Ensign Energy Services Inc. (ticker: ESI), a leading oilfield services company, held its third quarter 2024 earnings conference call on November 1, 2024. President Bob Geddes and CFO Mike Gray provided an overview of the financial and operational performance of the company, which includes a slight increase in adjusted EBITDA and a notable reduction in debt. Despite a drop in U.S. operating days, the Canadian business unit experienced strong demand, and international operations remained stable. The company’s focus on technological advancements, such as EDGE Autopilot, is expected to improve efficiency and performance.
Key Points
- Ensign Energy Services reported a 2% decline in revenue in Q3 2024 compared to the previous year, generating $434.6 million.
- Canadian operations reported an 18% increase in operating days for high-spec drilling rigs, while US operations decreased by 14%.
- The company has reduced its debt by $135 million since the start of the year, with a target of $600 million by the end of 2025.
- Capital spending for 2024 is projected at $167 million, focused on maintenance and growth projects.
- Ensign’s U.S. business unit is expanding performance-based contracts, which now cover more than half the fleet.
- The company anticipates a steady operational pace with 100 to 110 drilling rigs and 60 to 70 well service rigs daily.
Company Outlook
- Ensign expects to maintain a stable operational tempo with minimal changes in U.S. aircraft activity for the remainder of 2024.
- The Canadian market is stable with demand for high specification aircraft at a decade high and almost 90% of the active fleet under contract until Q1 2025.
- The company is optimistic about long-term market fundamentals and is ready to leverage its capabilities in the Canadian and international markets.
Bearish points
- Low natural gas prices and recent mergers and acquisitions in the United States are expected to delay market improvements until the end of 2025.
- No significant increase in capital spending is expected for 2025 unless U.S. activity picks up in the second half of the year.
Bullish points
- Ensign technology advancements, such as EDGE Autopilot and Ensign Edge ATC, improve operational efficiency.
- The well services industry in the Rockies and California is performing well with high utilization rates.
Missed points
- US operations saw a 14% decline in operating days in Q3 2024, totaling 3,065 days.
- No current opportunities in Nevada for lithium drilling despite market interest in battery materials.
Highlights from the Q&A session
- The company discussed operations in Venezuela, Australia and the United States, with a focus on the Permian Basin.
- Ensign is moving aircraft from the US market to the Canadian market, with one aircraft still on the way, expected to be completed by the end of Q1 2025.
- Over $800 million in future revenue under contract, with daily operation of 100 to 110 drilling rigs and 60 to 70 well service rigs.
Ensign Energy Services Inc. remains committed to reducing debt and improving free cash flow and margins. The company’s next earnings alert is scheduled in three months, where further updates on its progress and operations will be provided.
Perspectives InvestingPro
Ensign Energy Services Inc. (ESI) continues to navigate a challenging market environment, as reflected in the company’s recent financial performance and outlook. According to InvestingPro data, the company’s market capitalization stands at $384.99 million, with a price-to-earnings ratio of 25.44. This valuation metric, when considered alongside the company’s recent operational updates, suggests that investors are pricing in expectations for future growth despite current headwinds.
One of InvestingPro’s top tips is that Ensign’s net income is expected to decline this year. This is in line with the 2% decline in revenue reported by the company in Q3 2024 and the challenges faced in the US market, where operating days decreased by 14%. However, it’s important to note that another tip from InvestingPro suggests that analysts expect the company to remain profitable this year, which is consistent with Ensign’s focus on debt reduction and efficiency operational.
The company’s revenue for the trailing twelve months through Q2 2024 was USD 1,241.07 million, with a gross profit margin of 30.82%. These figures, coupled with the company’s adjusted EBITDA of $326.82 million over the same period, highlight Ensign’s ability to maintain profitability in a fluctuating market. This financial resilience is particularly notable given the company’s efforts to reduce debt and its strategic focus on high-demand areas such as the Canadian market and international operations.
Investors considering Ensign Energy Services can find added value by exploring the full suite of advice InvestingPro, which includes 6 tips in total. This information can provide a more comprehensive view of the company’s financial health and market position, complementing the operational updates provided during the earnings alert.
