Q3 2025 Ensign Energy Services Inc Earnings Call
Speaker #2: Got it . May I know the name of the company you're calling from , sir ? Got it . Sir , I'll join you now and have a good .
Speaker #2: Good afternoon , ladies and gentlemen , and welcome to the Ensign Energy Services , Inc. , third quarter , 2020 results conference call .
Speaker #2: At this time , all lines are in listen only mode . Following the presentation , we will conduct a question and answer session .
Speaker #2: If at any time during this call , you require immediate assistance , please press Star zero for the operator . This call is being recorded on Friday , November 7th of 2025 .
Speaker #2: I would now like to turn the conference over to Mike, Chief Financial Officer. Please go ahead, sir.
Speaker #3: Thank you. Good morning, and welcome to Ensign Energy Services, Inc. third quarter conference call and webcast. On our call today.
Speaker #3: Robert Geddes president and CEO and myself , Mike Gray , Chief Financial Officer , will review enzymes third quarter highlights and financial results , followed by our operational update and outlook .
Speaker #3: We'll open the call for questions after that. Our discussions today may include forward-looking statements based upon current expectations that involve several business risks and uncertainties.
Speaker #3: The factors that could cause results to differ materially include, but are not limited to, political, economic, and market conditions, as well as crude oil and natural gas prices.
Speaker #3: 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 services supplied by the company.
Speaker #3: Additionally, our discussion today may refer to non-GAAP financial measures such as adjusted EBITDA. Please see our third quarter earnings release and filings for more information on forward-looking statements and the company's use of non-GAAP financial measures.
Speaker #3: With that, I'll pass the call to Bob. Thanks, Mike.
Speaker #4: Good morning everyone . Let's start with some introductory comments . A positive third quarter results were reflective of year over year market share growth of our Canadian business unit in the high single and high spec triple rig types , coupled with performance driven market share growth in the US , as well as consistent rig activity in our international segment .
Speaker #4: We successfully generated cash to clip off another chunk of debt in the quarter and expect to attain our three-year target of $600 million of debt reduction by the end of the first half of 2025.
Speaker #4: Six . Operationally , we ran plus or -25 drill rigs and 50 well service rigs around the world through the third quarter . Every day , with stronger than expected gross margins .
Speaker #4: Our drilling solutions team also successfully field beta tested the Edge Auto Driller Max with positive results, adding to our technology suite of drilling rig controls technology.
Speaker #4: The finance team , led by Mike gray , successfully negotiated our banking arrangement out three years saving interest expense and improving liquidity . We also added to our forward book with over 1.1 billion of forward contract revenue under contract , increasing our long term contract base quarter over quarter , which now brings us to about 300 million of long term contract margin forecast of future and we also achieved all this with another quarter of industry leading record safety metrics .
Speaker #4: For a deeper dive into the third quarter financials, I'll turn it over to Mike Gray.
Speaker #3: Thanks, Bob. Volatile crude oil commodity prices and fluctuating geopolitical events have reinforced producer capital discipline over the near term, impacting certain operating regions.
Speaker #3: However, despite these short-term headwinds, the outlook for oil services is relatively constructive and has supported steady activity in several other regions.
Speaker #3: Overall , operating days were down in the third quarter of 2025 . In comparisons to the third quarter of 2020 . For the company saw a 4% increase in the United States to 3194 .
Speaker #3: Operating days showed a 9% decrease in Canada, bringing it to 3,509 operating days, and a 29% decrease internationally to 935 operating days for the first nine months ended September 30, 2025.
Speaker #3: Overall, operating days declined, with the United States recording a 2% decrease and Canada recording a 1% decrease. In international operations, there was an 18% decrease in operating days, respectively.
Speaker #3: When you compare to the same period in 2020, the company generated revenue of $411.2 million in the third quarter of 2025, a 5% decrease compared to revenue of $434.6 million generated in the third quarter of the prior year.
Speaker #3: For the nine months ended September 30, 2025, the company generated revenue of $1.22 billion, a 3% decrease compared to revenue of $1.258 billion generated in the same period in 2024.
Speaker #3: Adjusted EBITDA for the third quarter of 2025 was $98.6 million, 17% lower than adjusted EBITDA of $119 million in the third quarter of 2020.
Speaker #3: Four . Adjusted EBITDA for the nine months ended September 30th , 2025 totaled 282.3 million , 16% lower than adjusted EBITDA of 336.7 million generated in the same period in 2020 .
Speaker #3: For the 2025 decrease in adjusted EBITDA was primarily a result of a base revenue rates and one time expenses related to activity activating and deactivating and moving drilling rigs , offsetting the decrease in adjusted EBITDA was the favorable foreign exchange translation on US dollar denominated earnings depreciation expense in the first nine months of 2025 was 252 million , a decrease of 4% compared to 261.8 million for the first nine months of 2024 .
Speaker #3: General and administrative expense . In the third quarter of 2025 was 5% lower than in the third quarter of 2024 . General and administrative expenses decreased , primarily due to non-recurring expenses incurred in the prior year and tight cost controls while studying the decrease in the is the annual wage increases and the negative translation effect of converting US dollar denominated expenses .
Speaker #3: Interest expense decreased by 23% to $18.4 million, down from $23.8 million. The decrease is a result of lower debt levels and effective interest rates. During the second quarter of 2025, $40.8 million of debt was repaid, for a total of $83.8 million repaid during the first nine months of 2025.
Speaker #3: The company has revised its previously announced debt reduction target of $600 million, which now will likely be achieved in the first half of 2026.
Speaker #3: The revision is a result of current industry conditions and the reinvesting into the company's company through capital expenditure . If the industry conditions change , these targets may be increased or decreased .
Speaker #3: Total debt , net of cash , is decreased . 98.5 million during the first nine months of 2025 due to debt repayments and foreign exchange translation on converting US dollar denominated debt net purchases of property and equipment for the third quarter of 2025 was 62.4 million , consisting of 13.9 million in upgrade capital and 50.5 million in maintenance capital , offset by dispositions of 2 million for 2025 .
Speaker #3: Maintenance CapEx budget is set at approximately $154 million and selective upgrade capital is approximately $35.5 million, of which $19 million is funded by the customer.
Speaker #3: The increase in upgrade capital expenditures in 2025 is due to the previously announced awarded five-year contract for two additional rigs in the company's Oman operations, as well as rigs being relocated from Canada to the United States.
Speaker #3: On that note, I'll pass the call back to Bob.
Speaker #4: Thanks, Mike. So let's start with an operational update. The summer was quite active for us right across all of our world in eight different countries.
Speaker #4: As we methodically grew rig count in the very active , higher margin , high spec , triple and high spec single rig type categories in North America .
Speaker #4: Let's start with Canada . Canadian drilling . We have 43 drilling rigs active today in Canada , and expect to add a few more before year end .
Speaker #4: And we expect a peak in the first quarter of '26 of roughly 55. We're starting to see more and more clients go long in their contracts, especially on the higher-spec rigs.
Speaker #4: One example: we just signed two of our super high-spec triples on three-year contracts, locking in $100 million of revenue and roughly $30 million EBITDA out to late 2028.
Speaker #4: While we have seen some spot market prices drop into the fourth quarter on the rigs, as people try to get them going, we have generally been raising our prices in our two high utilization categories.
Speaker #4: Again, the high-spec single and high-spec triple increased by about 2% a quarter. The trend for the entire year has been steadily moving up on these rig types.
Speaker #4: As supply tightens, the value proposition is still valid for the client. As we continue to perform by improving drilling efficiency, we offset any rate increases.
Speaker #4: Also, because our rig equipment is being run closer to its technical limits, more and more rate increases are quite justified to offset the higher operating costs.
Speaker #4: We continue to see the Canadian market adopt our edge drilling rig automation more and more every quarter , this provides a high margin bolt on incremental revenue stream of anywhere from 1000 to $2600 a day across the high spec triples , generally , we continue to address any upgrades that operators request by insisting the upgrade capital be paid for by the operator with a notional rate increase , or we adjust the day rate incrementally in order to achieve a one year payout or less on the incremental capital .
Speaker #4: With the incremental rate increase moving to the US , drilling . While the statement drill , baby drill is true in the sense that more footage was drilled year over year , the problem is that because our rigs are drilling more footage per day , we have the same number of rigs making more hole .
Speaker #4: We are finding that the double-digit rig efficiency gains of years past have slowed into the single digits as we get closer to the technical limits of the rig equipment itself.
Speaker #4: This is good news and an indication that we are at or near a trough. Operators now focus on continuing the duplication of their best wells.
Speaker #4: We also have the situation where most operators are starting to look at tier two acreage. Now, as we move along into the future, we also saw the U.S. hit record oil production close to 14 million barrels per day.
Speaker #4: So, with the technical limits of rigs establishing somewhat of a ceiling and with tier one acreage diminishing, we will need to see rig count move up if we are to hang on to 14 million barrels a day of production in the U.S.
Speaker #4: I have mentioned before, it's interesting to start hearing from operators more and more. The geologic headwinds are stronger than the tailwinds from technology and operational efficiency gains in the last five years.
Speaker #4: Again , another indication we have troughed . So in the US today , we have 41 high spec rigs , mostly high spec triples out of our fleet of 70 plus high spec radars operating across the US , California to Rockies down into the Permian .
Speaker #4: Permian, of course, being our busiest area with roughly 25 rigs operating daily. There, we've been able to increase our market share in the U.S. by about 50 basis points through the year.
Speaker #4: The result of our high-performance rigs and crews, in concert with our Edge Drilling Solutions technology, is showing promising outcomes. We're also starting to see some light at the end of the tunnel in California and expect a mild increase in activity there.
Speaker #4: On that note, our drilling rig controls product line continues to expand with increasing adoption of products like our ADS, the Automated Drill System.
Speaker #4: Not only do we get a superior rate for Edge, Autopilot technology, we capture the upside value generated to the operator through performance metrics.
Speaker #4: Everybody wins. The operator delivers wellbores for lower cost, and we help de-risk that with our PBI contract form at higher margins than our directional drilling business, which is essentially a proprietary mud motor rental business that continues to improve.
Speaker #4: Some of the best motors of high-quality rebuilds in the longest runs in the Rockies. We're expecting another solid year for 2025.
Speaker #4: International . We have a fleet of 26 high spec rigs that operate in six different countries outside of North America , which have 13 are active today , up two from our last call in Kuwait .
Speaker #4: We have been successful in contract extensions on both our 3000 horsepower orders , taking us well into mid 2026 . We started back up in Venezuela with the first rig a few months back , and just this week we started up our second rig .
Speaker #4: As you know , there's a lot of things going on in Venezuela . Last call we mentioned we had an unplanned incident in one of our ADR 2000 .
Speaker #4: In Argentina, we are happy to report that they were able to minimize the downtime with the operation by replacing the center section and recommissioning that rig in record time. This resulted in securing another one-year contract extension on that rig with a major.
Speaker #4: We have both rigs in Argentina under long-term contracts. Now in Oman, the two rigs we have undergoing extensive upgrades are on budget and on time.
Speaker #4: With the first rig expected to be operational in December this year and the second rig in late March, this will add to the three ADR currently under contract in Oman and bring us up to five eventually in the 26.
Speaker #4: In Australia, we have four rigs active today with strong bid activity, which we feel will take us to 5 to 6 rigs by year-end.
Speaker #4: We're also successful in extending the contract out another year to the end of 26 on our Barrow Island rig , moving to well servicing , we have a fleet of 88 well service rigs in North America , 41 in Canada , which we operate 15 to 20 on any given day .
Speaker #4: Plus we have 47 . Well service rigs , primarily in the Rockies in California , where we operate with relatively high utilization rates in the 70s , consistently , our US well servicing business , which is focused primarily on the Rockies and California , has battled a tougher market and is off about 24% year over year for the quarter .
Speaker #4: And is expecting not much change for the remainder of the year . We are seeing operators stick to their budgets and not accelerate any 26 plans in the 2025 , our Canadian well service business focus focuses primarily on the heavy oil market , and that's been a very steady business with rates increasing at about 3% per quarter .
Speaker #4: Our technology , our Edge Autopilot drilling rig control system in our last call , we reported that we successfully beta tested our enzyme edge automated tool phase control and in conjunction with the DGS directional guidance system , this paves the way for seamless control of automated directional drilling with those operators who utilize remote operating centers and utilize in-house DGS systems .
Speaker #4: I'm happy to report that we're now fully commercial with our edge auto tool, Phase Control, and are charging out for rigs today with a possibility of placing that on a fifth rig for the same operator.
Speaker #4: We've also initiated the development of an enzyme edge , state of the art directional guidance system . DGS . We expect to be beta testing this mid 2026 .
Speaker #4: With this , we'll be able to provide a complete and comprehensive drilling control system offering with all the with all the bells and whistles .
Speaker #4: Excuse me , we have completed our beta testing of our auto driller Max , which will further increase penetration rates and be charged out with a daily base rate of about $1,000 a day , plus a variable per foot per meter rate , so that we can start capturing the upside on the cost and operational efficiencies that our technology enhancements provide to the operator .
Speaker #4: We plan to roll this out commercially later this year on both sides of the border . So with that summary , I'll turn to excuse me , I'll turn it back to the operator for questions .
Speaker #2: Thank you . We will now begin the question and answer session to join the question queue . You may press star , then one on your telephone keypad .
Speaker #2: You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys.
Speaker #2: To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Our first question comes from the line of Keith McKee from RBC Capital Markets.
Speaker #2: Line is open .
Speaker #5: Hey, good morning. Maybe I just want to start out in the morning. I just wanted to start out in the U.S. contract book.
Speaker #5: Looks like everything is currently under six months in length. Can you just talk about what you think that means for where we are in the cycle?
Speaker #5: And potential contract churn going forward as we look to 2026?
Speaker #4: So we probably have I would say , a quarter of our fleet tied up on an annual contracts . Keith , the it is a good question in the sense that it is a forward indicator of what operators are thinking when they start to want to contract us out longer , and we just responded to a bid here earlier in the week with a major .
Speaker #4: And it's a five year contract . When we start to see operators asking us for five year contracts , it tells me they also believe we're at a trough .
Speaker #4: So that's that's a key indicator . Some of the other projects of course , are smaller , smaller companies . They don't have longer term projects .
Speaker #4: They tend to contract to rig for six months somewhere in there . So I think the takeaway is we're starting to see some indication , like last year , we weren't negotiating anything in five year contracts .
Speaker #4: It was all one-year contracts.
Speaker #5: Yeah . Got it . So US operators are starting to at least on a one off basis ask you for for longer term , longer term contracts .
Speaker #5: Okay .
Speaker #4: Correct . And as I mentioned , as I mentioned in the call , we also have Canada . We've got we signed up one for three years and we're in the middle of a another one for a longer term as well .
Speaker #4: So, you know, we're starting to see some indications.
Speaker #5: Yeah . Okay . So maybe let's let's talk a little bit about Canada . Rig count is down year over year in Q3 .
Speaker #5: Certainly. But we've also seen some of your competitors—or at least one of them—move rigs back to Canada from the U.S.
Speaker #5: Can you just talk about the competitive dynamics in the in the deep capacity or the triple market right now ? How is how is the market unfolding ?
Speaker #5: Is capacity really as tight as you think it is ? Or as we all think it is ? Is there some tele doubles that are kind of , you know , taking up some capacity now in the market that you hope triples might displace just , just , you know , if you can help us reconcile any of those comments , that'd be helpful .
Speaker #4: Yeah . So the the high spec triples the let's say like the 1200 horsepower class triples , smaller end of the high spec triples as you mentioned , we saw competitor move a couple up into Canada and willing to foot the bill themselves for the upgrades .
Speaker #4: The higher spec, the 1500 high spec triples, is tight enough. Where if an operator asks us to do that, they'd be paying for the whole bill to get it up here, and they'd be paying for the upgrades.
Speaker #4: So it's a tighter market in the 1500 horsepower class . The 1200 . Start to bridge gap between the higher spec , deeper tele doubles , but the 1200 will win that game .
Speaker #4: So they're filling a little bit of a gap . There . But the high spec triples are definitely , as I mentioned , we were able to negotiate a three year contract with a rate increase and it's it's it's still a very tight market on the 1500s .
Speaker #4: You know , they're running about 80% utilization on those on that specific rig category , which is almost full utilization because that's that's you know , you've got to move the rig and everything else .
Speaker #4: So you never get to 100% utilization; 8085 is almost 100. In essence, from a betting perspective.
Speaker #5: Yeah. Canada's always been a bit more of a smaller triple market relative to the U.S., but are you starting to see incremental demand for 1,500 horsepower triples?
Speaker #4: Well , yeah . If the if the question is , you know , building up into , you know , another BCF of LNG , I think that's still a year out .
Speaker #4: We are seeing people wanting to make sure that the good rigs they have , they keep . So they're they're able to look into the future at least three years and go , hey , these rigs want to keep .
Speaker #4: So they're getting signed up . You know , we have conversations ongoing with a few operators on current rigs that they're using . They're saying , what would it cost to upgrade it with a high torque torque drive , notional items like that .
Speaker #4: So it is a it is a tight market , but we're still a long ways away . We're $20,000 a day from any new build metrics .
Speaker #5: Yeah , yeah okay . All right . That's it for me . Thanks very much .
Speaker #4: Thanks , Keith .
Speaker #2: Our next question comes from the line of Timo Nicolo from ATB Capital Markets. Your line is open.
Speaker #6: Hey . Good morning . Looking at the international market , you guys have done a pretty good job of reactivating equipment . Venezuela , can you talk a little bit about the dynamics at play there and maybe your view or visibility to those two rigs running ?
Speaker #6: You know, into 2026 here.
Speaker #4: Yeah, you're talking in Venezuela or...
Speaker #6: Yeah in Venezuela .
Speaker #4: Yeah . Yeah . Who the hell knows . You know , quite seriously , it is a dynamic file for sure . We've got a great team down there that our team are Venezuelans .
Speaker #4: So, you know we've got a client that runs with OFAC. So it's at the whim. But you all read the same thing we do.
Speaker #4: There's a lot of tension there . I think that it could play out well , but in any case , you know , we don't have to put any capital into these rigs .
Speaker #4: When we started them up a year ago , the operator wanted a top drives . We said , you buy them , we'll put them on the rig and we'll own them .
Speaker #4: But you're going to buy them . So we haven't we haven't put any cash into the rigs and and we're able to , you know , get us dollars out .
Speaker #4: That's our contracts . So it's a and it's only two rigs in our world of 100 rigs running every day . But it it's it's certainly a little bit of excitement there for sure .
Speaker #4: But I'm thinking that it plays out better in 2026 than the up and down we saw in 2025. But who knows.
Speaker #6: Okay , so essentially they're on like well to well programs and kind of well .
Speaker #4: We signed contracts. Yeah, we signed six-month contracts, and they just roll over.
Speaker #6: Okay . Got it . And then is there any I guess visibility into additional rig deployments in the Middle East for 26 .
Speaker #4: So as you know , we're we're major upgrades on two in Oman . And we've got quite a good brand in Oman . You know the enzyme brand is is really the gold standard for operations .
Speaker #4: And you know we’re always in conversation with, you know, we’ve got a mobile rig fleet of 186 degrees around the world that we can put into different areas.
Speaker #4: As you saw, we moved two from Canada to the U.S. You know, could we move 1,500 from the U.S. into the Middle East?
Speaker #4: Yes. Could we move a 2,000 horsepower unit from the Middle East into the U.S.? Yes. I mean, it all depends on the commercial situation.
Speaker #4: So we've got a lot of flexibility in the mobility of rigs.
Speaker #7: Okay .
Speaker #6: And then in the US , I just want to circle back on , on the contract terms that Keith was discussing . And I'm curious , given that you say you have a customer coming looking for five year contracts like the market's not I don't think anybody's saying the market is tight in the US .
Speaker #6: So, do you think that that's more opportunistic? Somebody looking out a couple of years and saying, hey, these are pretty good rates right now.
Speaker #6: I want to lock them in. Or is there something more structural, or some other factor that maybe I'm not considering here?
Speaker #4: I think that when an operator is going and looking for, you know, 15 to 20 rigs of different types and different areas with certain specs, all of a sudden that tightens the field that have the ability to bid and meet those specs.
Speaker #4: So they, you know, I find some of the majors, every five years they'll want to tighten up their rig spec because they now know what is good for what areas.
Speaker #4: And then they go out to bid and they go, "Here's what we want. You know, tighten up your rig spec."
Speaker #4: And it's usually a high spec rig spec . And let's go forward . And usually it involves some capital . Different companies address that differently and hence why they usually go out for a five year contract as well .
Speaker #4: Because they're going , hey , we want to put this on the rig . They do know that contractors aren't going to spend a bunch of money on a rig that's going to go out well to , well .
Speaker #6: Would you entertain a five-year contract at current rates, or would you need significant premiums to current market rates or spot rates?
Speaker #4: Yeah , we would yeah . We would ask for the operator to provide the upgrade capital and we it depends on the situation we have .
Speaker #4: We have we would propose rates that with PVI contracts are in the low 30s . That's kind of where we'd be low to mid 30s , which is probably in the upper quartile of our pricing spot bid pricing is lower than that .
Speaker #4: We would not entertain pricing lower than that for that type of term. And we usually put escalators in those types of contracts as well.
Speaker #4: Obviously , we have cost based coverage on any escalation , but you know , if someone said , can you hold , can you hold your current rate out ?
Speaker #4: Five years, we'd probably be a no to that, and we'd be showing some rate increases forward. We'd be asking the operator for all the upgrade capital up front.
Speaker #7: Okay , that's helpful .
Speaker #6: And then I wanted to circle back again on your comments . In your prepared remarks regarding drilling efficiency and geological decline , are you you know , anecdotally , we've been hearing about that for a long time , or at least perhaps anticipating it on the horizon .
Speaker #6: Are you seeing anything in the field , like are you seeing your rigs working in tier two acreage more often now , or any other sort of tangible evidence that , you know , you're seeing acreage declines ?
Speaker #4: Well , it's it's one of those things to , you know , people define their acreage differently . There's I remember companies 3 or 4 years ago had five levels of tier and then some today are going we have tier one , tier two , tier three , and then there's no real strong definition .
Speaker #4: We do hear people talk more about , hey , in 2026 we'll be starting to drill more , more tier two acreage . But no one comes up and says , okay , we want you to go to this tier two play and go drill it or go to this tier one play and drill it .
Speaker #4: It's more about the notional conversations. And, of course, tier two is not as productive. Tier one, tier two, and tier one, first.
Speaker #4: But we're we're seeing we're seeing and hearing them talk more about it . So there must be some truth to it .
Speaker #6: I guess on the leading edge. Are you seeing any of your operators starting to increase activity?
Speaker #4: We have , I would say , for 25 it's been budget exhaustion . They've been holding on to their rigs . We've got two operators that increased our rig count because of our performance .
Speaker #4: But you've seen the , you know , the rig count as well as I do . It's stuck at 250 in the Permian , about 550 in the US .
Speaker #4: But we are drilling more footage year over year. However, the rate of increase is now into the single digits. We're running about 5% or 6% more footage drilled per rig, whereas 2 or 3 years ago we were at 14% or 15% year over year.
Speaker #4: So we're starting to hit that speed of sound . The technical limit of the equipment is what we're starting to see . And you're seeing operators starting to think more about it , doing a U-turn , coming back on their acreage , relooking at their acreage .
Speaker #4: So those are , you know , those are indications that to hang on to 14 million barrels a day , they're going to have to I believe we've troughed at the rig count that we're at today or pretty close to it , let's put it that way , is what the data would tell us .
Speaker #7: Got it .
Speaker #6: And then the U.S. last question for me. Are you seeing any opportunities in gas basins?
Speaker #4: Well , you know , a little blip in gas this week , but . No . And here's why . You know , the gas oil ratio in the Permian as you increase production , the gas oil ratio is going up , which means about a BCF a year .
Speaker #4: So, takeaway capacity is going up from 3 to 4 to 5. You know, moving up as we increase production of the Permian and gas ratios go up.
Speaker #4: So we're not seeing , you know , we've got anecdotally , you know , 1 or 2 clients that are saying , hey , we want to maybe go drill a Haynesville well , but it's it hasn't moved the needle much .
Speaker #4: No .
Speaker #7: Okay . I appreciate it .
Speaker #6: Thanks very much .
Speaker #7: Good quarter .
Speaker #4: Thanks , Dan .
Speaker #2: Our next question is from Aaron McNeil from TD Cowan. Your line is open.
Speaker #8: Hey . Morning . Thanks for taking my questions , Mike . This one's for you . I think obviously you can appreciate all the reasons for the push out of the 600 million debt reduction target .
Speaker #8: I guess the question is, when you inevitably hit that target, what's sort of next from a capital allocation perspective?
Speaker #3: Yeah , I think at that point in time , I mean , you look at what's the best use of proceeds , I mean , from our point of view , I mean , debt reduction is still going to be key .
Speaker #3: So you probably get to that one, one and a half debt to EBITDA. So that will be probably another year, year and a half away from that happening.
Speaker #3: So our view would still be paying off debt, lowering our interest costs, which gives you free cash flow into perpetuity.
Speaker #3: So, yeah, I think we’d definitely take a look at it. But debt reduction is still going to be our focus for the next.
Speaker #3: Next . Well .
Speaker #4: Yeah. Complete full discipline on that. Absolutely.
Speaker #3: Yeah .
Speaker #8: Fair enough. And then maybe to build on one of Tim's questions, how do you think about scale and all these international jurisdictions that you operate in?
Speaker #8: And would you ever consider exiting some of these markets as a potential source of deleveraging, to the extent that you could find an interested buyer?
Speaker #4: Yeah. Well, we typically don't run. We typically figure out how to get through because we understand there's cycles in every area.
Speaker #4: I suppose Libya is the only area in the world that we've ever left because of war. We just took over the equipment. But you've seen how we've managed through Venezuela; you've seen how we've managed through Argentina.
Speaker #4: To answer your question on scale , we we like to get to five rigs running in any given area to , to appropriately manage supply chain and overhead and operational supervision .
Speaker #4: So that's kind of the target . So , you know Australia we're there . You know Venezuela we're not obvious reasons Argentina . We only have two rigs there .
Speaker #4: We're in discussions with some people for perhaps a few more rigs, but we'd like to get the five there in the Middle East.
Speaker #4: You know we throw a blanket over the Middle East , Oman . We'll be to five Kuwait , you know , we have full utilization there with two big rigs .
Speaker #4: The and those are 3000 horsepower rigs . And those those rigs don't grow on trees . You know , there's 60 to $70 million rigs .
Speaker #4: Rates are not conducive to add any into that area . Nor are they looking . So that's that's that's how we look at the world .
Speaker #4: We're also not interested in going into any new markets either. We'd rather double down and capture more of the markets we're in and increase efficiency that way.
Speaker #8: Okay. Fair enough. I'll turn it back.
Speaker #4: Thanks , Eric .
Speaker #2: Our next question is from Joseph Schachter from Schachter Energy Research. Your line is open.
Speaker #9: Thanks very much . Good morning , Bob and Michael . And Mike just want to cover one issue that's been covered . And then a new issue going back to the debt .
Speaker #9: If EBITDA grows and we get $7,080 oil a couple of years down the road, is the target to have something like $500 million of debt from the $925 million?
Speaker #9: And are you looking in your guidance for 2026 to give us a number like $100 million each year? Kind of number like I'm trying to get a feel for the progression of debt reduction.
Speaker #3: And no guidance for 26 as of yet . But I mean , if you kind of look at brick is and CapEx kind of flows out , I mean , it should be 100 million in excess of 100 million .
Speaker #3: When we look at the overall debt level , I mean , yeah , that 500 million is probably a good number to to get to just given the volatility we see in the market .
Speaker #3: And the Trinidad transaction , we were kind of around that 500 million ish , give or take . So I think around that would be a reasonable amount kind of run forward .
Speaker #3: And that would give you the kind of flexibility to deal with the ups and downs.
Speaker #9: Okay . Thanks . And then Bob , I'm reading stuff from , you know , and listening to interviews . Comstock's talking about drilling 19,000 vertical insulating pipe because of 400°F .
Speaker #9: And needing to stack 30,000ft of pipe , you know , is that a totally new class of rig , or can you handle drilling for these deeper zones that that are that Comstock and others that are going after ?
Speaker #4: Yeah . No , we absolutely have over the last year and a half , we've been we have a few rigs that can rack 30 to 35,000ft of pipe .
Speaker #4: We've got no less than 4 or 5 rigs right now that have been modified to that to be able to handle that with 5.5in pipe and handle that 30,000 plus racking capacity on pad work with 5.5in pipe .
Speaker #4: So that's not uncommon for us. Now we're having lots of those kinds of conversations.
Speaker #9: Any potential signing up, or is it just early conversation days?
Speaker #4: Oh no . No . These are , these are these are rigs that have been modified and are under contract .
Speaker #9: Okay .
Speaker #4: Yeah . It's not a notion . It's it's happening . Yeah , yeah .
Speaker #9: Is this your highest day rate, rigs?
Speaker #4: Yeah, it would be. Yeah.
Speaker #9: Yeah. Okay. Good. Thanks very much for answering that.
Speaker #4: Yep. No problem. Thank you.
Speaker #2: Our next question is from Marvin. Your line is open.
Speaker #10: Hi , Michael . Thank you . And congrats on the release . I had a quick question about the client funded CapEx . When will we see that hitting your cash flow statement ?
Speaker #10: I don't think it has yet, right?
Speaker #3: Part of it has. So you'll see it throughout the next sort of 6 to 12 months. Contractually, there are some things that need to be completed for some of the funding to go through.
Speaker #3: But, yeah, you'll see it sort of over the next 6 to 12 months.
Speaker #10: Basically, you're getting paid by the clients after you spend the money within six months.
Speaker #3: I know there's some prepayments as well.
Speaker #10: And could you clarify on those two rigs signed in Canada? So you said it would be $100 million over the course of three years in revenues for each, or...?
Speaker #4: Correct, $100 million total for three years. Yes.
Speaker #10: Total for three years at a 30% EBITDA margin.
Speaker #4: Right, for both rigs combined.
Speaker #10: Right? Yep. Thank you. Thanks.
Speaker #2: There are no questions at this time. Please continue.
Speaker #4: Okay . I'll move forward to closing statement then . Obviously the last few months have been a roller coaster with the global markets unsettled and the tariff negotiations , which has impacted to some extent , some cost of business notionally till now , could impact it more if they stay on the cost side of certain pieces of equipment that as again , we typically pass on to operators as escalation .
Speaker #4: Looking forward , we continue to execute the plan , reducing debt whilst delivering the highest performing operations safely around the world . As I mentioned earlier , we increased our forward contract book by roughly a quarter of $1 billion and now have close to 1.1 billion of forward revenue booked under contract .
Speaker #4: We continue to push operations or operators to fund upgrades, and we are still very stingy on capital. We are right on track with our maintenance CapEx program and can manage nicely.
Speaker #4: Operating 95 to 100 drill rigs and 50 well service rigs daily around the world in this commodity price environment. So with that, we'll look forward to our next report in the new year.
Speaker #4: Thanks for calling in .