Q1 2025 Ensign Energy Services Inc Earnings Call

Operator: Good afternoon, ladies and gentlemen, and welcome to the Ensign Energy Services Incorporated's first quarter 2025 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.

Good afternoon, ladies and gentlemen, and welcome to the Ensign Energy services Incorporated's first quarter 'twenty 25 results conference call.

At this time all lines are in listen only mode.

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

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

Operator: This call is being recorded in Monday, May 12th, 2025.

Speaker Change: This call is being recorded and Monday may 12th 2025, I would now like to turn the conference over to Mr. Nicole Romanow Investor Relations. Please go ahead.

Nicole Romanow: I would now like to turn the conference over to Ms. Nicole Romanow, Investor Relations. Please go ahead. Thank you, Constantine.

Speaker Change: Thank you Konstantinos.

Nicole Romanow: Good morning and welcome to Ensign Energy Services' first quarter conference call and webcast.

Speaker Change: Good morning, and welcome to Ensign Energy services first quarter conference call and webcast, but our call today, Bob Geddes, President and CEO, and Mike Gray Chief Financial Officer.

Bob Geddes: On our call today, Bob Geddes, President and COO, and Mike Gray, Chief Financial Officer, will review Ensign's first quarter highlights and financial results, followed by our operational update and outlook.

Speaker Change: We'll review first quarter highlights and financial results, followed by our operational update and outlook well.

Bob Geddes: 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 services supplied by the company.

Speaker Change: Well then open the call for questions.

Speaker Change: Our discussion today may include forward looking statements based upon current expectations and involve several bits business risks and uncertainties.

Speaker Change: 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.

Speaker Change: Other 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 services supplied by the company.

Bob Geddes: Additionally, our discussion today may refer to non-GAAP financial measures such as adjusted EBITDA.

Speaker Change: Additionally, our discussion today may refer to non-GAAP financial measures such as adjusted EBITDA.

Bob Geddes: Please see our first quarter earnings release and CDAR Plus filings for more information on forward-looking statements and the company's use of non-GAAP financial measures.

Speaker Change: We see our first quarter earnings release, and SEDAR plus filings for more information on forward looking statements the company's use of non-GAAP financial measures.

Bob Geddes: With that, I'll pass it on to Bob. Thanks, Nicole. So happy to report the shareholders of the Enzyme team started the 2025 year executing on key points. We further reduced debt by $23 million in the quarter and stayed focused on $200 million debt target reduction for 2025. We increased our year-over-year revenue. We held a tight rein on CapEx at $37 million, down 30% year-over-year. We grew our market share in Canada. We maintained market share in the U.S. We were fully utilized in our Middle East and Latin American business units. And we expanded our drilling technology solutions out penetration by another 25% year-over-year.

Speaker Change: With that I'll pass it off to Bob.

Bob Geddes: Thanks Nicole.

Speaker Change: So happy to report that shareholders have been paid for.

Bob Geddes: Starting with 2025 year executing on key points.

Bob Geddes: We further reduced debt by $23 million in the quarter and stayed focussed on $200 billion debt target reduction for 2025, we increased our year over year revenue.

Bob Geddes: Take rate on Capex at $37 million down 30% year over year, we grew our market share in Canada, we maintained market share in U S. We were fully utilized in our middle East and Latin American business units, and we expanded our drilling technology solutions have penetration by another 25% year over year, and we ended the quarter with our best safety.

Bob Geddes: And we ended the quarter with our best safety performance in the company's history.

Bob Geddes: Four months in the company's history.

Mike Gray: So, over to Mike Gray for a financial summary of the first quarter and then I'll come back to provide an operational update in each of the areas and provide some colour on how we see the markets moving forward. Mike. Thanks, Bob. Volatile commodity prices and customer capital discipline have been headwinds impacting certain operating regions for Enzyme. However, despite these headwinds, the Canadian operating region continues to show strength and activity and support steady demand for our services.

Speaker Change: Over to Mike Gray for a financial summary of the first quarter, then I'll come back to provide an operational update and each of the areas and provide some color on how we see the markets before it like thanks, Bob volatile commodity prices and customer capital discipline I've been headwinds impacting certain operating regions for Amazon. However, despite these headwinds the Canadian operating region region continues.

Bob Geddes: So strength in activity and support steady demand for our services.

Mike Gray: Total operating days were lower overall in the first quarter of 2025, with United States and international operations recording a 12% and a 13% decrease respectively, while Canadian operations saw a 7% increase compared to the first quarter of 2024. The company generated revenue of $436.5 million in the first quarter of 2025, a 1% increase compared to revenue of $431.3 million generated in the first quarter of the prior year. Adjusted EBITDA for the first quarter of 2025 was $102.4 million, a 13% decrease from adjusted EBITDA of $117.5 million in the first quarter of 2024. The decrease in adjusted EBITDA was primarily due to overall decrease in operating activity, as well as some one-time expenses in the United States operations related to activations and deactivations of drilling rigs.

Bob Geddes: Total operating days were lower overall in the first quarter of 2025 with the United States and International operations recorded at 12% and a 13% decrease respectively.

Bob Geddes: Our Canadian operations saw a 7% increase compared to the first quarter of 2024.

Bob Geddes: The company generated revenue of $436 5 million in the first quarter of 2025, 1% increase compared to revenue of $431 3 million generated in the first quarter of the prior year.

Bob Geddes: Adjusted EBITDA for the first quarter of 2025 was $102 4, Million% to 13% decrease from adjusted EBITDA of $117 5 million in the first quarter of 2020 for.

Bob Geddes: The decrease in adjusted EBITDA was primarily due to overall decrease in operating activity as well as some onetime expenses in the United States operations related to activation and deactivation of drilling rigs.

Mike Gray: Depreciation expense for the first three months of 2025 was $81.9 million, 7% lower than $88.3 million for the first three months of 2024. The decrease in depreciation is due to certain operating assets having become fully depreciated, offset by the negative 6% translation effect of converting USD denominated expenses. General and administrative expenses remain generally flat at $15 million, or 3.4% of revenue, for the first quarter of 2025, compared to $15.1 million, or 3.5% of revenue, for the first quarter of 2024. G&A expense decreased due to non-recurring fees incurred in the prior year of last year. Fostering the decrease is the annual wage increases and the negative 6% translation effects of converting U.S.

Bob Geddes: Depreciation expense for the first three months of 2025 with $81 9 million, 7% lower than $88 3 million for the first three months of 2024.

Bob Geddes: The decrease in depreciation is due to certain operating assets become fully depreciated offset by the negative 6% translation effects of converting USD denominated expenses.

Bob Geddes: Administrative expenses remained generally flat at 15 million or three 4% of revenue for the first quarter of 2025.

Bob Geddes: <unk> to $15 1 million or three 5% of revenue for the first quarter of 2024.

Bob Geddes: G&A expense decreased due to nonrecurring fees incurred in the first and the first or in the prior year of last year.

Bob Geddes: Offsetting the decrease was the annual wage increases and the negative 6% and translation effects of converting U S dollar dominated expenses.

Mike Gray: dollar-dominated expenses.

Mike Gray: Net capital purchases for the quarter was $36.9 million. The purchases consisted of $3 million in upgrade capital and $35.7 million in maintenance capital, for a total of $38.6 million, offset by sales proceeds of $1.8 million. Our 2025 CapEx budget is set at $164 million, and Selective Growth and Customer Funding capital is $8 million, and we will be monitoring this very closely and we'll adjust as required.

Bob Geddes: Capital purchases for the quarter was $36 9 million.

Bob Geddes: This consisted of $3 million up great job loans, and $35 7 million of maintenance capital for a total of $38 6 million offset by sales proceeds of $1 8 million.

Bob Geddes: Our 2025 Catholics Capex budgets are set at $164 million.

Bob Geddes: And selective growth and customer funded capital of $8 million and we will be monitoring this very closely and we'll adjust as required.

Mike Gray: Interest expense for the first quarter of 2025 was $20.5 million. A decrease of 23 percent for the first quarter of 2024 as a result of lower debt levels and effective interest rates. The company expects its blended interest rate, if the Fed's rates hold, to be less than 7 percent, which allows us to continue to reduce our interest expense going forward. Net repayments against debt totaled $23.2 million during the quarter, which is an increase from net debt repayments of $11.4 million in the first quarter of 2024.

Bob Geddes: Interest expense for the first quarter of 2025 was $20 5 million.

Bob Geddes: A decrease of 23% for the first quarter of 2024, as a result of lower debt levels and effective interest rates. The company expects expects its blended interest rates. If the fed rates holds it would be less than 7%, which allow us to continue to reduce our interest expense going forward.

Bob Geddes: Repayments against that totaled $23 2 million during this quarter, which is an increase from net debt repayments of $11 4 million in the first quarter of 2024.

Mike Gray: For trailing 12 months, net debt adjusted EBITDA was $2.32 million and will continue to reduce as the company continues to reduce its debt. We have paid $460.6 million of debt from the start of 2023 to March 34, 2025, leaving $139.5 million to achieve our three-year goal, reducing that by $600 million by the end of 2025. Our debt reduction for 2025 is targeted to be approximately $200 million. If industry conditions change, this target will be adjusted.

Bob Geddes: Our trailing 12 months net debt to adjusted EBITDA was $2 32, and we will continue to reduce as the company continued to reduce the debt.

Bob Geddes: We have paid $466 million of debt from the start of 2023 as of March 31st 2025, leaving $139 5 million to achieve our three year goal of reducing debt by $600 million by the end of 2025.

Bob Geddes: Our debt reduction for 2025 is targeted to be approximately $200 million they've been as industry conditions change. This target will be adjusted on that note I'll give it back to Bob.

Bob Geddes: On that note, I'll give it back to Bob.

Bob Geddes: Thanks, Mike. So let's provide an operational update on our global fleet of 186 drilling rigs and 88 well servicing rigs. spanning eight different countries. Today, we have 85 drill rigs and 50 well-servicing rigs active. Keep in mind that we are still in break-up in Canada, and after road bans come off, we expect to see our Canadian fleet pop back up another 20 rigs, which will bring us back to roughly 55 in Canada and over 100 drill rigs active globally.

Bob Geddes: Thanks, Mike.

Bob Geddes: So lets provide an operational update on our global fleet of 186 drilling rigs, that's 88, well servicing rigs.

Bob Geddes: Spanning eight different countries.

Bob Geddes: Today, we have 85 drill rigs 50, well servicing rigs active keep in mind that we are still with us and break up in Canada and after road bans come off we expect to see our case they pop back up another 20 rigs, which will bring us back to roughly 55 in Canada and over 100 drill rigs active globally.

Bob Geddes: Let's start with Canada. In Canada, our Canadian drilling team, which operates a fleet, Of high-stake ADR rigs, 89 of them continue to gain market share quarter-over-quarter and year-over-year, with a 3% increase in market share year-over-year and a 7% increase in days year-over-year. We hit a peak of 55 rigs this winter and still have 33 operating today, a 50% increase over break-up from last year. The first quarter saw our Canadian business unit continue to feed the very active Clearwater-Manville play with the upgrade completion of one of our recently transferred California ADR 300 high-stake single rigs. That rig is out in the field in a ready drilling record wells.

Bob Geddes: Let's start with Canada, Canada, our Canadian drilling team, which operates a fleet.

Bob Geddes: Hi, stick ADR rigs at 89 of them continue to gain market share quarter over quarter and year over year with a 3% increase in market share year over year at a 7% increase in days year over year.

Bob Geddes: At 55 rigs a sweater and still have 33 operating today, a 50% increase over breakup for last year.

Bob Geddes: The first quarter, so our Canadian business here to continue to feed the very active Clearwater medical play with the upgrade completion of one of our recently transferred California, ADR of 300 high spec rigs that.

Bob Geddes: That rig is out in the field already drilling record wells. We have also started the upgrade of another ADR of 202 in ADR 275, which is also signed up a long term contract.

Bob Geddes: We have also started the upgrade on another ADR 200 to an ADR 275, which is also signed up on a long-term contract. in the Western Canadian Basin. In Canada, when we look at the macro chart, we see total oil production flat over the last five years, excluding oil sands. While we see average annual active rig count trending up about 50% post-COVID, the combination of building line fill for TNX and LMG Canada, coupled with decline rates in the Western Canadian Basin, drives one mythic illusion, that we will continue to see a growing construct in Canada for our Canadian drill rig and weld servicing business.

Bob Geddes: In the Western Canadian Basin in Canada, when we look at the macro chart, we see total oil production flat over the last five years, excluding oil sands of course, while we see average annual active rig count trending up about 50% post COVID-19.

Bob Geddes: Combination of building line field for <unk>, and LNG, Canada, coupled with decline rates in the Western Canadian Basin drive for Liberty acquisition.

We will continue to see a growing construct in Canada for a Canadian drill rig and wall servicing business as mentioned, we have project commitments that should see our Canadian business seemed to get back to 55 rigs late summer from 33. Currently again this activity as commodity prices and weather Ottawa does what it says it gets pipeline projects moving and repeal surface constitute.

Bob Geddes: As mentioned, we have project commitments that should see our Canadian business unit get back to 55 rigs late summer, from 33 currently. Again, this activity depends on quantity prices and whether Ottawa does what it says and gets pipeline projects moving and repeals certain unconstitutional energy regulations and laws. We're also seeing operators contract their preferred rigs for after breakup, and in some cases, contract out the spring 2026. In every case, we are adding in escalations in the range of $500 to $1,000 a day, and if the tightness continues, we should be able to see rates move back up about 10% into winter.

Bob Geddes: So energy regulations and laws.

Bob Geddes: We're also seeing operators contractor preferred rig scrap the breakup and in some cases contract a straight 2026.

Bob Geddes: In every case, we are adding and escalations in the range of 500 to $1000. A day is the tightness continues we should be able to see rates move back up about 10% at the winter.

Bob Geddes: It's safe to say that the demand for high-spec singles and high-spec triples continues to be at the highest it's been in quite some time. This has also helped to drive the high-spec double market to enjoy utilization above 50 percent. Almost a quarter of Enzyme's Canadian fleet are 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 through 2025, and we have roughly 75% of the high-spec single fleet booked now through into second quarter 2026. Notwithstanding, day rates remain well below any new bill metrics.

Bob Geddes: It's safe to say that the demand for our high spec singles to high spec Triple is continues to be at the highest it's been in quite some time.

Bob Geddes: This has also helped to drive the high spec double market to enjoy utilization above 50% almost a quarter of enzymes.

Bob Geddes: At a high spec levels. So we have lots of products that feed into those construct.

Bob Geddes: Our fleet of high spec singles and high spec triples are essentially book well through 2025, and we have roughly 75% of the highest spec single fleet book now through into second quarter 2026.

Bob Geddes: Notwithstanding day rates remained well below any new build.

Speaker Change: Any newbuild metrics rates need to be in the fifty's before you'll start to see any new high spec triples, Bill and.

Bob Geddes: Rates need to be in the 50s before we will start to see any new high-spec triples bill. And for the high-spec singles and high-spec doubles, rates will need to be in the very high 30s before investment could be made in new bills with a reasonable rate of return that covers at least the cost of capital. We're also seeing continual growing interest in our Edge Autopilot with specific apps such as the ADS, the Automated Drill System, which charges over $1,000 a day, and soon our Auto Drill Max, which provides for 10% penetration rate increases, which will be finished as beta testing in the U.S.

Speaker Change: And for the iceberg singles or high spec doubles grateful we need to be in the very high thirties before investment could be they end up with a reasonable rate of return that covers at least the cost of capital.

Speaker Change: We're also seeing continual growing interests in our edge autopilot with specific apps such as C. E. D. S automated drill system, which charges over the $1000 a day and see what our auto driller, Max which provides for 10% penetration rate increases which will be finished this beta testing in the U S. It will start to be commercially marketed in Canada later in 'twenty two.

Bob Geddes: and will start to be commercially marketed in Canada later in 2025. While our well servicing business in Canada, which operates a fleet of 41 well service rigs, including slant rigs, and an automated well service rig, or ASR, did not have as active first quarter as forecast due to less 24-hour activity and about 10 days of minus 40 degree weather, which shut down operations, we continue to see strong scheduling post-breakup. We continue to capture more of the OWA work in the 2025 with our Canadian Well Servicing Group, and we expect our ASR to start back up after break-up.

Speaker Change: 25.

Speaker Change: Well I won't servicing beautiful, Canada, which operates a fleet of 41, well service rigs, including slight rig and an automated well service rig our ESR not habits act in the first quarter as forecast due to less 24 hour activity in about 10 days of minus 40 degree weather, which shut down operations, we continue to see strong sketch.

The only post breakup.

Speaker Change: We continue to capture more of the OWS work into 2025 with a K well servicing group and we expect our ASR to start back up after breakup.

Speaker Change: [noise] rental fleet of tubular takes other high margin ancillary equipment continues to grow as more and more of a specialty equipment is called for.

Bob Geddes: Frontal fleet of tubulars, tanks, and other high-margin ancillary equipment continues to grow as more and more specialty equipment is called for. We have three rigs start back up right after Christmas in Oman and are fully active today on PBI contracts, will be active through to the end of 2026. In Argentina, we're running at 100% utilization with both our high-spec 2000 horsepower ADRs operating under long-term contracts. We started up a second rig in the back half of 24 in Venezuela, and now currently have two rigs on the payroll through the first quarter. We are awaiting instructions from our client as to the current OFAC directive, which suggests shutdowns currently by May 27th, unless extensions are granted yet again.

Speaker Change: So international we have a fleet of 27 drill rigs are operating in six different countries around the globe of which 15 are either contracted active today in the middle East we have 90% of our highest decade airplane actively engaged our long term contracts. It was half of them on performance based contracts, we're able to get paid for the performance.

Speaker Change: Our high performance drilling team provides when coupled with our edge autopilot drill rig control systems.

Speaker Change: We have three rigs start back up right after Christmas in the lawn and a fully active today on PPI contracts will be active through to the end of 2026.

Speaker Change: Argentina, we're running at 100% utilization with both our high spec 2000 horsepower <unk> operating in either long term contracts. We started up a second rig in the back half 'twenty for Venezuela and now currently have two rigs on the payroll for the first quarter, where you are awaiting instructions from our client adds to the current old fact directors, which suggests.

Speaker Change: Shutdowns currently by May 27th unless extensions are granted yet again.

Bob Geddes: Australia seems to be picking up again as we are seeing much more bid activity. We currently have four of the 13 rigs in the country active today, and fully expected to redeploy another two to three into the back half of 2025.

Speaker Change: Certainly seems to be picking up again as we are seeing much more bid activity. We currently have for the 13 breaks in the country today and for your expected redeploy another two to three in the back half of 2025.

Bob Geddes: Moving to the United States, we have a fleet of 70 high-spec ADRs in the U.S. stretching from the California market up into the Rockies and with the main focus back down into the Permian. We are up a few rigs to 37 today and we expect some near-term, but we do expect some near-term term softening into the third and fourth quarter due to softened commodity prices. It's interesting to start hearing from operators that the geologic headwinds are stronger than the tailwinds from technology and operational efficiency gains in the last year or so. We look at the generally flat production output of the U.S.

Speaker Change: Moving to United States, we have a fleet of 70 high spec 80 ours in the U S stretching from the California market up into the Rockies I want to maybe focus back down into the Permian.

Speaker Change: We are off a few rigs to 37 today and we expect some near term, but we do expect some near term softening into the third and fourth quarter due to softer commodity prices. It's interesting to start hearing from operators that the geologic headwinds are stronger as a tailwind from technology and operational efficiency gains in the last years.

Speaker Change: When we look at the January flat production I'll put in the U S. Over the last few years and a flattish rig count over that same period, putting that last statement in the context more rigs will need to start coming back on if the goal is to oil production.

Bob Geddes: over the last three years and the flattish rig count over that same period, and putting that last statement into context, more rigs will need to start coming back on if the goal is to hold production.

Bob Geddes: Our U.S. business unit continues to expand its performance-based contract base and now has over half a fleet on a PBI contract of some degree that builds off our high-performance, highly-trained field teams, coupled with our edge autopilot fuel and rate control system technology. Not only do we get a superior rate for our Agile Autopilot technology, we capture the upside value generated to the operator through performance metrics. Everybody wins. The operator delivers well boards for lower costs, and we help de-risk that with our PBI contract form at higher margins.

Speaker Change: Our U S business here to continues to expand its performance based contract base and now has over half a point and a lot of PDI contracted some degree that builds off our high performance highly trained field teams, coupled with our edge autopilot drilling rig control system technology.

Speaker Change: Not only do we get a superior rate for edge autopilot technology would capture the upside value generated to the operator through performance metrics everybody wins, the operator delivered as well bores for lower cost that we help derisk that with our PVA contract form at higher margins.

Bob Geddes: Our U.S. oil servicing business unit, which is focused primarily on the Rockies and California oil servicing market, continues to enjoy high utilization, close to 80%, and delivered yet another solid quarter. Our directional drilling business, which is essentially a mud motor rental business that utilizes proprietary technology, continues to provide some of the best motors with high quality rebuilds in the longest runs in the Rockies.

Speaker Change: Our U S well servicing business area, which is focused primarily on the Rockies and California, while servicing market continues to enjoy high utilization close to 80% and delivered yet another solid quarter.

Speaker Change: Actual drilling business, which is essentially a mud motor rental business you utilize a proprietary technology continues to provide some of the best lawyers with high quality rebuilds and along strike to the Rockies, we're expecting another solid year 'twenty 'twenty five to that degree.

Bob Geddes: We're expecting another solid year in 2025 for that division.

Bob Geddes: Moving to our technology, our Edge Autopilot Drilling Rig Control System. In our last call, we reported that we successfully beta tested our Ensign Edge ATC, that's Auto Tool Face Control, in conjunction with DGS, Directional Guidance System. This paves the way for seamless control of automated directional drilling from those operators, from utilized remote operating centers, and utilized in-house DGS systems. I'm happy to report that we are now commercial with our Edge ATC, charging that out on four rigs today in the U.S.

Speaker Change: Moving to our technology, our edge autopilot drilling rig control system in our lab.

Speaker Change: Last call, we reported that we successfully beta tested our enzymatic J T C as our tool face control.

Speaker Change: Junction with Dji structural guidance system to stay.

Speaker Change: It's the way for seamless control of automated directional drilling from those operators utilized remote operating centers and utilized in house TGF systems and happy to report that weird al commercial with our S. E T C L.

Speaker Change: Charging that out on four rigs today in the U S.

Bob Geddes: We also started the beta testing of our enhanced autodriller, the Autodriller Max, which will further increase penetration rates, and be charged out with a base daily rate of $1,000 a day, plus a variable per foot or per meter rate, so that we can start capturing the upside of the cost and operational efficiencies that our technology enhancements provide. We continue to grow and deploy Edge Autopilot onto our active rigs across the globe, with a 25% year-over-year growth rate. We continue to expand the EDGE apps platform at each of the rigs that already have our EDGE Autopilot DRC technology.

Speaker Change: We also started the beta testing of our enhanced auto driller, the auto driller backs, which walls.

Speaker Change: Which will further increase penetration rates that would be charged out with a base David rate of $1000, a day, plus a variable per foot or per meter right.

Speaker Change: So that we can start capturing the upside of the cost and operational efficiencies that our technology and have since provided we.

Speaker Change: We continue to grow and deploy edge autopilot onto our active rigs across the globe with a 25% year over year growth rate.

Speaker Change: We continue to expand the edge apps platform at each of the rigs that already have our edge autopilot DRC technology, we are agile and about 50% of our rigs globally with a lots of opportunity to grow that.

Bob Geddes: We have EDGE on about 50% of our rigs globally with lots of opportunity growth ahead. This high-tech component of our business continues to grow at a rapid pace year-over-year and with 100% efficacy with reduced bulk times and increased penetration rates with reduced tortuosity, it helps differentiate enzymes from our competitors.

Speaker Change: This high Tech component of our business continues to grow at a rapid pace year over year with 100% efficacy with reduced dwell times and increase penetration rates with reduce tortuosity. It helps differentiate us as are our competitors with that I'll move it over to the operator for.

Bob Geddes: With that, I'll move it over to the operator for questions. Thank you very much.

Speaker Change: Sure.

Speaker Change: Thank you very much ladies and gentlemen, we will now begin the question and answer session.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speaker phone, please make sure to lift your handsets before pressing any.

Speaker Change: Should you have any question. Please press star followed by the number one lender attached on phone.

Speaker Change: You will hear you prompt that her hand has been raced should you wish to decline from the polling process. Please press star followed by the number two.

Speaker Change: If you are using a speaker phone please make sure to lift your handset before pressing any teeth.

Keith Mackey: Your first question comes from the line of Keith MacKey from RBC, please go ahead. Hey, good morning. Just curious if you can, Bob, maybe walk us through how you see the trajectory of your U.S. rig count playing out through the year. Sounds like maybe there's some optimism in some regions, but one of your large customers, of course, did announce some rig reductions in its own rig count recently as well. So, can you kind of just help us put those pieces together and help us get a sense of where you expect your U.S. rig count to play out through the year?

Speaker Change: Your first question comes from the line of Keith Mackey from RBC. Please go ahead.

Keith Mackey: Hey, good morning.

Speaker Change: Just curious if you can Bob maybe walk us through.

Speaker Change: How you see the trajectory of your U S rig count playing out through the year.

Speaker Change: Sounds like maybe there is some optimism in some regions, but you know.

Speaker Change: One of your large customers of course did announce some rig reductions in its own rig count recently as well. So can you kind of just help us put those pieces together and help us.

Speaker Change: Get a sense of where you expect your U S rig count to play out through the year.

Bob Geddes: Sure, sure, on the last note you made there, we are not expecting Ensign to have any rig reductions from that particular client at this point in time. We do expect generally through the U.S. to probably come off two or three rigs as we go into the third quarter. So you might think of it, Keith, as 37 going down to maybe 35-ish, and then start building back up again into the fourth quarter. That's some of the expectation right now.

Speaker Change: Sure sure Ugly the last.

You made there we are not expecting.

Speaker Change: And designed to have any.

Speaker Change: Big reductions from that particular clients.

Speaker Change: At this point in time.

Keith Mackey: We do expect generally to the U S to probably come off two or three rigs as we go into the third quarter. So you might think of it Keith.

Keith Mackey: 37 going down with a 35 ish.

Keith Mackey: And then start building back up again in the fourth quarter.

Keith Mackey: Some of the expectation right now.

Keith Mackey: Okay. Very good.

Keith Mackey: Okay, Okay very good.

Mike Gray: And then, Mike, can you just... Some of the puts and takes or the moving pieces on the liquidity going through second quarter. It sounds like you've got some healthy expectations for free cash flow generation in Q2, maybe to offset some of the term loan repayments.

Mike Gray: And then Mike can you just.

Mike Gray: Give us.

Speaker Change: Some of the puts and takes are the moving pieces on the liquidity going through second quarter.

Speaker Change: Like you've got some some healthy expectations for free cash flow generation in Q2, maybe to offset some of the.

Speaker Change: Term loan repayments just can you help us help walk us through where some of those pieces fit today.

Mike Gray: Just can you help walk us through where some of those pieces sit today? Yeah, for sure. So, in Q1, we saw a big reduction in our accounts payable. So, that was a large use of the free cash flow in Q1, similar to what happened in Q1 of 2024. So, when you look at Q1, we had about $11 million of debt reduction in 2024. We did about $23.2 in Q1 of 2025. When we look at the Q2, you have the collections from the winter drilling season here in Canada starting to come through. So, we'll follow a similar, I'd say, pathway as we did in 2024, with that buildup having in Q2, Q3, and Q4.

Speaker Change: Yeah for sure. So in Q1, we saw a big reduction in accounts payable. So that was a large use of the free cash flow in Q1, similar to what will happen in Q1 of 2024. So when you look at Q1, we had about $11 million of debt reduction in 2024, we did about $23 two and in Q1 of 2025, when we look into Q2.

Speaker Change: Do you have the collections from the winter drilling season here in Canada, starting to come through so we'll follow a similar I'd say southwest as we did in 2024 that buildup, having in Q2, three and four we also have some redundant real estate that we're continuing to market. So theres a few different options on that are.

Mike Gray: We also have some redundant real estate that we continue to market. So, there's a few different options on that. Our interest expense also, I mean, is down probably $30 million plus from 2024. Our full year expense was around about $100 million. We'll probably be around that $60 to $65 million in interest expense for 2025. So, there's a few pickups that are going to be happening here over the year that will help fill in some of the gaps if there's an operational decrease. Okay. Appreciate the comments. Thank you very much.

Speaker Change: <unk> expense also I mean, it's down probably 30 million plus from 2024, our full year.

Speaker Change: <unk> was around.

Speaker Change: About $100 million.

Speaker Change: We will probably be around that $60 million to $65 million of interest expense for 2025, So theres a few pickups.

Speaker Change: We're gonna be happened in year over year and that will help.

Speaker Change: Some of the gaps if there is an operational decrease.

Speaker Change: Okay I appreciate the comments thank you very much.

Speaker Change: Thank you.

Waqar Syed: Your next question is from the line of Waqar Syed from HEV Capital Markets. Please ask your question. Thank you for taking my question. Mike, could you quantify the impact on costs from these rig reactivations and deactivations in the U.S.? Uh, we don't get in particular detail. I mean, it probably hit our margins by two, three hundred bips. Um, so, I mean, the reactivated rigs, probably mobilization, everything, probably half a million, potentially a million. So, it's probably maybe three to five million that would have hit in the quarter. But we don't expect to, uh, well, depending on rig activity to come again in the future quarters.

Your next question is from the line of course and from a TV capital markets. Please ask your question.

Speaker Change: Thank you for taking my question Mike.

Speaker Change: Mike could you quantify the impact on cost from these rig re activation and deactivation in the U S.

Speaker Change: Yeah.

Speaker Change: Well, we don't give any particular detail.

Speaker Change: Probably.

Speaker Change: Our margins by two 300 bps, so I mean for the reactivated rigs probably mobilization everything probably have millions and millions so.

Speaker Change: Maybe $3 million to $5 million I would've hit in the quarter.

Speaker Change: But we don't expect to well depending on rig activity to come again in the future quarters.

Speaker Change: Okay.

Bob Geddes: And then, Bob, if you see pickup of a couple of rigs in Argentina through the course of the year, do you expect any capex impact or any opex impact from reactivation? So in Argentina, we have two RICs, and they're both... I apologize, Australia, Australia I meant to say. Ah, Australia, okay. Yeah, yeah. The rigs that we've got in Australia, of course, when we rack our rigs, we rack them with the intent that we're probably not going to be back to them for some period of time. That's always a safe way to rack them. But there'll be some cost to reactivate.

Speaker Change: And then.

Speaker Change: Well there you know if you see pick up a couple of rigs in Argentina through the course of the year.

Speaker Change: Do you expect any capex impact or any opex impact from reactivation.

Speaker Change: In Argentina, we have two rigs in there.

Speaker Change: Apologize.

Speaker Change: Failure, Australia I meant to say.

Speaker Change: Australia Okay.

Speaker Change: Yeah Yeah.

Speaker Change: The rigs that we've got in Australia of course, when we when we rack our rigs we rack.

Speaker Change: With the attempt that we're probably not going to be back for some period of time, that's always the safeway to Iraq.

Speaker Change: But there'll be some.

Speaker Change: Some cost to reactivate, we typically I'll put that into the contract as a part of the multi to reactivate the rig and get it ready for running so typically the operator will cover that cost.

Bob Geddes: We typically put that into the contract as a part of the MOPE fee to reactivate the rig and get it ready for running. So typically the operator will cover that cost. That would be the case we would expect in the two that we expect to come here in the next quarter. We've got some pretty good visibility on current contract bids.

Speaker Change: It would be the case we.

Speaker Change: We would expect in the two that we expect to come here in the next quarter.

Speaker Change: We've got some pretty good visibility of the current contract bids.

Waqar Syed: And then in Venezuela, based on your current information, by the end of May, the rig would be released? Both rigs would be released? Correct, that's the current deadline that exists with OFAC today, but as you know, that's been extended many, many times in the past. We'll see what happens, but that's all we know today.

Speaker Change: Okay, and then in Venezuela based on the <unk>.

Speaker Change: Our current information by the end of made that it would be the least well it takes would be released.

Speaker Change: Correct, that's the that's big current deadlines.

Speaker Change: Exists with old Fac.

Speaker Change: Today, but as you know that's been extended many many times in the past, we will see what happens with escobedo, which they occur.

Waqar Syed: And then we're hearing from some of the ENPs and also generally from some drilling contractors about pricing pressure in the U.S. Could you maybe talk about that and if possible, quantify that? Yeah, well, it's, you know, over the last few weeks, of course, there was a lot of noise about where the price of oil was, where it was headed, where it would stay down in the low 50s. And then today we see where it's at again. So You know, we we haven't generally had to react with operators. We've we've seen certainly we're not raising our prices to a car, but I would say generally, you know, we are we are holding on to rates.

Speaker Change: Okay, and then be hearing from some of your.

Speaker Change: If some of the E&ps and also generally from some sort of any contract is about a pricing pressure in the U S. Could you maybe talk about that and if possible quantify that.

Speaker Change: Yeah, well, it's you know over the last few weeks of course, there was a lot of noise about.

What are the price of oil was where I was headed where will it stay down in the low fifties.

Speaker Change: And then today, we see where its out again.

Speaker Change: So.

Speaker Change: Yeah.

Speaker Change: We haven't generally had to react with operators.

Speaker Change: We've.

Speaker Change: We've seen certainly we're not raising our prices to occur, but yeah, I would say generally.

Speaker Change: We are holding on to rates.

Waqar Syed: And when they start asking us for more term, which they haven't yet, they're they're more, you know, two weeks ago. The discussion is a lot different than it would be today. Okay, great. Thank you very much. Thanks, Raqar.

Speaker Change: When.

When they start asking us for more term, which they haven't yet there are multiple two weeks ago. The discussion is a lot different than it would be today for example.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: Okay, great. Thank you very much.

Speaker Change: Thanks Robert.

Operator: Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by the number one on your touchtone phone. If you are using a speakerphone, please make sure to lift your handset before pressing any keys.

Speaker Change: They just didn't general minutes as a reminder, if you would like to ask a question. Please press star followed by the number one on your Touchtone phone.

You are using a speaker phone please make sure to lift your handset before pressing any Keith.

Josef Schachter: Your next question comes from the line of Josef Schachter from Schachter Energy Research, please go ahead. Thanks for taking my call. Good morning, Bob and Mike.

Speaker Change: Your next question comes from the line of Josef Schachter from Schachter Energy Research. Please go ahead.

Josef Schachter: Thanks for taking my call good morning, Bob and Mike.

Josef Schachter: First question, given the softness of the US and the strengthening Canadian market, especially with LNG coming and, of course, the activity with oil because of TMX, do you see moving any of your best rigs that are not being active in the States to Canada? There's starting to be discussions where companies will talk about paying the MOAB cost to move rigs to Canada. So, good question. Yeah, that type of discussion started about a year and a half ago, where we moved some of our high spec singles up into Canada. Interestingly, we did move one of our deeper high spec triple or 2000 horsepower rig out of Canada down into the US on long term projects there.

First question, given the softness of the U S and a strengthening Canadian market, especially with LNG coming and of course the activity with oil.

Josef Schachter: Oil because of the Tam Max do you see them moving any of your best.

Josef Schachter: Best rigs that are not out and being active in the states to Canada. It was starting to read discussions where companies will talk about paying the mobe cost to move rigs to Canada.

Josef Schachter: So good question.

Josef Schachter: Yes.

Josef Schachter: That.

Speaker Change: Type of discussion started about a year and a half ago.

Josef Schachter: We moved some of our highest spec singles up into Canada.

Speaker Change: Interestingly, we did move one of our.

Speaker Change:

Speaker Change: Super High spec Triple our 2000 horsepower rig out of Canada down into the U S.

Bob Geddes: So, you know, the It goes back and forth, but I would say generally we have a product to fill the high-spec triple market in Canada. We've probably got four or five rigs that we could contract into that market or recontract at higher rates from current operators. The high-spec single market, which we're 100% utilized in, we, as I mentioned, we moved three from California over the last year into Canada and we're in the process of upgrading a current high-spec single rig in Canada into a deeper capacity to almost 300,000 pounds. So to summarize, yeah, I'm not seeing any any future movement.

Speaker Change: On long term projects there so you know the.

Speaker Change: It goes back and forth, but I'd say generally.

Speaker Change: We have a product.

Speaker Change: Phil the highest spec triple market in Canada.

Speaker Change: We got four or five rigs.

Speaker Change: We could contract into that market or re contracts at higher rates from current operators.

The high spec single market Orchard, where 100% utilized in.

Speaker Change: That's.

Speaker Change: As I mentioned, we moved three from California.

Speaker Change: The last year into Canada and were just in the process of upgrading our current high spec single rig in Canada into a heap of capacity.

Speaker Change: To almost 300000 pounds so.

Speaker Change: To summarize.

Speaker Change: I'm not seeing any any future movement, we don't have any plan to some movement in the cards between U S and Canada at this point in time.

Bob Geddes: We don't have any planned future movement in the cards between the U.S.

Josef Schachter: and Canada at this point. Super.

Bob Geddes: My next question is just maybe just a little bit of a learning exercise with what's going on, you know, of course, LNG Canada will be up and hopefully the first cargo goes in July. Are you seeing more activity in Northeast BC or more in Northwest Alberta in terms of activity and booking of rigs and all of that? Is there a difference in terms of ramp up and percentage of business to you from either of those two markets? Yeah, it's, it's stayed busy. We're starting to see some discussion with a couple of operators into 2026, depending on the area they're in.

Speaker Change: I think the question is just maybe just a little bit.

Speaker Change: Learning exercise.

Speaker Change: With what's going on you know of course, LNG, Canada, we up and hopefully the first.

Speaker Change: Cargo goes in July are you seeing more activity in northeast B C or more in northwest Alberta in terms of activity.

Speaker Change: Booking of rigs and all of that is is there a difference in terms of.

Speaker Change: The ramp up on percentage.

Speaker Change: Business to you from either of those two markets.

Speaker Change: Yeah. It's.

Speaker Change: It stayed busy.

Speaker Change: We're starting to see some discussions with a couple of operators into 2026.

Speaker Change: Depending on the area there.

Josef Schachter: I would say it's, It's not a fire sale or anything like that. It's of demand. It's basically slowly feeding into it. There's lots of capacity up in the area from a well production point of view to fill the line, but people are starting to get a little more active into it. But I think that that will start to be more heavily activated into 2026 and beyond. Super, thanks for answering my questions.

Speaker Change: I would say it's.

Speaker Change: It's not a fire sale or anything like that it's.

Demand is basically slowly feeding into it.

Speaker Change: There's lots of capacity up in the area of law well production point of view because he'll fill the line, but people are starting to get a little more active intuit.

Speaker Change: But I think that that will start to be more heavily activated into 2026 and beyond.

Speaker Change: Thanks for answering my questions.

Speaker Change: True.

Speaker Change: Yes.

Operator: There are no further questions at this time.

Speaker Change: There are no further questions at this time I'd like to turn the call over to Mr. Bob Geddes, President and COO for closing comments Sir. Please go ahead.

Bob Geddes: I'd like to turn the call over to Mr. Bob Geddes, President and COO, for closing comments. Sir, please go ahead. Thank you, operator. The last few months have certainly been a roller coaster with the global markets unsettled with the tariff negotiation. Looking forward, it continues to be an exciting time for Enzyne as we build on a strong first quarter with robust Canadian market share gains, but with near-term headwinds in the US. But as I pointed out before, we feel the macro for the US expects to get better into 2026. With roughly three quarters of a billion of forward revenue booked under contract, we expect to continue the steady rate of 100 to 110 Enzyne drilling rigs and roughly 50 to 60 well servicing rigs operating daily on both sides of the border.

Speaker Change: Thank you operator, the last few months certainly a bit of a roller coaster with the global markets have settled with the tariff negotiations.

Speaker Change: Looking forward it continues to be an exciting time as we build on our strong first quarter with robust market share gains with near term headwinds in the U S. But as I pointed out before we feel the macro for the U S expected to get better into 2026.

Speaker Change: Roughly three quarters, our ability to afford revenue booked under contract. We expect to continue at a steady rate of 110 enzyme drilling rigs and roughly 50 to 60, well servicing rigs operating daily both sides of the border.

Bob Geddes: One-third of our growing rigs under contract are on long-term contracts with contract tenure of almost a year, and roughly 25% of those contracts are on a performance basis. With that, we have excellent visibility for a sustained free cash flow with consistent margins, a very predictable CapEx plan, and expected redundant real estate disposal in 2025, all of which will provide the ability to continue executing on our debt reduction target of clipping off $200 million in 2025. With the application of Edge Autopilot combined with an expanding PPI contract base backed up with our superior performance drilling teams in the field, Ensign is delivering value to operators which supports rate increases moving forward.

Speaker Change: One third of our drilling rigs under contract are long term contracts with contract tenure.

Speaker Change: A year and roughly 25% of those contracts are on a performance based.

Speaker Change: With that we have excellent visibility for sustained free cash flow was consistent margins very predictable capex planned and expected readout of real estate disposals in 2025, all of which will provide the ability to continue executing on our debt reduction target of putting off $200 million in 2025 with the application of edge autopilot combined.

With an expanding PPI contract based backed up with our superior performance drilling teams in the field enzyme is delivering value to operators, which supports rate increases moving forward again. The focus continues to maintain our debt reduction targets into some short term headwinds for the drilling and well servicing business globally I'd like to thank our highly professional crews.

Bob Geddes: Again, the focus continues to maintain our debt reduction targets into some short-term headwinds for the drilling and well-servicing business globally.

Bob Geddes: I'd like to thank our highly professional crews and all of our employees along with our customers for helping Ensign achieve the performance and industry milestones that industry recognizes us for.

Speaker Change: All of our employees, along with our customers for helping us achieve the performance industry milestones.

Operator: Look forward to our call in three months time. Stay safe. Thank you.

Speaker Change: Street recognizes us for look forward to our call in three months time stay safe. Thank you.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Speaker Change: Ladies and gentlemen. This concludes today's conference call. Thank you very much for participation you may now disconnect.

Speaker Change: Yes.