Ensign Energy Services Inc. have the financial flexibility to weather the downturn in land drilling activity, however the company continues to have plenty of try to do.
Ongoing demand weakness because of its services has dramatically slowed Ensign\’s efforts to upgrade its rig fleet through new builds in North America. As a result, RBC Capital Markets analyst Dan McDonald suggests the company will need to restart building to regain lost share of the market in Canada because the cycle recovers, or make use of the downturn to create acquisitions.
The great news is that Ensign\’s balance sheet is stronger than its peer group. It\’s $701-million in net debt, having a net-debt-to-cash-flow ratio of 2.3x, versus 3.5x for Canadian drillers typically. That suggests its dividend is sustainable.
But the company\’s drilling share of the market in Canada has dipped by roughly 130 basis points in the last year, and is down 330 bps compared to the first quarter of 2013. Mr. McDonald explained this is a result of energy exploration and production companies moving to deeper and higher-specification drilling rigs.