Ensign Energy Services Inc.

Good afternoon, ladies and gentlemen, and welcome to the Ensign Energy Services Inc. Third Quarter 2022 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please dial star zero for the operator. This call is being recorded on Friday, November 4, 2022. I would now like to turn the conference over to Nicole Romano. Please go ahead.

Thank you, Andrew. Good morning and welcome to Enzyme Energy Services' third quarter 2022 conference call and webcast. On our call today, Bob Geddes, President and COO, and Mike Gray, Chief Financial Officer, will review Enzyme's third quarter highlights and financial results, followed by our 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 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 which could impact the demand for the services supplied by the company. Additionally, our discussion today may refer to non-GAAP financial measures such as adjusted EBITDA. Please see our third quarter earnings release and see our filings for more information on forward-looking statements and the company's use of non-GAAP financial measures. With that, I'll pass it on to Bob.

Thanks, Nicole. Hello, everyone. I'm happy to report that Enzyme's third quarter results came in ahead of expectations and, most importantly, a solid indication that the OFS space is finally starting to deliver sustainable profits with positive net income. A few key highlights. In the U.S., we are definitely seeing another push on rates in the 10% range as operators quietly contract their most desired fleets moving forward. With our application of our Edge Autopilot drilling rate control system and our performance advisors, which help the operator reduce net well delivery costs, we actually deliver real value with our rate increases, which makes rate increases very sustainable. In our U.S. Southern Business Unit, the team successfully completed and commissioned nine high-spec triples on long-term contracts for the Permian rates well into the mid-upper 30s. This brings us now to 31 rigs worldwide that have received upgrades, largely funded by operators through covered costs and or incremental rate increases. Adding to the recent recontracting of our two high-spec 2,000-horsepower AC rigs in Bahrain, our international team in Oman secured long-term five-year contracts for three of our high-spec ADRs, All five of these rigs will utilize our EDGE autopilot drilling control system engaged on performance-based incentive contracts, which will enhance the rig operating margins. We currently have 124 rigs on the payroll today and have visibility to 140 by year-end. Most of that uptick in rig count will come from Canada and all with rate increases as we wade into the winter with winter rates being established. These will all have incremental boiler revenue as usual. At the end of October, we rationalized our Canadian directional drilling business unit for approximately 7 million shares in Cathedral Energy Services, making us about a 4% order in that business. The DD space in Canada is extremely competitive and crowded, necessitating a trade into a consolidation strategy to unlock the value in that business unit. The deal keeps Enzyme vested into the upside that is anticipated as a result of the consolidation strategy, and it also allows Cathedral to have access to Enzyme's edge autopilot drilling ring control system platform, which is arguably the most easily and cost-effectively drilling ring control system solution out there. As we have expressed on prior calls, incremental CapEx for upgrade reactivations must be funded by the operator at least 50%, and that the day rate adjustments must be significant enough to generate sufficient cash flow to cover the remaining CapEx within six months. For upgrade requests less than $1 million, we insist the operator cover the upgrade 100%. I think we've seen the wave of upgrades and associated capital requirements through 2022 slow down, as the most desirable and easily upgradable rigs have been completed and reengaged into the market. As we wade through 2023, Enzyme still has lots of upgradable rigs, especially in the double category in Canada, where we have 40 underutilized teledevils that can be upgraded to high-spec, self-moving teledevils, along with our new Edge Autopilot Lite drilling rig control system, for anywhere from $2 to $4 million. Again, we would be working with our clients to cover the upgrade costs for those transactions. While finding new skilled labor with rigged experience is challenging, we continue to find ways to attract, recruit, and train new employees to the Enzyme team. Enzyme's Global Skills Standard, GSS, trains field personnel on a managed competency career path, much like you see in most other trades, and is arguably the most desirable training protocol in the space. We continue to drive efficiency through systems around the world. With that, we reduced our G&A per operating day by 12% in the quarter. With record penetration rates and reduced well delivery times, industry is finding accelerated wear and drill strings. In some cases, we're finding drill strings in the Permian lasting only three years versus eight years only a decade ago. To address this accelerated wear issue, we are now modifying the current contract with our clients whereby 100% of downgrades will be fully cost recovered with new replacement joints at the operator's expense. Where operators have requested non-inventory drill strings, the operator will be requested to provide the pipe at their cost or accept a market rental charge. We've also introduced, I'm sorry, we've also started to see operators wanting to contract for longer terms, always a sign that they feel another rate push coming. With that, we will take term in the upper 30s, and we generally like to respond with defined bumps every six months or annually. I'll come back to an operational update, but before that, I'll turn it over to Mike Gray for a run on the numbers.