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Edited Transcript of ESI.TO earnings conference call or presentation 11-May-20 4:00pm GMT

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Q1 2020 Ensign Energy Services Inc Earnings Call Calgary Jun 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Ensign Energy Services Inc earnings conference call or presentation Monday, May 11, 2020 at 4:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Michael R. Gray Ensign Energy Services Inc. - CFO * Nicole Romanow Ensign Energy Services Inc. - Head of IR * Robert H. Geddes Ensign Energy Services Inc. - President, COO & Non-Independent Director ================================================================================ Conference Call Participants ================================================================================ * Bruce Harrop Addenda Capital Inc. - Senior Portfolio Manager * Ian Brooks Gillies Stifel GMP Research - Director of Institutional Research and Research Analyst of Energy Services & Infrastructure * Keith MacKey RBC Capital Markets, Research Division - Analyst * Waqar Mustafa Syed AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by. And welcome to the Ensign Energy Service, Inc. First Quarter 2020 Results Call. (Operator; Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Nicole Romanow of Investor Relations. Please go ahead, madam. -------------------------------------------------------------------------------- Nicole Romanow, Ensign Energy Services Inc. - Head of IR [2] -------------------------------------------------------------------------------- Thank you. Good morning. And welcome to Ensign's First Quarter Earnings Conference Call and Webcast. On our call today, Bob Geddes, President and COO; and Michael Gray, Chief Financial Officer, will review Ensign's first quarter highlights and financial results followed by an operational update and outlook. We'll then open the call for questions. Our discussion today may include forward-looking statements based upon current expectations that involve a number of 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, raise capital or other unforeseen conditions that could impact the use of the services supplied by the company. In addition, our discussion today may refer to non-GAAP measures, such as adjusted EBITDA. Please see our first quarter earnings release and SEDAR filings for more information on forward-looking statements and the company's use of non-GAAP measures. With that, I'll pass it on to Bob. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [3] -------------------------------------------------------------------------------- Thanks, Nicole, and if there was ever a time for a thorough advisory lead-in, it was -- it's now. Thank you again for joining this call today for Ensign's first quarter '20 results summary. First off, we're hoping all of you are safe and healthy. What a world we live in today. I also want to quickly take the opportunity to thank all the frontline health care and essential service workers that are keeping this world running while we manage through this pandemic with immediate and proactive response in the field. We at Ensign have been able to continue operations around the world, essentially uninterrupted. I've always said the drilling companies are built for cycles, but I have not in my wildest dreams imagine this stacking of macro events would occur all at once. Nonetheless, it is reality, we adjust, and we figure it out. Obviously, the entire OFS space is in a race to delever and continues to reduce costs and rightsize their businesses. Amidst these challenges in the first quarter, Ensign was able to generate a healthy cash flow, increased liquidity, further reduced fixed cost overhead, reduced debt by almost $170 million year-over-year, expand our contracted fleet book by signing up 2 more rigs onto long-term contracts. Now with over $1 billion in forward contracted revenue in our global fleet going out almost 5 years, we successfully beta tested our EDGE AutoPilot cutting 15% off the average well times in the area right off the bat, and we operated with the best safety record in the company's history. With that, I'll turn it over to Mr. Gray to provide a more in-depth summary of the quarter. Mike? -------------------------------------------------------------------------------- Michael R. Gray, Ensign Energy Services Inc. - CFO [4] -------------------------------------------------------------------------------- Thanks, Bob. Results in the first quarter of 2020 were negatively impacted by the oil price war and the global COVID-19 pandemic. Global measures implemented to combat the spread of COVID-19 have led to a significant slowdown in global economic activity, which has reduced the demand for crude oil and natural gas products. This reduction in demand contributed to a sharp decline in global crude oil and natural gas prices over the quarter. As a result, the company's operating days were lower than the first quarter of 2020 when compared to the first quarter of 2019 as customers quickly responded to the steep pricing declines, specifically in the United States. United States operations recorded 5,141 operating days in the first quarter of 2020, a decrease of 23%. Canadian operations recorded 3,102 operating days in the first quarter of 2020, a 1% increase. And international operations recorded 1,438 operating days, an increase of 8% compared to the first quarter of 2019. The company generated revenue of $383.9 million in the first quarter of 2020, a 14% decrease compared to revenue of $445.3 million generated in the first quarter of the prior year. Adjusted EBITDA for the first quarter of 2020 was $90.1 million, a 22% decrease from adjusted EBITDA of $115.5 million in the first quarter of 2019. The 2020 decrease in adjusted EBITDA can be attributed to the decrease in activity across our United States operations. Depreciation expense in the first 3 months of 2020 was $89.8 million, 2% higher than $88.2 million for the first 3 months of 2019. General and administrative expenses in the first quarter of 2020 was 16% lower than the first quarter of 2019. The overall decrease in expense was largely due to the company's focus on managing and reducing costs, and management continues to look to reduce costs on a go-forward basis. Total debt for the first quarter of 2020 was down year-over-year by $167.3 million to $1.6 billion as of March 31, 2020, for $1.8 billion as at March 31, 2019, despite an increase in debt of $46.4 million due to foreign exchange. Net purchases of property and equipment for the first quarter of 2020 totaled $22.3 million, $16.4 million related to maintenance capital and $10 million related to upgrade capital. Capital expenditures for the calendar year 2020 has been reduced to a total of $50 million. On that note, I'll turn the call back to Bob. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [5] -------------------------------------------------------------------------------- Thanks, Mike. So let's provide a worldwide operating highlight with some forecast on what we see happening moving forward. Starting with the United States, the U.S., which generates roughly 60% of our EBITDA, saw the immediate response early in February with rigs falling off almost every day through into March as everyone cut budgets. We went from running 60 to 70 rigs in the U.S. down to where we are today, roughly 30 rigs. Of our 122 rigs in the U.S., approximately 30% are engaged under long-term contract, and 50% of those have a remaining term of 6 months or greater. With some of these extending out into 2021. Over the last few months, we have worked closely with our strong client base in the U.S. to provide immediate rate relief on existing rigs in exchange for flattening out the contract curve into 2021, very important. We're finding very quickly in the U.S. that there are the technology haves and the have nots, clearly separating in the pack. Rigs with advanced controls like our EDGE platform are continuing to work while others go down. Our U.S. well servicing division continues to find ways to perform amongst the strong headwinds with steady but reduced activity in California, the Rockies and the Eagle Ford. While others have shut down their directional drilling business, we continue to operate ours roughly with about half a dozen jobs today running. No question, margins are tight. But again, rightsized, one can crank out a margin with strong field performance, strong management team, low fixed cost, high variable costs. Moving forward in the U.S., we anticipate we'll be running roughly in that 30 to 35 rig range, 20 to 25 well service rigs and roughly 5 to 10 directional jobs through the next quarter. In Canada, Canada had a strong first quarter as Canadian winters are typically. We had a high of 55 rigs in the first quarter with strong utilization in all our rig types, accepting the heavy tele-doubles which were disproportionately affected by the lack of investment into place like the Cardium in Central Alberta. We saw our margins improve in Canada for the first quarter year-over-year, mostly the result of our high utilization, again, on the more technically advanced ADR 1500 type rigs. The Canadian team was successful in securing a 3-year term contract with a major for 2 of our ADR 1500's with EDGE controls on them. Of the 101 marketed rigs in Canada, approximately 20% are engaged under contract of various term and approximately 60% of those have a remaining term of 6 months or longer. We anticipate that we'll run, give or take, 15 -- 10 to 15 rigs through the summer and depending on how quickly the market swings back, perhaps up to 20 in the fall. Canada well servicing is expecting to see our share of the orphan well abandonment program that the Fed's announced a few weeks back. This should put about 10 of our well service rigs and their crews to work over the summer into the fall. Our directional drilling business in Canada has worked its way into the top 3 and expects to participate with, again, about half a dozen jobs running through this summer. On the International, where we generate about 20% of our margin. Generally, our International rigs are engaged for the most part on gas projects. This is in contrast to our North American market, which is mostly oil driven. We now generate as much in our international business as we do in Canada, not to diminish Canada, but it does talk to Ensign's global footprint, which helps derisk geopolitical events and helps to stabilize cash flow. Australia had a steady 8 rigs operating daily down from 11 in the first quarter. The 3 rigs that came down were drilling for oil. Venezuela is obviously on pause for some time to come. We basically shut down our last rig there a month back and have reduced the staff to a skeleton crew. In Argentina we have the 1 rig on a long-term contract with a major and expect to see a second rig go to work later in the year. Again, these rigs require no growth CapEx or general CapEx to get them back to work. The Middle East, another very strong area for Ensign, now with the Kuwait rigs running solidly performing after a few break-in challenges with the new rigs, we expect solid results out of the 2 ADR 3400 horsepower rigs as they work into their 5-year contracts. We also have both of our ADR 2000 horse power rigs running in Bahrain, both of which are on long-term contracts. Oman will probably come under some pressure this summer as we expect a 3-4 month pause with 2 of our clients in the region. We've been awarded new contracts, but the start dates have been, as I mentioned, put on pause. So in general, and as Mike alluded to earlier, $10 million of the CapEx in the quarter was tied to onetime rig enhancements which provided for long-term contracts, pushing out to the end of 2023, with a fleet of roughly 50 to 60 drilling rigs running and 25 to 30 well service rigs running daily around the world. We expect the maintenance CapEx to settle into the $10 million run rate per quarter for the foreseeable future or $40 million annually. On the technology front, we believe that you can't take your foot off the gas pedal with technology as it becomes more and more of a differentiator that not only keeps it working, it keeps you working with higher margins. To ignore this is to run a slippery slope. As I mentioned earlier, we have our EDGE system now in over -- I'm sorry, 75% of our active rigs and have it installed on 50-plus rigs worldwide. The team also successfully beta tested our first EDGE AutoPilot on a program in the Permian with a major, results are very impressive. 15% reduction in days right off the bat. And our charge rate for the EDGE AutoPilot will be roughly in the $2,500 a day range. So with that, operator, I'll turn it back for Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from the line of Waqar Syed of AltaCorp Capital. -------------------------------------------------------------------------------- Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [2] -------------------------------------------------------------------------------- Bob, in International division, if you look at the first quarter revenue, that seemed a little bit lighter than what we were expecting. Days -- operating days were roughly the same as in the fourth quarter, but revenue was substantially lower. Could you provide some guidance on what happened there? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [3] -------------------------------------------------------------------------------- Yes. There was on one of the projects in Kuwait, there were some delays with the construction on the first location and also in one of the other events or one of the other areas, we also had a slight delay. So that caused revenue to come off a little bit. So again, 2 of them on 3-year contracts, the other 2 on 5-year contracts, probably 1.5-month delay from where we were expecting things. -------------------------------------------------------------------------------- Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [4] -------------------------------------------------------------------------------- Okay. But as we look into the second quarter, we have a pretty good idea on what the number of active rigs will be. But in terms of revenue per day, how should we think about that? Is it more like what we saw in the first quarter or more like fourth quarter number? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [5] -------------------------------------------------------------------------------- You're talking back to the Middle East or generally? -------------------------------------------------------------------------------- Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [6] -------------------------------------------------------------------------------- For the international business as a whole. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [7] -------------------------------------------------------------------------------- For international. Yes, I would say that the average rig day international will go up because the larger rigs are continuing to run and the ones that slipped off were on the lower day rate end. -------------------------------------------------------------------------------- Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [8] -------------------------------------------------------------------------------- Okay. That's helpful. Were there any early termination revenues in the U.S. or Canada in the first quarter? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [9] -------------------------------------------------------------------------------- No, Mike, I'm quite sure there were -- it was negligible. -------------------------------------------------------------------------------- Michael R. Gray, Ensign Energy Services Inc. - CFO [10] -------------------------------------------------------------------------------- No, there was not. -------------------------------------------------------------------------------- Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [11] -------------------------------------------------------------------------------- And do you expect any in the second quarter? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [12] -------------------------------------------------------------------------------- No, no. As I was mentioning in the expansion of the operating forecast, we're finding that a lot of the companies we're working for are looking more to get a lower day rate in an extension for some term going out into 2021. In other words, they're wanting to keep our rigs running and not let them down and pay an early terms. So I think that, that talks a lot to the operation and how efficient they're running out there. So I'm not expecting anything in the second quarter that I'm aware of at this point. -------------------------------------------------------------------------------- Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [13] -------------------------------------------------------------------------------- So as we -- in terms of revenue per day kind of projections for the U.S. business, what a 10% kind of haircut because of these reductions, would that be a reasonable expectation? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [14] -------------------------------------------------------------------------------- On revenue that you said, Waqar? -------------------------------------------------------------------------------- Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [15] -------------------------------------------------------------------------------- Yes, revenue per day for the U.S. rigs. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [16] -------------------------------------------------------------------------------- Yes. Yes. I think that, that would be -- I mean, depending where your starting point is, but as you took on a first quarter average, and we're asking what the second quarter looks like, probably safe with that, 10%. 10% to 15% perhaps. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- (Operator Instructions) You next question comes from the line of Bruce Harrop of Addenda. -------------------------------------------------------------------------------- Bruce Harrop, Addenda Capital Inc. - Senior Portfolio Manager [18] -------------------------------------------------------------------------------- It's Bruce Harrop here. I had quick couple of questions. One is regarding the repurchase of the senior notes. And it looks like your purchase, at least there was a purchase subsequent to the end of the quarter. And my question really is as it relates to that, it looks like the discount, just looking at the gain that you disclosed, the discount, it looks like it's somewhere -- looks like you're buying that back in about a $0.33 or something to the dollar? And I'm just curious, were you constrained by volume in terms of the amount you could buy back at that price level? Or were you constrained by the amount of cash you have to deploy? Like I am trying to get a sense, like that obviously is a huge win. If you could do as much of that as possible, it would be a huge win. So I'm trying to figure out if volume was a constraint? In other words, it was only so much trading or whether you could have done more, but you didn't have the cash available to buy more. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [19] -------------------------------------------------------------------------------- So Bruce -- Mike, do you want to handle that one? -------------------------------------------------------------------------------- Michael R. Gray, Ensign Energy Services Inc. - CFO [20] -------------------------------------------------------------------------------- Yes. No. So the discount you talked about Bruce is in the appropriate range. That's where the volume -- I mean, there is volume. So it's more of expectations of what pricing is going to be and then balancing it between liquidity and what the actual market can kind of support for that. So yes, it's kind of -- we said there -- probably the last few weeks, I mean, if you do follow what the bonds are being traded at, I would say there is in a large amount of volume, but we definitely, like you said, we pay attention to what it is, where it's trading, what our expectations of it should be and you kind of go from there. -------------------------------------------------------------------------------- Bruce Harrop, Addenda Capital Inc. - Senior Portfolio Manager [21] -------------------------------------------------------------------------------- Okay. And also, I'm just trying to get a sense for the EBITDA margin for international. You guys disclosed once a year segmented EBIT by division and you also disclosed depreciation by division. So you can calculate EBITDA that way. And my question on international, if I do that, it's $43 million for last year. Is that kind of a smooth number? Or is there some one-timers in there? And I guess I'm trying to figure out, international seems to be a real solid, steady stream of EBITDA for you guys. But I'm trying to get a sense for what the margin will be there. Was there anything unusual last year? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [22] -------------------------------------------------------------------------------- No, no. Bruce, I think the -- you hit it right on the head, the international business is a very low beta, low volatility for us as far as the margin goes, term contract, we're generally running, on average, in that 3, as high as 5, as low as 1-year type contract. So we generally run in low to mid-20s margin on a continuous basis international. I don't think that's much. -------------------------------------------------------------------------------- Bruce Harrop, Addenda Capital Inc. - Senior Portfolio Manager [23] -------------------------------------------------------------------------------- Yes. Because if I do have a calculation I just described, for 2018, you were 27% EBITDA margin international. But for 2019, you were only 15%. So there must have been some one-timers in there maybe moving stuff around or something like that. But more important to me is that number going forward, you're saying it's low to mid-20s kind of business there on an EBITDA basis. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [24] -------------------------------------------------------------------------------- Yes, that's kind of where they settle in. They settle into their metrics. They're project metrics. And in '19, there was some start-up costs and things like that. That's probably what I'm expecting you saw in that '19 margin compression there. And keep in mind, the Middle East, the Bahrain and the Kuwait rigs provide us a nice forward margin on a continuous basis. So I think that's what you plan for. -------------------------------------------------------------------------------- Bruce Harrop, Addenda Capital Inc. - Senior Portfolio Manager [25] -------------------------------------------------------------------------------- Okay. And in the debt repurchase that you did subsequent to the end of the quarter, was that funded from drawing down the operating line? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [26] -------------------------------------------------------------------------------- Mike? -------------------------------------------------------------------------------- Michael R. Gray, Ensign Energy Services Inc. - CFO [27] -------------------------------------------------------------------------------- No, it's funded by operational cash flow and working capital harvest. -------------------------------------------------------------------------------- Bruce Harrop, Addenda Capital Inc. - Senior Portfolio Manager [28] -------------------------------------------------------------------------------- Okay. Excellent. I mean, that seems like a highly good use of capital to me. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [29] -------------------------------------------------------------------------------- We agree. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Your next question comes from the line of Ian Gillies of Stifel. -------------------------------------------------------------------------------- Ian Brooks Gillies, Stifel GMP Research - Director of Institutional Research and Research Analyst of Energy Services & Infrastructure [31] -------------------------------------------------------------------------------- To follow on Bruce's line of questioning, I mean the debt repurchases were obviously done at very attractive prices (inaudible) surely be positive. Just curious whether there's anything within your credit facility agreements or note indentures that could potentially limit the quantum or the amount of debt you could repurchase as we go through the remainder of the year. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [32] -------------------------------------------------------------------------------- Mike, do you want to handle that? -------------------------------------------------------------------------------- Michael R. Gray, Ensign Energy Services Inc. - CFO [33] -------------------------------------------------------------------------------- Yes, there is no restrictions. -------------------------------------------------------------------------------- Ian Brooks Gillies, Stifel GMP Research - Director of Institutional Research and Research Analyst of Energy Services & Infrastructure [34] -------------------------------------------------------------------------------- And then in prior quarters, I mean, there has obviously been some talk of asset sales to help delever. Obviously, the world's changed a lot over the last 3 months. So are you able to provide any sort of update around those events and the likelihood of execution on that front in 2020? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [35] -------------------------------------------------------------------------------- Yes. I would say there's a very high likelihood of execution on the 20% to 25% range without getting into much detail. We're moving along on that path. -------------------------------------------------------------------------------- Ian Brooks Gillies, Stifel GMP Research - Director of Institutional Research and Research Analyst of Energy Services & Infrastructure [36] -------------------------------------------------------------------------------- Okay. And then I mean, with respect to the credit facility, you have a bit of time until it matures, but do you expect that something that gets executed or an extension gets executed at some point in 2020? And if so, are you able to provide any initial feedback on the conversation with your syndicate? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [37] -------------------------------------------------------------------------------- Mike? -------------------------------------------------------------------------------- Michael R. Gray, Ensign Energy Services Inc. - CFO [38] -------------------------------------------------------------------------------- There'll be no comment really on that as of yet. We're sort of taking it month-by-month, quarter-by-quarter depending on how things shape out. So from our standpoint, we're in a good position, and we'll kind of have those conversations as required when they come up. -------------------------------------------------------------------------------- Ian Brooks Gillies, Stifel GMP Research - Director of Institutional Research and Research Analyst of Energy Services & Infrastructure [39] -------------------------------------------------------------------------------- Okay. Maybe last one for me, and once again, probably for you, Mike. But are you able to provide any goalposts around what you think the working capital release could be in Q2? And maybe what you expect to give back through the remainder of the year? -------------------------------------------------------------------------------- Michael R. Gray, Ensign Energy Services Inc. - CFO [40] -------------------------------------------------------------------------------- Nothing, I'd say, specific, but I mean, if you look at the receivable balance and the payables, I mean there is $50 million to $60 million kind of there. Q2 is usually fairly good on the working capital harvest, just given the strong Q1 that we had in Canada, so those collections start to come through. So you can probably target around that, I'd say, $50 million plus. -------------------------------------------------------------------------------- Ian Brooks Gillies, Stifel GMP Research - Director of Institutional Research and Research Analyst of Energy Services & Infrastructure [41] -------------------------------------------------------------------------------- And you haven't seen any degradation in the DSO at all through Q2 yet? -------------------------------------------------------------------------------- Michael R. Gray, Ensign Energy Services Inc. - CFO [42] -------------------------------------------------------------------------------- No, we have not. -------------------------------------------------------------------------------- Ian Brooks Gillies, Stifel GMP Research - Director of Institutional Research and Research Analyst of Energy Services & Infrastructure [43] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Michael R. Gray, Ensign Energy Services Inc. - CFO [44] -------------------------------------------------------------------------------- I'd say the customer base that we have is, I'd say, is quite good. Considering what's going on out there. So I mean, it's an area that we continue to monitor. We have fairly tight credit process on that. So we haven't seen it as of yet, and hopefully, do not see it. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Your next question comes from the line of Keith MacKey of RBC. -------------------------------------------------------------------------------- Keith MacKey, RBC Capital Markets, Research Division - Analyst [46] -------------------------------------------------------------------------------- Just a question on the CapEx. I did notice the disclosure has mentioned, the net CapEx number. And there were some dispositions in the quarter. So is the proper number we should be modeling in for organic spend $50 million or $55 million? Or any help you can give on that would be great. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [47] -------------------------------------------------------------------------------- Yes. I think what you should be modeling forward is about $10 million a quarter, Keith. That's the maintenance CapEx to keep a fleet of 50 to 60 rigs and 25, give or take, service rigs running safely and operationally efficiently moving forward forever. I mean that's kind of the run rate for those type of rigs. So we can hang on for quite some time in that $10 million a quarter range. -------------------------------------------------------------------------------- Keith MacKey, RBC Capital Markets, Research Division - Analyst [48] -------------------------------------------------------------------------------- Okay. Just on the day rates and the term extension. So it sounds like a preferred approach. We've heard a bunch of different approaches from different market participants here. Just thinking about recontracting, are you -- would you be looking at considering a further reduction in rate? Or would you like to -- as some operators have said get off of the day rate model a little bit more and maybe move on to a little bit more of a nontraditional or performance-based contract as you get more comfortable in your technology? Or just kind of wondering how we should ultimately be thinking about any sort of further extensions to contracts or as things start to get rolled on? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [49] -------------------------------------------------------------------------------- Right, right. So the -- I mean, we're finding that the recontracting of rigs, obviously, is one bucket where you're getting pulled into the notional small market pricing. And then you're working from there with your technology suite. The second part is where we have an operator who has the rigs under contract who are coming back and saying, "Hey, can you give me a 10% reduction in rate?" And we're saying, well, we can, but we need to protect our EBITDA moving forward with a little bit of time value of money, if we're going to stretch out into 2021. So we've been going through that process. Again, protecting the EBITDA stream, just moving it out forward, keeping the rigs running. It also allows us the opportunity to upsell some other things, the big one we're working on is our EDGE AutoPilot, which is quite a game changer. It seems that a few other companies have, what they're calling it an AutoPilot of some sort. But I always use the analogy it's like the AutoPilot is like the conductor of an orchestra. The music is coming out with different groups differently. We purposely built our gateway so that we could run it on Trinidad rigs or Ensign rigs. We're finding it to be quite an interesting platform. First, well, we're able to reduce the time on the well by about 15%. Now what we're doing is we're trying not to give it away by weaving-in performance based contracts. The third component of your question there, Keith, And that is to suggest that we'll give you a competitive day rate. And so there's no risk on us either way, no risk on the operator either way by the way. But what we do is we said that if we can increase the penetration rate or a few metrics in there that we know that we can control and accurately account for, then we're basically able to up that by as much as $2,000 to $3,000 a day. So in some cases, when we run into a brick wall with people trying to suggest that something maybe worth $2,000 or $3,000 a day. We attack it from a performance-based contract and get it that way. In other words, we are at the old fashion way by producing performance and backing in by saving the operator money and essentially getting paid through a notional rate increase rather than a flat per day for putting it on the rig. In other words, again, performance based contracts. More and more of those types of conversations are starting to happen. But keep in mind, over the last month, the conversations have been very straightforward. Hey, we're putting rigs down, right? I mean we're losing like a day just like everyone else for a period of time. So it wasn't the opportune time to bring up, "hey, can we talk you into a performance-based contract?" So things are settling down. We're having a few more of those conversations now that we've beta tested our AutoPilot. And so you'll see that roll out as we roll out through the summer and the fall. But everyone is beating other big fires right now. -------------------------------------------------------------------------------- Keith MacKey, RBC Capital Markets, Research Division - Analyst [50] -------------------------------------------------------------------------------- Yes, got you. No that's very good color. I appreciate that. Just finally for me here. On the $1.7 billion of well decommissioning money, you did mention you expect to have about 10 crews running in Canada. Can you maybe comment on what you ultimately expect your potential market share of that money could be and how much you might expect to potentially win? And then if you've -- and then just on how many or, if any, applications you've submitted so far? -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [51] -------------------------------------------------------------------------------- Yes. Yes. That's a very good question. It took some period of time for anyone to understand what it was about and how it was to be rolled out. And anyway, to our understanding, I've asked our well service team, what does this mean for us? And they're figuring there should be about an incremental 10 rigs of work keeping us busy through the summer and into the fall. So the guys are on it. I mean, it is helpful. Of course, the $1.7 billion isn't all going to orphan well, but we hope to get our market share of it. I don't think anyone's got a technical advantage or anything or a client advantage in this regard. I think that there's a big blanket that gets spread across Western Canada in that regard. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- There are no further questions over the phone lines at this time. I turn the call back over to the presenters. -------------------------------------------------------------------------------- Robert H. Geddes, Ensign Energy Services Inc. - President, COO & Non-Independent Director [53] -------------------------------------------------------------------------------- Thanks, operator. Rest assured, the team at Ensign is focused on delevering and working to expand the market share in every area around the world with our high-performance crews and leading EDGE, no pun intended, control systems. We look forward to, hopefully, a healthier and more economically stable world when we report to you in 3 months time. Until then, stay healthy, think positive, and we'll get through this. Thank you. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- This concludes today's conference call. You may now disconnect.