Ensign Energy Services Q2 2026 Update – ESI.to

Disclosure: I own shares in ESI. I am not a professional. Please do your own due diligence.

Ensign Energy Services is an international oilfield services contractor operating in Canada, the United States and internationally. Its services include contract drilling, underbalanced and managed pressure drilling, rental equipment, well servicing and production services.

Price: $3.21 CAD

MC: ~597 million CAD (diluted)

EV: ~1.58 billion CAD (including the Citadel acquisition)

1 year performance: +50.7%

Ensign reported Friday last week. Results were a bit behind my expectations, and the stock was down on the day afterwards. FWIW, revenue was 4.6% below consensus estimates and adjusted EBITDA was 5.2% below consensus estimates.

all numbers in CAD unless stated otherwise

• Revenue: $397.3M vs $372.4M (+6.7% YoY)

• Adjusted EBITDA: $85.8M vs $81.4M (+5.5% YoY)

• Adjusted EBITDA Margin: 21.6% vs 21.8% (-1.1% YoY; -24bps)

• Revenue vs consensus: $397.3M vs $416.3M (-4.6%)

• Adjusted EBITDA vs consensus: $85.8M vs $90.5M (-5.2%)

• Revenue: $815.4M vs $808.9M (+0.8% YoY)

• Adjusted EBITDA: $180.7M vs $183.7M (-1.7% YoY)

• Adjusted EBITDA Margin: 22.2% vs 22.7% (-2.4% YoY; -55bps)

Canada

• Q2 revenue: $104.7M vs $100.8M (+3.9% YoY)

• Q2 revenue mix: 26% vs 27%

• YTD revenue: $240.4M vs $252.8M (-4.9% YoY)

• marketed drilling rigs: 76 vs 88 (-13.6% YoY)

• Q2 drilling operating days: 2,667 vs 2,494 (+6.9% YoY)

• YTD drilling operating days: 6,075 vs 6,497 (-6.5% YoY)

• well servicing rigs: 38 vs 41 (-7.3% YoY)

• Q2 well servicing operating hours: 12,553 vs 11,987 (+4.7% YoY)

• YTD well servicing operating hours: 25,992 vs 24,324 (+6.9% YoY)

• Twelve under-utilized Canadian drilling rigs were transferred to the reserve fleet during the first half of 2026

• Ensign had 51 active drilling rigs in Western Canada at the time of the call vs approximately 43 in July 2025 (+18.6% YoY)

US

• Q2 revenue: $209.1M vs $197.2M (+6.0% YoY)

• Q2 revenue mix: 53% vs 53%

• YTD revenue: $415.9M vs $403.0M (+3.2% YoY)

• YTD revenue mix: 51% vs 50%

• marketed drilling rigs: 70 vs 71 (-1.4% YoY)

• Q2 drilling operating days: 3,088 vs 2,943 (+4.9% YoY)

• YTD drilling operating days: 6,280 vs 5,715 (+9.9% YoY)

• well servicing rigs: 47 vs 47 (0.0% YoY)

• Q2 well servicing operating hours: 25,295 vs 25,747 (-1.8% YoY)

• YTD well servicing operating hours: 47,638 vs 49,929 (-4.6% YoY)

• One under-utilized United States drilling rig was transferred to the reserve fleet during the first half of 2026

• Ensign had 41 United States rigs under contract at the time of the call, excluding the six Citadel rigs

International

• Q2 revenue: $83.5M vs $74.4M (+12.3% YoY)

• Q2 revenue mix: 21% vs 20%

• YTD revenue: $159.0M vs $153.1M (+3.9% YoY)

• YTD revenue mix: 20% vs 19%

• marketed drilling rigs: 25 vs 27 (-7.4% YoY)

• Q2 drilling operating days: 1,246 vs 1,081 (+15.3% YoY)

• YTD drilling operating days: 2,412 vs 2,230 (+8.2% YoY)

• Two under-utilized international drilling rigs were transferred to the reserve fleet during the first half of 2026

• Oman had five drilling rigs operating

• Australia had four drilling rigs operating at the time of the call

• Argentina had two high-spec ADR 2000 rigs under contract

• Venezuela had two operating rigs, a third rig had arrived and a fourth rig had been contracted

• Total net capex: $58.1M vs $49.2M (+18.3% YoY)

• Growth capex: $25.4M vs $13.3M (+91.4% YoY)

• Maintenance capex: $41.4M vs $37.4M (+10.8% YoY)

• YTD net capex: $122.9M vs $86.0M (+42.9% YoY)

• 2026 maintenance capex guidance: approximately $162.0M

• 2026 selective upgrade capex guidance: approximately $95.8M

• Customer-funded upgrade capital: $68.6M

• Upgrade program includes two rigs in Canada

• Upgrade program includes six rigs in the United States

• Upgrade program includes one rig in Australia

• Upgrade program includes one rig in Venezuela

• Upgrade program includes one completed rig in Oman

• Ensign repaid $30.0M of debt during Q2

• The 2026 debt-reduction target was reduced from $125.0M to approximately $60.0M following the Citadel acquisition and increased capital investment

Citadel

• Ensign agreed to acquire Citadel Drilling for US$65.0M, subject to closing adjustments

• Citadel adds six fully utilized 2,000-horsepower high-spec drilling rigs in the Permian

• The Citadel purchase price will be funded with cash on hand and available credit facilities

• The acquisition also includes managed pressure drilling packages operated through Opla Energy Services

• Citadel acquisition

  • Adds six fully utilized 2,000-horsepower rigs and increases Ensign’s Permian market share from roughly 7%–8% to 11%

  • Ensign did not disclose Citadel’s expected financial contribution or future capital requirements before closing

• U.S. demand

  • Public operators are starting to add rigs to maintain or modestly grow production as drilling efficiency gains fall into the single digits

  • Newly funded private operators are also creating incremental demand for six-month and one-year drilling programs

  • Ensign is doing credit checks on some of these new private customers

• High-spec rigs

  • Demand is focused on walking rigs with 7,500 PSI systems, high-torque top drives and three pumps

  • Supply of these rigs is tightening, which also helps explain the strategic fit of the Citadel fleet

• U.S. activity

  • Ensign had 41 rigs under contract at the time of the call, increasing to 47 with Citadel

  • Another roughly four rigs are expected to go to work by year-end

• Canada

  • High-spec singles are sold out and high-spec triples are roughly 75% utilized

  • High-spec doubles and singles are generally in the low-to-mid $20,000s per day, with triples in the low $30,000s

  • Winter demand is firming, with some customers already looking into 2027

• Pricing

  • Canada is currently tighter than the U.S.

  • Ensign is trying to push pricing roughly $1,000/day higher each quarter as contracts roll

  • Labor inflation is generally covered by escalation clauses

• Debt reduction

  • The 2026 debt-paydown target was reduced from $125M to approximately $60M net following Citadel and higher capital spending

  • Ensign expects liquidity to recover into the low-$90M range by year-end

• Overall activity

  • Activity has improved YoY, although producers remain disciplined and focused on maintaining production and generating cash flow

• Debt reduction

  • Ensign now expects approximately $60M of net debt reduction in 2026, down from its previous $125M target

• Capex

  • Maintenance capex is expected to be approximately $162M

  • Selective upgrade capex is expected to be $95.8M, with $68.6M customer funded

• Canada

  • Activity is expected to improve through H2, with 51 rigs active at the time of the call and a few more expected by year-end

  • Roughly 75% of marketed rigs were under term contracts, with 65% of those contracts having at least six months remaining

  • Customers are already looking to secure high-spec rigs into spring 2027 and beyond

• United States

  • Activity is expected to improve through H2

  • Ensign expects roughly four additional standalone rigs to go to work by year-end, with Citadel adding another six

  • About 61% of marketed rigs were under term contracts, although only 19% of those contracts had at least six months remaining

• Permian

  • Ensign expects another four to five rigs to go to work by year-end

  • Citadel increases Ensign’s Permian market share to approximately 11%

• California

  • Five high-spec ADR rigs were working, with another two expected by year-end

• Venezuela

  • A third rig has arrived and a fourth is expected in early 2027

  • The rigs are on three-year contracts, with further growth dependent on infrastructure development

• Middle East

  • Two Kuwait and two Bahrain rigs are currently shut down because of the regional conflict

  • Middle East activity is expected to fall to five rigs in Q3 and remain there in Q4

  • One Bahrain rig could be recontracted elsewhere in the region before year-end

  • Ensign is bidding its two 3,000-horsepower Kuwait rigs for work beginning around mid-2027

  • All five Oman rigs remain active

• Australia

  • Activity is expected to increase from four rigs to five by the end of Q3 and six by Q4

• Argentina

  • Both high-spec ADR 2000 rigs are contracted well into 2027

• Pricing and supply

  • Ensign expects tightening high-spec supply to support roughly 5%–10% dayrate increases on contract rollovers

  • New drilling equipment lead times are approaching one year

• Contract book

  • The forward guaranteed contract book increased approximately 25%

  • Contracted revenue is approximately $1.4B

• EDGE

  • EDGE is installed on approximately 65% of Ensign’s global rig fleet

  • Ensign expects EDGE revenue and profit to grow approximately 15% annually

I have ESI at ~3.9x EV/ttm EBITDA. Incorporating contribution from Citadel, I have ESI at 3.4x EV/forward EBITDA.

I think the market wanted to see more debt repayment for ESI rather than the purchase of Citadel. I also think that when they didn’t give any valuation metrics, it didn’t sit well with investors.

The demand picture for the high spec rigs looks strong. exposure to high-spec rigs and the potential for higher dayrates Although they are still debt heavy which would limit them to some degree.

Ensign enters the second half with more rigs working in Canada and the United States, six additional fully utilized Permian rigs coming from Citadel and additional rigs expected in Australia and Venezuela. Ensign expects higher North American activity through year-end while Kuwait and Bahrain remain disrupted. At the same time, the larger capital program and Citadel acquisition have slowed the pace of debt reduction.

I continue to hold my shares. I like the international presence, exposure to high spec rigs and potential deleveraging.

Thanks for reading my work.

Dean

long ESI