ESVIF (ESVIF) Q2 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. And welcome to Ensign Energy Services Inc. second quarter 2026 Results Conference Call. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Friday, August 7, 2026. I would now like to turn the conference over to Trevor Russell, CFO. Please go ahead.

Thank you, John. Good morning, and welcome to Ensign Energy Services Second Quarter Conference Call and Webcast. On our call today are Bob Geddes, President and CEO, and myself, Trevor Russell, Chief Financial Officer. Today, we will review Ensign's second quarter highlights, and financial results followed by our operational update and outlook. We will then open the call for questions. Our discussion today may include forward looking statements based on current expectations that involve several business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to, political, economic, and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the company's defense of lawsuits, the ability of oil and gas companies to pay accounts receivable balances, or other unforeseen conditions that could impact the demand for services, supplied by the company. Additionally, our discussion today may refer to non-GAAP financial measures such as adjusted EBITDA. Please see our second quarter earnings release and SEDAR+ filings for information on forward looking statements. The company's use of non-GAAP financial measures. With that, I will pass it on to Bob.

Thanks, Trevor. So we have had a busy quarter reactivating and upgrading rigs for contracts, which caused some 1-time expenses in the quarter. With respect to upgrades, in most cases, the operator has funded those upgrades in various areas of the world. We also announced the Citadel Drilling acquisition, which is expected to close next week and which will add 6 active 2,000 horsepower rigs to our Permian fleet. We clipped another $30 million of debt in the quarter, and we continue to reduce our interest expense by 13%. We achieved this year over year improvement both on the top line and the bottom line with record operational safety results. I will turn it back to Trevor for a deeper dive on our first quarter financial results. Trevor?

Thanks, Bob. The oilfield services sector maintains a generally constructive outlook as activity has improved year over year. With the political and security situation in The Middle East, the disruption of shipping within the Strait Of Hormuz, the continuing conflict between the Russian Federation and Ukraine, and the actions of the United States in Venezuela, the expectation is these factors and their continued development will have a direct effect on the industry. To date, oil and oil and natural gas producers continue to moderate their capital spend. Remain committed to cash flow generation and maintaining current production levels. Furthermore, the impact of uncertainty around the global economy and tariff policies adopted by the United States administration and the implications from such policies continue to impact operating activity. Operating days were up in the second quarter of 2026, in comparison to the second quarter of 2025. The company saw a 7% increase in Canada to 2.67 thousand, a 5% increase in The United States to 3.09 thousand and a 15% increase internationally to 1.25 thousand operating days. For the 6 months ended June 30, 2026, overall operating days increased with The United States recording a 10% increase and international recording an 8% increase in operating days. Offsetting these increases was a 6% decrease in Canadian operating days when compared to the same period in 2025. The company generated revenue of $397.3 million in the second quarter of 2026, a 7% increase compared to the revenue of $372.4 million generated in the second quarter of the prior year. For the 6 months ended June 30, 2026, the company generated revenue of $815.4 million, a 1% increase compared to the revenue of $808.9 million generated in the same period in 2025. Adjusted EBITDA for the second quarter of 2026 was $85.8 million, 6% higher than the EBITDA of $81.4 million in the second quarter of 2025. Adjusted EBITDA for the 6 months ended June 30, 2026 totaled $180.7 million, 2% lower than adjusted EBITDA $183.7 million generated in the same period in 2025. The 2026 increase in adjusted EBITDA was primarily due to higher operating activity offsetting the increase is a 2% negative foreign exchange translation of converting United States-denominated United States dollar revenue. Depreciation expense in the first 6 months of 2026 was $173 million an increase of 5% compared to $164.7 million for the first 6 months of 2025. General and administration expense in the second quarter of 2026 was 8% higher than in the second quarter of 2025. General and administration expenses increased primarily as a result of annual wage increases to various employees, Offsetting the increase is a 2% translation effect of converting USD-denominated expenses. Interest expense decreased by 13% to $16.1 million from $18.6 million. The decrease is the result of lower debt levels effective interest rates and the positive 2% translation effect of converting US-denominated interest expense. During the second quarter of 2026, $30 million of debt was repaid and a total of $37 million was paid during the first 6 months of 2026. The company has revised its previously announced debt reduction target of $125 million to a net $60 million. The revision is a result of a previously announced Citadel Drilling Limited acquisition and reinvesting into the company through capital expenditure. If industry conditions change, these targets may be increased or decreased. Net purchases of property and equipment for the second quarter of 2026 totaled $58.1 million, consisting of $25.4 million in upgrade capital and $41.4 million in maintenance capital, offset by disposition proceeds of $8.7 million Our 2026 maintenance capital expenditure is set at approximately $162 million and selective upgrade capital of approximately $95.8 million, of which $68.6 million is customer funded. The company continues to consider rig relocation or upgrade projects in response to customer demand and under appropriate contract terms. Which may impact capital expenditures. On that note, I will turn it back to Bob.

Thanks, Trevor. So let's circle the globe now with a summary of our second quarter and some insight into what we are seeing develop under this volatile yet still strong commodity pricing environment starting with US drilling. Which is our largest business unit. Today, we have 41 rigs under contract in The US and see that growing a rig a month until the end of the year. This is, of course, net of the Citadel fleet, which will add 6 rigs once closed. We are seeing a more active bid book over the last few months. The result of generally higher commodity prices, and we are seeing more private equity and new names of the game. At these prices, a lot of more shoulder plays become more compelling. Starting on the West Coast and moving East, we are seeing our California drilling asset base now with 5 high spec ADR drilling rigs under contract with expectations of adding a couple more between now and year end. We have 8 rigs active in our Rockies division. Same as last quarter. And we have 27 active today in our US Southern division. The Permian continues to be our most active and prolific area with continued strong demand for our high spec ADR rigs with an expectation that we should see 4 to 5 more rigs go to work between now and year end Almost half our US rigs are on a performance based contract, which elevates margin opportunities. In Canada, we operate the second largest fleet, which consists of a wide range of high spec ADR drilling rigs from singles to triples. In the first quarter, we mentioned that we had 5 of our high spec ADR rigs came down early in the quarter, for their 5-year recertifications over breakup. Those rigs are all out now, and we have 51 rigs active today in the Western Canadian Basin. Up 17% year over year. Last year we had 30 rigs active over break up, building up to 43 into July, This year, we ran roughly 45 rigs over breakup, jumping to 51 today, as I just mentioned. We expect to add a few rigs between now and the end of the year and we are already seeing operators wanting to tie up our high spec ADR rigs into spring 27 and beyond. We are not wanting to get our book too long in this upward demand construct, and we are starting to raise rates by $1 thousand per day per quarter as we move into the back half of the year and into next. On the international front, we now have 27 rigs in our international fleet with the addition of another high spec ADR 1.5 thousand into Venezuela that came from our US southern fleet and the commissioning of our 5th ADR into Oman. The Middle East conflict has put a damper on continuing operations in the area. Which has caused the shutdown of our 2 Kuwait rigs and our 2 Bahrain rigs. Oman remains generally unaffected with all 5 of the 5 are running there. We have bids going in for the 2 3 thousand horsepower Kuwait rigs over the next few months but that work would not start until mid-2027. We also expect 1 of the 2 Bahrain rigs to be recontracted in the immediate area before year-end. In Australia, we have 4 rigs operating today with a 5th rig starting up in the next 30 days. Argentina is steady with both our high spec ADR 2000s under contract well into 2027. Venezuela. Let's talk about Venezuela. Everything changed back on January 6. Ensign had the only 2-- excuse me, Ensign had the only 2 rigs running in the country, and we now have a 3rd just landed in Venezuela. And we are also signed and we also signed the contract for a fourth in Venezuela which should hit the ground first part of 2027. These are all on 3-year contracts. Infrastructure buildup will determine how fast Venezuela is able to add rigs efficiently. In any case, our strategic positioning in Venezuela will provide great opportunities for Ensign moving forward. On the well servicing side, we operate a fleet of 92 well service rigs in North America, with roughly 50% utilization. We run 20 well service rigs daily in Canada, our highest level in years. And we run over 75% of our US well servicing rigs in our US Well Servicing Business Unit Primarily Focused In The Rockies and California regions. On the Ensign Drilling and Rig Automation, our EDGE drilling rig control system platform is now on 65% of our rigs globally and growing. We continue to see the opportunity to grow this business' top line and bottom line by 15% year-over-year, well into the future. Our other business segments, Directional Drilling, trucking, rentals, and managed pressure drilling continued to deliver steady revenue and margin with very little or no capital required. Back to the operator for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session Should you have a question, please press * on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the * followed by the 2. If you are using a speaker phone, please lift the handset before pressing any keys. 1 moment please for your first question. Your first question comes from the line of Keith MacKey from RBC Capital Markets. Please go ahead.

Hey. Good morning. Maybe if we could just start-- Maybe we could just start out with the Citadel acquisition acquired 6 rigs Bob, can you talk about the financial contribution from that acquisition? As well as the maybe the spec of the rigs themselves and the nature of the contracts they are on a little bit more, and any capital required upcoming on those rigs?

Yeah. I cannot talk too much about that yet, Keith. We have not closed yet other than what is public documents there. They are 2,000 horsepower rigs, 6 of them. that is kinda all we can talk about at this point in time. They are fully utilized at this point, though.

Okay. Got it. What is the like, I know recognizing it has not closed yet. Can you just talk about maybe from your standpoint, what that acquisition brings to your rig fleet You obviously gain a little bit more Permian scale. Is that it, or is there some other factors we should be thinking about as far as bringing that larger footprint into Ensign?

Yeah. No. You nailed it. They have a very nice rig platform design for the Permian and it increases our presence in the Permian. It brings us up to about 11% of the Permian we are running about 7% in the Permian right now, 7% to 8%, somewhere there. So it brings our Permian presence up to 11%. So we become more important in the Permian. Their you know, that is and you can you can draw some association into you know, what we make in the US In the Permian and probably extract that over to the acquisition and pull some numbers out. But we just cannot talk about some numbers until we close.

Yeah. Fair enough. You mentioned pricing, raising it by $1 thousand a day per quarter. In The US, assuming that is Canadian dollars, but correct me if I am wrong. Can we just talk a little bit about more about what you are seeing as far as pricing going forward? And are you seeing incremental demand from public companies yet, or is it primarily been privates?

it is certainly the public has shown at least some small demand increase. there is-- what is happening, I think, is you are seeing the drilling rig efficiency diminish down single digit efficiency gains these days while the decline rates of certain reserves are accelerating at a faster pace than they may have thought. So I am hanging on to production or slightly increasing production seems to be requiring a rig or 2, but most of the pubcos have been. Private cos are new, and that is net incremental new. So we are seeing a lot more of those show up. We are doing credit checks on them, and that is kind of our indication. But we are getting a lot more requests from companies that we have not heard and they have raised some money, and they are they are wanting a rig to go drill a month or a 1-year program. So the demand is increasing for sure. The supply is also tightening up. Everyone wants the high spec rig with, you know, at least a 7.5 thousand PSI system walking and they want the high torque top drive and 3 pumps. And this while, you know, we are we are also pushing some rigs over into Venezuela or what I will call our lower spec, high spec fleet is pushing over there. But the Citadel fleet dovetails nicely into what we see for Ensign and expanding market share place. Copy that. Appreciate the color. Thanks a lot. Thanks, Keith.

As a reminder, if you have any questions or follow-up, please press *. Our next question comes from the line of Tim Monachello from ATB Cormark Markets.

Thanks for taking my questions. Just on the US, I think in your prepared remarks, was trying to write as fast as I could, but maybe I missed it. Did you say you are running 41 rigs in The US today?

Correct. And Correct.

that is not including the Citadel rigs?

Right? Correct. So Correct.

Including the Citadel rigs is 47. And then you are expecting to add 4 rigs essentially through the end of the year? Correct. Got it.

Okay.

And then secondly, you talk a little bit about the pricing dynamics in Canada?

Yeah, it is-- and it all depends on the rig type. What we are finding is if we start with the bottom end, the doubles, which encompasses some of the higher, the lower end, high spec doubles. They are in the teens, the mid teens. The high spec singles are in the low twenties. Pushing to the mid twenties as we are sold out of our high spec singles. At this point in time. So obviously, any new bids that we are getting we are pushing pricing up with subject to availability. On the high spec triples, we are in the low $30 thousands all-in. And we are running about 75% utilization in that category, and we are seeing we are seeing more bids now starting to firm up for the winter In most cases, most clients have picked their dancing partners for the winter already, but we always see a few. We have got 1 client who is wanting to pull some of the 2027 capital into fourth quarter 2026. So those are kind of notional anecdotes. Got it.

So like, it sounds like pricing in Canada is flatter than it is in the US. Is that a fair remark?

Yeah. I would say it is flatter. In the US, which is it is a challenge. In the US, there seems to be a little more discipline and understanding of the marketplace And that is where the notion of you know, increasing rates of $1 thousand dollars a quarter we would contend is what we are trying to push for as well. it is a little bit of a tight dance, depends on depending on the client, etcetera. But certainly, new bids going out for unknown clients and also clients for repricing you know, our costs have gone up a little bit as well. So we have got to pass that on. And of course, this is net of any labor increases or anything like that, which are covered by escalation clauses in the contract.

Got it. Alright. And then following the Citadel acquisition, looking at the balance sheet, like, where do you think you are going to exit 2027 now? In terms of your leverage profile?

27? Or 26?

Yeah. Sort of aspirational. I know we do not know what 2027 looks like yet, but just in terms of, I guess, medium term deleveraging targets, how is the acquisition changed? I did not-- yeah. To say it more broadly.

What we are looking at I mean, our original debt reduction target for 2026 was $125 million. We have reduced that down to $60 million as a net number. After the Citadel acquisition. So we are kind of building that in to the debt numbers there. We are expecting you know, liquidity to kind of end up in that kind of low $90 million range or so by the end of the year of 2026. Kind of get us back on track after the acquisition is completed.

Okay. Got it. I appreciate that is all the questions I have.

Thanks, Tim.

Once again, as a reminder, if you have any questions or follow-up, please press *. There are no further questions at this time. I will now turn the call over to Bob Geddes. President and CEO. Please continue, sir.

Thanks, John. Despite the pricing volatility, the macro energy construct still remains strong for the oilfield services business. As we continue to see our forward guaranteed contract book expand by 25% in our long term contract runway now out to $1.4 billion of contracted revenue The industry keeps on finding ways to deliver value by reducing drill times, although we are seeing diminishing returns with only single digit gains in drill times. When we have equipment performing in higher duty and delivering more work on a daily basis, that value has, for the last decade been captured generally by the operators and helped keep industry competitive globally. Notwithstanding, as a result, contractors' daily costs have increased. have increased with replacement equipment costs going up. it is time for contractors to capture the value creation generated over the last decade With that and with tightening supply of high spec rigs, we see rates moving roughly 5% to 10% in contract rollovers as we move through into the future. This will help contractors monetize in the future the value we have created over the last decade. We will see where oil pricing lands, but it is certainly landing up from where it was. And with very little excess rig equipment capacity and lead times on new rig equipment getting out there close to a year. The market construct looks very promising for Ensign. And the industry in general. We will chat in 3 months, thank you for joining the call today.

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