Release Date: November 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ensign Energy Services Inc (ESVIF, Financial) achieved a strong quarter-over-quarter gain driven by high demand for its high-spec Canadian rigs, particularly singles, doubles, and triples.
- The company successfully reduced its debt by $45 million in the third quarter, totaling $135 million year-to-date, and is on track to meet its $600 million debt reduction target by 2025.
- Canadian operations saw an 18% increase in operating days, contributing positively to the company's performance.
- Interest expenses decreased by 24% due to lower debt levels and reduced effective interest rates, which will continue to decline as debt levels decrease.
- The EDGE AutoPilot technology is expanding, providing additional revenue streams and differentiating Ensign from competitors.
Negative Points
- The US business unit experienced a 14% decrease in operating days, contributing to a decline in overall revenue.
- Revenue for the third quarter of 2024 decreased by 2% compared to the same period in the previous year.
- Adjusted EBITDA for the first nine months of 2024 was 7% lower than the same period in 2023, primarily due to declines in US drilling activity.
- Depreciation expenses increased by 14% in the first nine months of 2024 compared to the previous year.
- The US market is facing challenges due to depressed natural gas prices and significant M&A activity, leading to reduced short-term work.
Q & A Highlights
Q: Bob, you mentioned being booked on triples in Canada. Are there idle rigs, and how do you plan to market them with LNG Canada coming online?
A: Robert Geddes, President and COO: We have a few rigs ready to work without capital investment and expect them to be contracted by the first quarter. LNG effects will likely be seen in the latter half, requiring a steady platform of high-spec triples. Current rates aren't high enough to support new builds, which would need to be in the 50s.
Q: Can you discuss US gross margins for drilling rigs and the trend in day rates and cost structure?
A: Michael Gray, CFO: We've seen margin compression due to flat US activity and idle rigs. However, the cost structure is stable or slightly down, with supply chain issues from COVID alleviated. Margin compression is more due to potential revenue rates than costs.
Q: What should we expect for Q4 free cash flow and liquidity, considering debt repayments and credit facility changes?
A: Michael Gray, CFO: We expect to be on the right side with about $65 million of free cash flow for debt repayments. We exited Q3 with $66.3 million in liquidity and foresee no issues, maintaining liquidity into Q1 2025.
Q: What is the outlook for 2025 CapEx, considering activity levels?
A: Michael Gray, CFO: We anticipate a flat year-over-year CapEx unless US activity picks up in the latter half. The balance sheet remains strong with a stable outlook.
Q: Can you discuss trends in the Duvernay region in Canada and expected activity levels?
A: Robert Geddes, President and COO: Activity is expected to remain relatively flat with a possible small uptick. The Canadian market has shifted to a more stable approach, reducing seasonality and maintaining a consistent level of activity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
