes: With steady margins and solid activity levels generally around the globe, we have been able to address another $80 million of debt reduction in the quarter and stay on the path to reduce $600 million of debt over the next three 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.
Merge together.
Speaker Change: 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 forma budget on the consolidated business and then walk into 2025.
Mike Gray: I'll pass over to Mike to expand on that.
Speaker Change: So we kind of expected all of this M&A activity would provide that result, so it's not a surprise, but I would say rates have stabilized.
Mike Gray: So, customer consolidation in the U.S. has impacted Ensign's operating financial results over the short term. However, despite this 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.
Mike Gray: Customer consolidation in the U.S. has impacted Anzine's operating financial results over the short-term. However, despite this short-term headwind, the outlook for oil field services is constructive, and the operating environment for the oil and natural gas industry continues to support relatively steady demand for services. Overall, operating days declined in the 2nd quarter 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 and increased to 15%, and international operations recorded 1,255 days, a 1% increase compared to the 2nd quarter of 2023. For the first six months ended June 30th, 2024, overall operating days declined, but the United States recorded a 32% decrease.
Speaker Change: At the bottom end.
Speaker Change: And.
Speaker Change: With drill pipe outside now and part of the total.
Mike Gray: Overall, operating days declined in the second quarter 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 1,255 days, a 1% increase compared to the second quarter of 2023. For the first six months ended June 30, 2024, overall operating days declined, with the United States recording a 32%
Speaker Change: Gross rig rate.
Speaker Change: Still in the low thirties.
Speaker Change: On a gross basis.
Speaker Change: Okay.
And all of these M&A is like.
Speaker Change: <unk> seen a number of these big Mega mergers.
Speaker Change: Where do you stand with respect to your exposure to the <unk>.
Speaker Change: <unk> versus <unk>.
Speaker Change: The target company.
Speaker Change: While we're on the right side of that equation.
Speaker Change: Probably 80% of our portfolio, which is a nice place to be the other nice place to be is to have industry reports showing enzymes as the.
Mike Gray: Although 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 $391.8 million in the second quarter of 2024, a 9% decrease compared to revenue of $432.8 million generated in the second quarter of the prior year. For the first six months ended June 30, 2024, the company generated revenue of $823.1 million, a 10% decrease compared to revenue of $916.8 million generated in the same period of 2023.
Mike Gray: 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 391.8 million in the second quarter of 2024, a 9% decrease compared to revenue of 432.8 million generated in the second quarter of the prior year. For the first six months ended June 30th, 2024. The company generated revenue of 823.1 million, a 10% decrease compared to revenue of 916.8 million generated in the same period of 2023. The adjusted EBITDA for the second quarter of 2024 was 100.2 million, 14% lower than the adjusted EBITDA of 116.6 million in the second quarter of 2023.
Speaker Change: The highest penetration rate driller of the top six in the U S.
Speaker Change: So the.
Speaker Change: We're in conversations.
Speaker Change: With companies that are the acquirer, where they acquire E. We did a lot of work for and they're going Hey, we want to hang onto those rigs.
Speaker Change: That's great well. Thank you very much thanks for the answers.
Mike Gray: Adjusted EBITDA for the second quarter of 2024 was $100.2 million, 14% lower than adjusted EBITDA of $116.6 million in the second quarter of 2023. Adjusted EBITDA for the six months ended June 30, 2024, totaled $217.7 million, 11% lower than adjusted EBITDA of $243.9 million generated in the same period in 2023. The decrease in 2024 is due to year-over-year declines in drilling activity.
Robert: Thanks Robert.
Robert: Okay.
Robert: Your next question is from Keith Mckey our.
Speaker Change: RBC capital markets. Please ask your question.
Mike Gray: The adjusted EBITDA for the six months ended June 30th, 2024, total 217.7 million, 11% lower than the adjusted EBITDA of 243.9 million generated in the same period in 2023. The decrease in 2024 is due to the year-over-year declines and drilling activity. Depreciation expense for the first six months of 2024 was 170.8 million, an increase of 12% compared to 152.7 million in the first six months of 2023. General administrative expenses in the second quarter of 2024 was 15.5 million, up from 14.6 million in the second quarter of 2023. June 8 expenses increased primarily as a result of the annual wage increases.
Keith Mckey: Hey, Thanks, and just a question about your debt repayment target.
Speaker Change: Maintain the $600 million into 2025 and of course, you always note that industry conditions could move that up or down based on prevailing industry conditions, we see now with rig counts, where they are if that stays flat.
Mike Gray: Depreciation expense for the first six months of 2024 was $170.8 million, an increase of 12% compared to $152.7 million in the first six months of 2023. General administrative expenses in the second quarter of 2024 were $15.5 million, up from $14.6 million in the second quarter of 2023. G&A expenses increased primarily as a result of the annual wage increase.
Speaker Change: From from here do you see any any risk to that 600 billion dollar debt repayment target.
Speaker Change: No when we look at the interest savings on a year over year.
Speaker Change: 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&L from from interest savings if activity remains steady.
Mike Gray: Interest expense decreased by 19% to 25.5 million from 31.6 million. The decrease is a result of lower debt levels and reduced the fact of interest rates. During the second quarter of 2024, 78.9 million of debt was repaid, and a total of 90.3 million was repaid for the first half of 2024. From January 1st, 2023, to June 30th, 2024, a total of 307.9 million of debt has been repaid, leaving 292.1 million of the 600 million debt reduction target expected to be achieved by the end of 2025. Met purchase of the property and equipment for the second quarter of 2024 totaled 40.3 million, consisting of 2.4 million in upgrade capital.
Mike Gray: Interest expense decreased by 19% to $25.5 million from $31.6 million. The decrease is a result of lower debt levels and reduced effective interest rates. During the second quarter of 2024, $78.9 million of debt was repaid, and a total of $90.3 million was repaid in the first half of 2024. From January 1, 2023 to June 30, 2024, a total of $307.9 million of debt has been repaid, leaving $292.1 million of the $600 million debt reduction target expected to be achieved by the end of 2025.
Speaker Change: Steady as it is your Capex is going to remain kind of in that $1 50 range. So.
Speaker Change: Consensus for 'twenty four is $4 50 ish 25, I mean, who knows where that's going to be plus or minus but when you look at that with $1 50, and capex 90, or lessen and interest expense. There is about 210 and free cash flow to go towards.
Speaker Change: Payments and then we do have some non operational stuff like asset sales and some working capital movements.
Speaker Change: Aid in that so yes, when we look at it I mean, if everything kind of remain steady.
Mike Gray: Net purchases of property and equipment for the second quarter of 2024 totaled $40.3 million, consisting of $2.4 million in upgrade capital and $46.1 million in maintenance capital, offset by disposition proceeds of $8.1 million. Gross capital expenditures for 2024 are targeted to be approximately $147 million, primarily related to maintenance expenditures and selective growth projects.
Speaker Change: We foresee that as being a.
Speaker Change: Quite easily to be achievable.
Mike Gray: 46.1 million in maintenance capital, offset by disposition proceeds of 8.1 million. Gross capital expenditures for 2024 targeted to be approximately 147 million, primarily related to maintenance expenditures and selective growth projects.
Speaker Change: Yes.
Speaker Change: Sounds good and just a question on your.
Speaker Change: You mentioned the free cash flow number there is also some mandatory debt repayments and liquidity reductions forthcoming.
Speaker Change: At the end of the year and into Q1 next year if the.
Bob Geddes: On that note, I'll turn the call back to Bob.
Bob Geddes: Thanks, Mike.
Speaker Change: Street consensus is right what kind of breathing room do you foresee having in terms of liquidity.
Bob Geddes: So let's start with a 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 the low Canadian dollar, the net effect is that more drilling will occur in the Western Canadian Centimetric Basin moving forward. It is 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 0.60%. 60% is a typical threshold where contractors are able to raise prices and have it stick.
Bob Geddes: So 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 is that more drilling will occur in the Western Canadian Centmetric basin moving forward. It's safe to say that the demand for high-spec singles and high-spec triples is at the highest that 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 about 60%.
Speaker Change: Well, we never get into the specifics I mean, we love ample liquidity to continue to run the business as we had in the past so.
Speaker Change: Fair enough fair enough and just one more question on your.
Speaker Change: Maintenance capex per rig in the U S. What what approximately that running these days.
Speaker Change: Oh good question.
Speaker Change: We'd like to think of the operating rig on an annual basis requiring.
Bob Geddes: 60% is a typical threshold for contractors who are able to raise pricing and have it stick. Almost a third of enzymes can aid in fleet as 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 2025. 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 in any cost required to go under their first location. We are currently already back to the same peak level.
Speaker Change: Out one to one and a quarter depending on the type of rig it is.
Bob Geddes: Almost a third of Enzyne'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 is essentially booked well into 2025, 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 onto their We are currently already back to the same peak level we saw last winter, which rarely occurs in the Canadian market so soon after a breakup.
Speaker Change: Got it does that is that Canadian or U S.
Speaker Change: The U S.
Speaker Change: For U S and or if it had for Kate.
Speaker Change: Yes.
Got it got it okay. Thanks very much that's it for me.
Speaker Change: Thank you.
Speaker Change #100: Once again, please press star one should you wish to ask a question.
Speaker Change #100: Your next question is pharma Josef Schachter.
Josef Schachter: Energy. Please ask your question.
Bob Geddes: We saw last winter, which rarely occurs in the Canadian market, so soon after break up. We expect also a few more rigs between now and your end. As mentioned, we have almost 90% of the current active fleet contracted until the end of the first quarter, 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.
Josef Schachter: Good morning, Bob Mike and Nicole.
Bob Geddes: We expect to also add a few more rigs between now and year-end. As mentioned, we have almost 90% of the current active fleet contracted until the end of the first quarter of 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, it is expected to pick up as we capture more of the OWA work.
Speaker Change #102: Have your conference call given what's going on in the market I wanted to ask a macro question.
Speaker Change #102: November 5th so big.
Speaker Change #104: De in the states energy industry could have a 180.
Speaker Change #105: Difference in terms of go forward strategy based on what happens at that date that night.
Speaker Change #106: Are you getting any commentary from company, saying that we'll keep what's going on into Q4, but Q1 is up in the air depending upon the results of November 5th.
Bob Geddes: Our 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 ATR drill rigs. With accelerated wear, an issue with tubulars as a result of the high penetration rates, it is becoming the norm for tubulars to be charged separately from the rig rate.
Bob Geddes: Our rental fleet of tubulars, tanks, and other high-margin and silvery equipment continues to grow as more and more specialty equipment is called for, usually high-torque tubulars to attach to our high-spec 80-yard drill rigs.
Speaker Change #106: That's a good question Joseph I think that.
Speaker Change #107: What we're seeing is.
Speaker Change #108: The macro fundamentals of demand.
Bob Geddes: With accelerated wear an issue on tubulars as a result of high penetration rates, it is becoming the norm for tubulars to be charged separate from the rig rate.
Speaker Change #108: Play out.
Speaker Change #110: Not to get into too much of the politics that we saw.
Speaker Change #108: One of the.
Speaker Change #111: Like it doesn't suggest that.
Bob Geddes: 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 six different countries around the globe. In the Middle East, we have 100% of our high-spec 80-yard fleet actively working on long-term contracts. And 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% utilization with both our 2000 horsepower high-spec 80-yard operating of their long-term contracts. We have one of our drill rigs working in Venezuela with another ready to start up in the next month.
Bob Geddes: 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 six different countries around the globe. In the Middle East, we have 100% of our high-spec ADR fleet actively working on long-term contracts, and 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.
Speaker Change #108: They have changed there.
Speaker Change #108: Platform on fracking and they're okay with fracking now so we're.
Speaker Change #112: We're not getting any feedback from our operators. So a lot of them are saying, we're certainly not going to accelerate drilling.
Speaker Change #112: Fourth quarter, and I think thats driven more so not by the election, but by.
Speaker Change #112: I guess the.
Speaker Change #112: Staying with their plan too.
Speaker Change #112: Deliver shareholder return not to accelerate capex.
Bob Geddes: In Argentina, we're running at 100% 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 capturing the world, but so far, we have seen no impact on the operation in the field. Australia is staying steady with little change.
Speaker Change #112: No just just staying disciplined so I don't think the election has much impact.
What we're seeing.
Bob Geddes: There are obviously some daily developments in Venezuela, which are captivating in the world, but so far we have seen no impact on the operation in the field. Australia is staying steady with low change.
Speaker Change #112: Okay. Thanks for that that's it for me.
Speaker Change #112: Okay.
Speaker Change #113: Thank you.
Speaker Change #114: Further questions at this time. Please proceed.
Bob Geddes: Moving to the United States, we have a fleet of 77 high-spec ADRs in the 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 little change through the rest of 2024. The challenge in the U.S. is that, in addition to the depressed natural gas prices, we saw half a trillion dollars of M&A activity in the last 18 months, which has manifested itself into less work in the short term.
Bob Geddes: Moving to the United States, we have a fleet of 77 high-spec 80-yard and 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.
Speaker Change #115: Alright. 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 markets and excellent visibility for sustained free cash flow with growing margins to continue executing on our debt reduction plan.
Bob Geddes: The challenge in the U.S. is that in addition to the depressed natural gas prices, we saw half a trillion dollars of M&A activity in the last 18 months occur, which is 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. market. Coming back to the effects of M&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.
Speaker Change #115: 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.
Bob Geddes: The natural gas story may take a bit longer to correct itself. The good news is that we have mainly been an oil-focused grower in the U.S. market. Coming back to the effects of M&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 2025.
Speaker Change #115: <unk> 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 I'd like to thank our professional crews and our employees along with our customers for helping inside achieved the performance and industry leading milestones.
Bob Geddes: market until early to mid 2025. Our U.S. business here that 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 agile-to-pilot drilling or control technology. Not only do we get a rate for our agile-to-pilot technology, we capture the upside value generated to the operator through performance metrics. 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.
Bob Geddes: Our U.S. 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 drilling rate control technology. Not only do we get a rate for our Edge Autopilot technology, but we capture the upside value generated to the operator through performance metrics. Our well site, I'm sorry, our well service business, focused primarily on the Rockies and California wall servicing market, continues to enjoy high utilization in the upper 80s.
Speaker Change #116: That industry does recognize us for I look forward to our next call three months time stay safe. Thank you.
Speaker Change #117: Thank you ladies and gentlemen.
Speaker Change #117: <unk>.
Speaker Change #118: Thank you all for joining you may now disconnect your lines.
Bob Geddes: Our directional drilling business, which is essentially a mud motor rental business, continues to provide some of the best motors for high-quality rebuilds in the Rocky. Moving 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 This part of our business continues to grow at a rapid pace year over year, and it delivers results with reduced weld times and increased P rates with reduced weld torch velocity. So with that, I'll move to questions.
Bob Geddes: Moving on to our agile-to-pilot drilling or control systems, we continue to deploy agile-to-pilot, which employs algorithms and AI on new rigs and continue to expand the agile-to-pilot platform. on each of the rigs that already have our Edge Autopilot drilling rig control technology. This part of our business continues to grow to rapid pace year-over-year, delivers results with reduced well times and increased p-rates with reduced well tortuosity.
Bob Geddes: So, with that, I'll move to questions. Thank you.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any key.
Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you hold by the one on a touchdown phone? You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. So do wish to cancel your request. Please press the star followed by the two. If you are using a speaker phone, please lift the handset before pressing any keys. Once again, that a star one should wish to ask a question.
Operator: Once again, that is Star 1 should you wish to ask a question. Your first question is from Aaron MacNeil on behalf of Judy Cohen. Please ask your question.
Aaron MacNeil: Your first question is from Aaron MacNeil from TD Cohen. Please ask your question. Good morning. Thanks for taking my questions. The debt repayment commitments don't leave a ton of wiggle room for gross capital. I think you've spent maybe $4 million today.
Aaron MacNeil: Hey 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 million today. In your view, are 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 are asking for?
Bob Geddes: In your view, are you having to turn down organic capital opportunities as good returns that your customers are asking for, or do you think you're generally keeping pace with what your customers need? Oh, yeah, no, for sure. We're keeping pace. In any conversations, we have the, because we, you know, we are doing well faster. The operator is willing to help invest in any upgrades in that growth cap excite. So the market continues to absorb that conversation well.
Bob Geddes: Oh yeah, no, for sure we're keeping pace and in any conversations we have. 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.
Aaron MacNeil: Okay, sort of switching gears here. We've seen H&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?
Aaron MacNeil: Okay. Sort of a few years here. We've seen H&P do a big international bill 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 a big international presence. Yeah, yeah.
Bob Geddes: As you know, we started that movement 20 years ago with the OD&E acquisition and have expanded that, running 30 plus rigs, and we operate in six different countries outside of North America. It is a challenging business, for sure, and international business comes with its own interesting 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 our own acquisition that were upgraded by the client and shipped to Argentina.
Bob Geddes: Well, as you know, we started that movement 20 years ago with the, with the ODA acquisition and have expanded that, you know, running 30 plus rigs. It is and we operate in six different countries outside of North America. It is; it is a challenging business for sure. International comes of its own investing challenges. I would say that, you know, we've been feeding rigs out of North America. For instance, our Argentinian rigs are rigs that we bought through the Rowan acquisition that were upgraded by the client and shipped to Argentina. So we've been quietly doing this for some time.
Bob Geddes: So we've been quietly doing this for some time. We shipped 10 ADRs, smaller ADRs, out of Canada when coal seam gas fell apart, and we shipped them to Australia. I'm glad to see another contractor understand that you need to get outside of North America. H&P is a strong, well-run company, so I'm sure they'll do well.
Bob Geddes: You know, we shipped 1080R, smaller ADRs out of Canada when the Colceum gas fell apart. We shipped them through Australia. So it's a, you know, I'm glad to see another contractor understand that you need to get outside of North America. HMP is a strong, well-run company, so I'm sure they'll do well.
Bob Geddes: Again, I guess maybe the better question to ask is like, what sort of a checklist that you'd have to go to wishlist, you'd have to go through and maybe, you know, move a rig in your fleet to an international market and then where do you think we're at? Well, that's a good question because it's a dynamic process. You know, we look at Australia as being a pretty static business with small and steady growth as they develop natural gas and the utility grid. The Middle East is steady. You know, Bahrain, we have two rigs. Those are well contracted, same with Kuwait, Oman.
Aaron MacNeil: And again, I guess maybe the better question to ask is, like, what sort of a checklist that you'd have to go through to the wishlist you'd have to go through to the International Market and then where do you think would represent the best opportunity? Well, that's a good question because it's a dynamic process.
Bob Geddes: 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 two rigs, those are well-contracted, same with Kuwait, Oman, we've got three ADRs there. Oman 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 it. You know, when you perform, you always find work.
Bob Geddes: We've got three ADRs there. One 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, you know, when you perform, you always find work. So those rigs are getting to work.
Operator: So 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 the most sense for us.
Bob Geddes: But we're not interested in going into new countries. We are always interested in expanding our footprint. The countries we're in, that makes no sense for us. Okay.
Aaron MacNeil: I'll turn it back. Thanks, Aaron.
Lisa: Okay. Your next question is from Waqar Syed from ACV Capital, Martin. It's Lisa. Thank you. 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? You mean in historical Q2s? Is that what your question is for current? Yeah, that's correct. Like, you know, this is Q224. What was the average number of rigs running? In all of the U.S. Is that what you mean? Yeah, yeah, we're hanging 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.
Operator: Thank you. Your next question is from Waqar Syed from APB Capital Markets. Please ask your question. Thank you.
Waqar Syed: Thank you for taking my question. Bob, you mentioned that you have 37 rigs running in the U.S. right now. How does that number compare to the average in Q2?
Waqar Syed: You mean in historical Q2s, is that what your question is? Yeah, the...
Waqar Syed: Yeah, that's correct, like, you know, this Q224, what was the average number of rigs running?
Bob Geddes: In all of the U.S., is that what you mean? Yeah, we're hanging on to about 7% market share. We're down year-over-year for the quarter by about, oh gosh, 10 regs year-over-year for the quarter in the U.S.
Waqar Syed: Now, your revenues quarter over quarter in the U.S. were flat at around $208 million, and your rig count was down.
Mike Gray: Now, your revenue was a quarter of a quarter in the U.S. were flat at around $208 million. Your rig count was down. So what the gap is it all well-service, you know, hours were up 35%. Is did that kind of help the quarter of a quarter revenue comparison or there was something else as well. The risk went up or what was the cause of flat revenues? We saw the increase in wealth everything. Then we also, this is the increase as Bob was talking about, the drill pipe being outside the contract now. So some, some, some ancillary add-ons.
Waqar Syed: So what's the gap? Is it all, well, service, you know, hours were up 35 percent. Did that kind of help the, you know, quarter over quarter revenue comparison, or was there something else as well, or rates, the risk went up, or what was the cost of flat revenue?
Mike Gray: We saw an increase in well servicing and also an increase, as Bob was talking about, of drill pipe being outside the contract now, so some ancillary add-ons, and then well servicing would be the largest, largest contributors to that gap.
Mike Gray: And then, while servicing, would be the largest in it, or just contributors to that gap. And is that sustainable into the subsequent quarters as well? Q3 and Q4. These outside of contract, there is that, that you seeing revenue pick up as well as well, servicing hours in Q3? For sure. The things like the, the drill pipe, for example, a car have manifested itself from the accelerated penetration rates and the use of flock water versus, you know, oil-based mud systems in a lot of these cases. You know, in Terra's drill pipe apart pretty quickly. We used to get, you know, six to seven years out of drill pipe.
Waqar Syed: And is that sustainable into the subsequent quarters as well, Q3 and Q4? These are outside of contract. There is that you're seeing revenue pickup as well as more servicing hours in Q3.
Bob Geddes: For sure, things like the drill pipe, for example, Laqar, have manifested itself from the accelerated penetration rates and the use of flock water versus oil-based mud systems, and in a lot of these cases, it tears the drill pipe apart pretty quickly. We used to get six to seven years out of it. We get maybe two to three years max out of drill pipe, in some cases less than that. Every contractor is feeling that same push.
Mike Gray: We get maybe two to three years max out of drill pipe in some cases less than that. And every up, every contractor is feeling that same push. You know, everyone's drill pipe costs are up about three times what they were five years ago. And that's why they moved to put it outside the contract to get, to get a rate for it. In some cases, you know, 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, 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.
Bob Geddes: Everyone's drill pipe costs are up about three times what they were five 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. It's somewhere in between, but it will continue to be a charge as we continue to have these
Mike Gray: So it, it's somewhere in between. But it will; it will continue to be at charge as we continue to have these high penetration rates in these four-mile, three-in-four-mile addirals. It's not going away.
Lisa: That makes sense.
Waqar Syed: That makes sense. And then, could you talk about asset sales? So, Mike, there was a $40 million real estate portfolio that you were interested in selling. We saw $8 million of asset sales in Q2, $3 million in Q1. What should we be expecting for the second half?
Mike Gray: Could you talk about asset sales? Mike, there was a $40 million real estate portfolio that you were interested in selling. We saw $8 million of asset sales in Q2; $3 million Q1. What was working through it? We have two properties of a NISQ that are actually marketed right now, working through a process in the U.S., so I would expect movement of that in Q4. Not to hold down, but a portion of the balance I believe will be closed in Q4. Okay, that makes sense. And then the $147 million cap-axe number that remains unchanged. Do you see anything on the horizon that could move it up or down?
Mike Gray: We're working through it. We have two properties in NISQ that are actively marketed right now. We're working through a process in the U.S., so I would expect movement on that in Q4. Not the whole balance, but a portion of the balance, I believe, will be closed in Q4.
Waqar Syed: And then the $147 million CapEx number that remains unchanged; do you see anything in the horizon that could move it up or down?
Mike Gray: I think there is, I mean, with the U.S. muted activity, that will probably put, I think, a cap on some of the cap-axe that was required for the U.S., but also, I mean, there's some international opportunities here and there. So, for the most part, that should be fairly steady. If anything, if it does increase, it's usually tied to an EBITDA event, so net positive goes 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 should be fairly steady around there. Yeah, we won't invest in any cap-axe that doesn't pay for itself in less than a one-year period.
Mike Gray: I think there's, I mean, with the U.S. muted activities, I would probably put, I think, a cap on some of the capex that was required for the U.S., but also, there's some international opportunities here and there, so for the most part, that should be fairly steady. If anything, if it does increase, it's usually tied to an EBITDA event, so it's net positive to the So once again, if it's a positive impact, then we'll definitely look at stuff. Should be fairly steady around here. Yeah, we won't invest in any CapEx because it doesn't pay for itself in less than one year.
Mike Gray: Right.
Mike Gray: And then just one final question on the pricing side in the U.S., like, you know, just the data environment, what do you see right now? Well, 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. You know, we've been catching the falling knife in the last quarter as, you know, the markets haven't moved. The premium's still running 304, but it's not going up, but it isn't going down. So, as operators, you know, 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 forma budget on the consolidated bid.
Waqar Syed: Right. And then just one final question, on the pricing side in the U.S., like, you know, just the data environment, what do you see right now?
Bob Geddes: Well, it seems like it's bottomed. But it depends on the area and the type of rig.
Bob Geddes: But I would say that it's bottomed out. It feels like it's hit bottom. You know, we've been catching the falling knife in the last quarter as, you know, the markets haven't moved. The Permian is still running 304, but it's not going up, but it isn't going down. So as operators merge together, of course, the first thing they do is remove a few rigs, get to the end of the year, put together a new pro forma budget on the consolidated business, and then walk into 2025.
Bob Geddes: So, you know, we can't have expected all this M&A activity would provide that result, so it's not a surprise. But I would say rates have stabilized at the bottom end. And, you know, with drill pipe outside now, and part of the total, you know, gross rig rate, you know, we're still in the low 30s on a gross basis.
Bob Geddes: So, you know, we kind of expected all this M&A activity would provide that result, so it's not a surprise, but I would say rates have stabilized at the bottom end. And, you know, with drill pipe outside now and part of the total, you know, gross rig rate, we're still in the low 30s on a gross basis.
Waqar Syed: And all these MNAs, like... You know, 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?
Bob Geddes: And on these M&As, like, you know, you've seen a number of these big mega mergers. Now, where do you stand with respect to your exposure to the acquiders versus the target company? Well, 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 an enzyme as the highest penetration rate driller of the top six in the US. So, you know, what we're in conversations with companies that are the acquirer or where the acquirer E, we did a lot of work for, and they're going, hey, we want to hang on to those rigs.
Bob Geddes: Well, we're on the right side of that equation on probably 80 percent 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 six in the U.S. So we're in conversations with companies that are the acquirers of the companies we did a lot of work for, and they're going, hey, we want to hang on to those rigs.
Waqar Syed: Thanks. That's great. Well, thank you very much. Thanks for the answers. Thanks, Waqar.
Waqar Syed: That's great. Well, thank you very much. Thanks for the answers.
Waqar Syed: Thank you.
Operator: Thank you. Your next question is from Keith MacKey from RBC Capital Markets. Please ask your question.
Keith Mackey: Your next question is from Keith MacKey.
Mike Gray: Now, RBC Capital Markets, please ask a question. Thanks. And just a question about your debt repayment target: maintain the $600 million to 2025. 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 million debt repayment target? No, 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.
Keith Mackey: Hey, thanks. And just a question about your debt repayment target. Maintain the $600 million to 2025. 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 million?
Mike Gray: No, 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&L from interest savings. If activity remains sort of steady as is, your CapEx is going to remain kind of in that $150 range. So, consensus for 24 is 450-ish, or 25, I mean, who knows where that's going to be, plus or minus, but when you look at that with 150 and CapEx. So yeah, when we look at it, I mean, if everything kind of remains steady, we perceive this being quite easily achievable.
Mike Gray: So you have some buffer being built in on the P&L from interest savings. If activity remains sort of steady as it is, your catback is going to remain kind of in that 150 range. So consensus for 24 is 450ish 25. I mean, who knows where that's going to be, plus or minus. But when you look at that with 150 and catbacks, 90 or less in an interest expense, there's about 210 free cash flow to go towards repayments. And then we do have some non-operational stuff like asset sales and some working capital movements to kind of aid in that.
Mike Gray: So yeah, when we look at it, I mean, if everything kind of remains steady, we foresee this being quite easily to be achievable. Yeah, okay. Sounds good.
Keith Mackey: You mentioned the free cash flow number. There are also some mandatory debt repayments and liquidity reductions forthcoming. At the end of the year and into Q1 next year, if the street consensus is right, what kind of breathing room do you foresee having in terms of liquidity?
Mike Gray: And just a question on your, you mentioned the free cash flow number. There's also some mandatory debt repayments and liquidity reductions forthcoming. At the end of the year and into Q1 next year, if the, you know, the street consensus is right. What kind of breathing room do you foresee having in terms of liquidity? We never again, specifics. I mean, we'll have Apple liquidity to continue around the business as we've had in the past. So. Fair enough, fair enough.
Mike Gray: We never get into specifics. I mean, we'll have ample liquidity to continue to run the business as we have in the past.
Keith Mackey: Fair enough, fair enough. And just one more question on your maintenance capex per rig in the U.S. What is that running?
Mike Gray: And just one more question on your maintenance catbacks per rig in the US. What, what approximately is that running these days? Oh, good question. We like to think of the operating rig on an annual basis, requiring about one to one and a quarter, depending on the type of rig it is. God, is that, is that Canadian or US? That do you ask for you ask a nerve a cat for K. Yeah. Got it. Okay. Thanks very much.
Mike Gray: Oh, good question. We like to think of an operating rig, on an annual basis, requiring about one to one and a quarter, depending on the type of rig it is.
Keith Mackey: Guys, is that Canadian or U.S.?
Mike Gray: For the U.S. and for CAD for Canada, yeah.
Keith Mackey: Okay, thanks very much. That's it for me.
Keith Mackey: That's it for me.
Operator: Thank you.
Joseph Schachter: Once you once again, please press store one to do us to ask a question.
Operator: Thank you once again. Please press star 1 if you wish to ask a question. Your next question is from Josef Schachter from Schachter Energy. Please ask your question.
Joseph Schachter: Your next question is from Joseph Shakhtar from Shakhtar Energy. Please ask your question. Good morning, Bob, Mike, and Nicole. A challenging day to have your conference call, given what's going on in the market. I wanted to ask a macro question.
Josef Schachter: Good morning, Bob, Mike, and Nicole. A challenging day to have your conference call, given what's going on in the market. I wanted to ask a macro question. November 5th's a big day in the States, and the energy industry could have a 180-degree 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 5th?
Bob Geddes: November 5th 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 5th. You know, that's a good question, Joseph. I think that what we're seeing is the macro fundamentals of demand play out. You know, we're not getting too much of a ball base what we saw. One of the contestants suggests that they've changed their platform on fracking, and they're okay with fracking now.
Bob Geddes: You know, that's a good question, Josef. I think that what we're seeing is the macro fundamentals of demand play out, you know, not to get into too much of the politics, but we saw one of the... 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 fourth quarter, and I think that's driven more so not by the election, but by, I guess, staying with their plan to deliver shareholder return, not to accelerate CapEx, and, you know, just So I don't think the election has much impact, based on what we're seeing. Thanks for being there.
Josef Schachter: Thanks for that. That's it for me.
Bob Geddes: 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 fourth quarter. And I think that's driven more so not by the elections, but by, I guess, the staying with their plan to deliver shareholder return, not to accelerate catbacks and, you know, just staying disciplined.
Joseph Schachter: So I don't think the election has much impact is what we're seeing. Thanks for that. That's it for me. Thank you.
Operator: Thank you. There are no further questions at this time. Please proceed.
Operator: There are no further questions at this time. All right. Thank you, operator.
Bob Geddes: All right, thank you, Operator. Closing statement.
Bob Geddes: Closing statement. Looking forward. It's an exciting time for enzyme with robust Canadian and international market fundamentals and improving long-term outlook in all of our U.S. markets and excellent visibility for sustained free cash flow with growing margins to continue executing on a debt reduction plan. With the application of agile product combined with an expanding performance based contract backed up with our superior performance drone teams in the field, Enzyme is delivering value to operators which supports rate increases moving forward. Again, the focus continues to be accelerating that reduction into a steadily improving construct for the drilling and wall servicing businesses globally.
Bob Geddes: Looking forward, it's an exciting time for Ensign with robust Canadian and international market fundamentals and an improving long-term outlook in all of our U.S. markets, as well as 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 by our superior performance drilling teams in the field, Ensign is delivering value to operators, which supports rate increases moving forward.
Bob Geddes: Again, the focus continues to be accelerating debt reduction into a steadily improving construct for the drilling and well-servicing businesses globally. I'd like to thank our professional crews and our employees, along with our customers, for helping Ensign achieve the performance and industry-leading milestones that the industry does recognize us for. I look forward to our next call in three months.
Bob Geddes: Like to thank our professional crews and our employees, along with our customers, for helping enzyme achieve the performance in industry-leading milestones that we, that industry does recognize us for.
Bob Geddes: I look forward to our next call in three months' time. Stay safe. Thank you.
Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining us. You may all disconnect your lines.
Operator: Ladies and gentlemen, the crown prince has now ended. Thank you all for joining you. All this connector lines.