Ensign Energy Services Inc. (OTCPK:ESVIF) Q1 2023 Earnings Conference Call May 8, 2023 12:00 PM ET
Company Participants
Nicole Romanow – IR
Robert Geddes – President and COO
Mike Gray – CFO
Conference Call Participants
Aaron MacNeil – TD Cowen
Keith MacKey – RBC Capital Markets
Cole Pereira – Stifel
Waqar Syed – ATB Capital Markets
Josef Schachter – Schachter Energy Research
Operator
Good afternoon, ladies and gentlemen, and welcome to the Ensign Energy Services Inc. First Quarter 2023 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Monday, May 8, 2023.
I would now like to turn the conference over to Nicole Romanow, Investor Relations. Please go ahead.
Nicole Romanow
Thank you, Joelle. Good morning and welcome to Ensign Energy Services first quarter 2023 conference call and webcast.
On our call today, Bob Geddes, President and COO; and Mike Gray, Chief Financial Officer will review Ensign’s first 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 first quarter earnings release and SEDAR 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.
Robert Geddes
Thanks Nicole. Good morning everyone. I’ll just start with a quick summary before Mike gets into some of the details. So a strong quarter with increasing margins year-over-year and quarter-over-quarter as the tightness of certain [indiscernible] classes continues to support the rate increases that industry realized to the back half of 2022 and into the first quarter of 2023. Every one of our operational areas, U.S., Canada and International delivered significant operating day increases.
The quarter had a few timing drags for projects that were scheduled to start in Q1 have been delayed until the second quarter. EBITDA margin jumped another 5% in gross margins on a high spec rate, jumped about 15%. Ensign continues to manage its balance sheet, spending and $41 million in plant and maintenance capital to maintain the high spec freedom in the first quarter, the target for CapEx maintenance and upgrade is still around $157 million for the year and the focus is reducing debt by $600 million over the next three years.
I’ll turn over to Mike for a detailed summary of the quarter.
Mike Gray
Thanks Bob. The outlook for oil field services continues to be constructive despite fluctuating global energy commodity prices and macroeconomic headwinds. Recessionary pressures, inflationary concerns, financial sector stress and the potential for slowing economies continued to weight on commodity prices over the short-term. However the oilfield services activities and revenue rates continued to be steady year-over-year.
Ensign’s first quarter 2023 results reflect meaningful operational and financial improvements year-over-year with it being our best first quarter since 2014. Operating days were up in the first quarter of 2023 with Canadian operations experiencing a 2% increase, United States a 25% increase and International operations shows a 26% increase compared to the first quarter of 2022.
The company generated revenue of $484.1 million in the first quarter of 2023, a 46 percent increase compared to revenue of $332.7 million generated in the first quarter of the prior year. Adjusted EBITDA for the first quarter of 2023 was $127.3 million, an 82% increase from adjusted EBITDA of $70 million in the first quarter of 2022. The 2023 increase in adjusted EBITDA can be primarily attributable to improved industry conditions, increase in both drilling and well servicing activity.
Depreciation expense in the first three months of 2023 was $77.9 million, 11% higher than $70 million in the first three months of 2022. The increase was primarily driven by year-over-year increase in the United States. G&A expense in the first quarter of 2023 was $3.4 million higher than the first quarter of 2022. G&A expense increased due to the support of increased operational activity, annual wage increases and higher foreign exchange rate on the United States dollar translation. On a per operating day G&A was up about $200 dollars per day year-over-year.
Net capital purchases for the quarter were $49.7 million. The purchases consisted of $8.3 million in upgrade capital and $41.6 million in maintenance capital for a total of $49.9 million, offset by sales proceeds of approximately $200,000. Total net — our total debt net of cash was reduced by $29.1 million since December 31, 2022. Our debt reduction for 2023 is targeted to be approximately $200 million. Our target debt reduction for the period beginning in 2023 to the end of 2025 is expected to be approximately $600 million. If industry conditions change, its target could be increased or decreased.
Regarding the refinancing of the balance sheet, we do not have any additional news to share. Our commentary and the views are similar to the last quarter discussion. We continue to look at several options that will best serve the company on a go-forward basis. Overall, our debt metrics continue to improve substantially. At the year-end 2021, our total net debt to EBITDA was 5.98, decreasing to 3.76 in 2022 and has further decreased to 3.18 as of March 31, 2023. We will continue to see this decrease to levels we have not seen in many years.
On that note, I will turn the call back to Bob.
Robert Geddes
Thanks, Mike. So let’s walk around the world with an operational update. Most of you on the call are well aware that Ensign operates a high-spec fleet of 232 high-spec drill rigs and over 90 well servicing rigs, which employ over 4,000 highly trained crews in eight countries around the world: the U.S., Canada, Kuwait, Bahrain, Oman, Australia, Argentina and Venezuela.
Let’s start with the U.S., which provides over half of our EBITDA. We continue to run 55 to 60 rigs in the U.S. with a strong position in the Permian with 45 rigs active today. With the Haynesville play softening due to gas prices, the sales team has been very active churning rigs over on to new contracts. In most cases, where rigs have come off 2022 contracts, we have been able to raise prices to current market prices, a bump of approximately $2,000 a day on the contract turn. So the margin run rate for the second quarter will be marginally above the first quarter run rate in the U.S. In some cases, and on our current negotiations, we are more likely to hold rates for a six to 12-month term.
Our California business unit continues to get frustrated with ongoing challenges with drilling permits in that state. Our U.S. team has plans to pull a few of these rigs over into the Rockies for surface hole projects. These light agile highline capable electric rigs are great for those type of projects.
We maintained a 7% market share in the Lower 48 and see this stabilizing over the rest of 2023, albeit the negotiations were tougher today than they were six months ago. We also see the Permian rig count stable at around 350 drilling rigs active. We’re also starting to see operators to drill more into their Tier 2 acreage, which means that to maintain production – not grow, just maintain production, they will need to drill more wells. We have close to 25% of our active U.S. fleet on an Ensign emissions reduction strategy, which is a combination of high-line powered rigs and also natural gas engine rigs with best systems, battery energy storage.
With the arbitrage between diesel fuel and gas, the argument becomes more compelling. As a result, we’ll continue to see expansion in this area, which not only reduces emissions, it provides Ensign a high-margin incremental revenue stream. Our U.S. well servicing business had one of the slow starts out of the gate in 2023, purely due to operator project timing, but we are back up to 85% utilization today and look to stay strong through the rest of the year with no rate degradation. Our directional drilling business, mostly Rockies-centric, continues to deliver with steady work on numerous projects.
Turning to Canada. Canada had a strong operational quarter, but fell short of expected days as the team pushed rates hard into the fourth quarter, which impacted the first quarter activity. We’d expect it to get closer to 65 rigs active in the first quarter. The second quarter is already looking much stronger as we will maintain 22 of our high-margin high-spec rigs over breakup and then grow that to 50 into July.
Our high-spec triples are running well over 70% utilization, which provides continued strong pricing, and we’re starting to see most of the high-spec doubles attract work after breakup with no rig degradation. We also signed two of our high-spec triples, one coming off contract in the U.S. Rockies, onto two take-or-pay contracts in mid-30s. That’s a base rate.
Our Canadian well servicing business unit is expected to get back up to 18 rigs active after breakup, and a few of those will be 2024 operations. We still have for sale of roughly $30 million to $40 million of redundant real estate and Nisku, which on sold, will go towards debt reduction.
International is steady as she goes, generating steady, predictable free cash flow and long-term projects. We just commissioned our third rig in Oman on to a five year contract. The other two started up later in 2022. All three rigs are performing well out of the gate. These rigs are all on performance-based contracts.
Kuwait and Bahrain, where we have four of our largest rigs, continue to execute in the top decile of our contracting peer group in these countries. Australia’s first quarter results were frustrated with a delay of two large projects that were delayed until the second quarter. This affected the first quarter results but will benefit the second quarter results.
In Argentina, we have two super spec triples on long-term contracts with day rates moving 10% to 15% on their next turn mid-year. The situation in Venezuela changes daily, but we’re expecting that we may have one of our workover rigs and a drilling rig working by the end of the year, but don’t hold your breath.
On the technology front, our EDGE Drilling Solutions product line continues to expand with a lot of the supply chain issues behind us with respect to computer hardware access as a result of the pandemic. We’re in the middle of deploying and commissioning another 10 of our EDGE drilling control systems on our high-spec rigs. This attracts roughly $1,000 to $1,500 a day of incremental high-margin technology to the rig. We will have EDGE actively engaged on most of our super-spec and high-spec triples by the third quarter.
With the obvious arbitrage between diesel and natural gas, notwithstanding the obvious emission reductions when using high line or natural gas power, we are seeing growing demand for our EDGE emissions reduction strategy. The product offering ranges from the high line power substation, which rents for $2,000 a day to the stand-alone BES (0:11:22) for about the same rate to the full-blown natural gas power system with BES and EMS engine management system for around $5,000 a day. These are all high-margin opportunities, and they help reduce emissions by as much as 50%.
We have about 10% of the North American fleet on one of these strategies. And when we include dual fuel applications, we have roughly quarter of the fleet on an emissions reduction strategy. Our ADS, our automated drill system, which delivers consistent switch to slips that automates the routine for the driller, has been fully tested and now commissioned on 10 rigs in the U.S. The ADS [ph] charges out for about $1,000 a day a la carte.
So I’ll turn it back to the operator for some questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from Aaron MacNeil with TD Cowen. Please go ahead.
Aaron MacNeil
Good morning and thanks for taking my questions. Bob, I can appreciate you have no meaningful U.S. gas exposure, but several of your larger competitors do and many, I think, if not all, have all pointed to a declining rig down throughout Q2. So I guess, do you see a rig-count declining at all in Q2? And are you at all concerned about the knock-on effect of heightened competition for rigs in the event of a decrease of activity and, I guess, maybe finally, what might be your approach to pricing if that does play out?
Robert Geddes
Yes. No, fair question, Aaron. I mean we started seeing some impact three or four months ago. Some of those rigs in those areas are tied up on term contracts with the kind of a Tier 1 contractors, maybe having some ETFs, things like that. But we’ve been able to, in the last two to three months anyway, turn over about 20 of our rigs on to other contracts. So we got ahead of it termed them up a little bit more. As you know, we had very little gas exposure, but it did provide a defensive situation, which means we weren’t able to raise rates much.
We did have some contract turn where from the prior contracts; we were able to move them up a couple of thousand dollars a day to more at the leading EDGE. But I would suggest that the leading EDGE has probably degraded a little bit and people are looking for some term as a defensive strategy.
California is a little bit of a unique situation all by itself. I mentioned we’ve got at least one rig – one of our electric ADRs, smaller rigs moving over into the Rockies to do some shallow surface hole projects. And who knows when or if California will start to straighten up, but it is steady. I’ll say that in California, but we’re probably down about four or five rigs from where we expected to be in the first quarter, which had some effect on our first quarter results.
Aaron MacNeil
Understood. Mike, maybe one for you. I realize there was nothing specific in the disclosures, but on the prior conference call, you did suggest that you were going to kick off a debt refinancing following Q1 results. And so maybe just a bit of an update there. Is that still the case? Can you walk us through the potential time line and maybe what we can expect from me over the coming weeks or months?
Mike Gray
Yes, for sure. No concrete sort of additional information to share. So we will definitely look at reaching out to the different areas and looking at what’s going to be the best approach going forward. So like under debt metrics really have improved quarter-over-quarter as well as year-over-year. So we think that’s going to be a strength going into this type of market. But, yes I know we continue to look at a bunch of different options, and we’ll select the options that gives the company the best durability going forward.
Aaron MacNeil
Not to pin you down to a specific time line, Mike. But like, do you think I’ll be asking the same question on the next conference call? Or do you think you’ll have…
Mike Gray
I can’t say for sure. I mean the facility will have to deal with something by at least October. So I would say in the next few months, for sure, we’ll be moving things along, but I can’t commit to a firm time line.
Aaron MacNeil
Fair enough. All right. Turn it over. Thanks guys.
Robert Geddes
Thanks, Aaron.
Operator
Your next question comes from Keith MacKey with RBC Capital Markets. Please go ahead.
Keith MacKey
Hi, good morning and thanks for taking my questions. Just maybe to start out in the international, Bob or Mike, can you kind of just give us a bit more color on the impact of the delays in Australia and then what you think a good run rate for Q2 will be given those projects starting up as well as the Oman rig?
Robert Geddes
Yes. The Australian projects probably affected Q1 by a couple of million dollars. So that will push into the Q2. The third Oman rig was – it came on stream on as scheduled. So the first quarter results weren’t necessarily too impacted by that, although we thought we may have got going a month earlier, we were ready to go, but the operator wasn’t. So we’ve got a good steady run rate in the second quarter. I’m not sure, Mike, if you want to expand on what effect that has.
Mike Gray
Oman, you’re going to see one additional rig for the full quarter, pretty much the fourth quarter of Q2. And then we should see sort of two more rigs start up in Australia over the next month or two. So from an operating standpoint, I mean, there should be probably 1.5 to two kind of net new additional rigs for Q2 of 2023.
Keith MacKey
Okay. Got it. Thanks for that. And maybe just a little bit on Canada. So operating days didn’t really grow much from 2021 to 2022 – sorry, 2022 to 2023 in Q1. Can – you mentioned pushing rates hard in Q4 as part of the reason for that. Can you just give us a little bit more detail on the discussions that you’ve had then with clients and what that will mean for the second half of the year?
Robert Geddes
Right. So I mean the first quarter is always progressed by what happens in the October, November bidding cycle before that. And as we started pushing rates and holding rates into the first quarter on certain rig categories, we found some of the competition, not as aggressive on pricing and we lost eight to 10 bids basically, which put us down about seven or eight rigs into the first quarter. And it’s hard to claw that back when you’re going into the first quarter. So that was a bid [ph] that we made. Of course, the other rigs benefited from – our fleet benefited from that hold on rates or a push and depending on the rig category.
We’re down at 22 rigs currently. We’ve got contracts that will take us to 50 rigs by July. So you’ll see us go from about 100 rigs currently to back up to about 125 here quickly into July. So we’re not going to be reducing the number of rigs that we have active. When we look at the end of the first quarter as compared to the end of the second quarter, we’re back up real quick as compared to some of our peers who may see some degradation.
We’re seeing some clients use some other contractors through the winter coming back to us and saying, hey, we went with the lower price for the winter, have you got this rig available after breakup? So they’re – they weren’t – I guess the performance wasn’t as expected in the first quarter with some of the other contractors. But anyway, we’ll be back up to $50 again by July here.
Keith MacKey
Got it. And just maybe to follow on that, what are you seeing now in the Canadian market? Is most of the competition – I know it’s always price, but has price clearly impacted how things went in Q1. Has the conversation shifted at all from customers looking for the lowest price to, okay, now it’s more about operational execution and availability? Or are you still finding that whatever work there is, you’re losing a similar portion due to price?
Robert Geddes
Yes. Well, we’re always price-sensitive. Obviously, we misread the market in certain rig categories going to the first quarter being aggressive into the fourth quarter for first quarter pricing. But we’re definitely seeing prices always factor, but operational excellence and performing with less downtime is always the key. We represent less than a third of the operation on a daily basis. So the operator is willing to take a lower price sometimes, but not always. It depends on the performance that he picks up. So it’s a combination of both.
I would suggest that we’ve been able to now get our price in the second quarter that we were bidding into the fourth quarter, which created some first quarter frustration. So the market’s kind of coming back to us and here’s an example. In the last 10 bids, we’ve won eight of the last 10 bids here in the last two weeks.
Keith MacKey
Okay, thanks for the color. I’ll turn it back.
Operator
Your next question comes from Cole Pereira with Stifel. Please go ahead.
Cole Pereira
Good morning all. Bob, you talked a little bit about U.S. drilling margins improving into Q2. A lot of your U.S. peers have talked about their margins sort of flattening out from there. Is that kind of what we should expect with Ensign just given some of the dynamics in the current market?
Robert Geddes
Yes, I think that’s fair. A lot of it has to do with contract cadence there, Cole. So we’re certainly not able to push pricing. In some cases, you’re having to throw a few things in to hold the market because you’ve got a Tier 2 contractor kind of nipping at your heels there. But yes, generally, I would say that we will see some rate progression because of the contract turnover from the first quarter to the second quarter, but it will probably normalize through the third quarter, and we’ll see what happens in the fourth quarter.
Cole Pereira
Got it. Thanks. And can you just add some commentary around what you’re seeing in the pricing environment for super-spec rigs in Canada just in terms of the supply and demand fundamentals and how rates are moving as a result?
Robert Geddes
Yes. The – there’s a big bifurcation, of course, the high-spec triples are very tight markets still. Those rates are not going down at all on any contract turnover as we’re seeing that go up $3,000 to $5,000 a day in some cases. It depends on the number of rigs that are being offered.
On the high-spec doubles, as I mentioned before, we’re starting to see the price that we put out there in the fourth quarter that felt some resistance now get traction because operators are going, you know what, we want that kind of rig. On the more conventional rigs, it’s a very tough and tight business still.
Cole Pereira
Got it. Thanks. And Mike, just on the interest expense side, I mean, cash interest costs relatively high this quarter. Anything onetime in there? Or is that kind of a reasonable run rate for the credit facility? And how should we also be thinking about lease payments for 2023?
Mike Gray
For the interest, we’ve dropped about 100 bps starting in Q2 on our facility. So we saw sort of a fully priced facility in Q1. So we should actually see our interest costs start to trend downwards. So I wouldn’t probably use that as a full run rate. So I’d probably include probably 100 bps to 150 bps decrease overall for 2023.
For lease costs, we expect that to normalize kind of in Q2 and Q3 to historically what we had. We had some leased equipment that we had in Q4 and Q1, and then that’s going to normalize for the remainder of the year.
Cole Pereira
Okay. Perfect. Thanks. And just one last quick one. I mean, what are you guys seeing in terms of the impact of wildfires on your operations so far?
Robert Geddes
Yes, yes. It’s having some effect. We’ve got three rigs that have been evacuated, four rigs on watch. Of course, all the rigs are on standby without crews, we’re monitoring it hour-by-hour. It is cooling off and there has been some rain. So let’s knock on wood, the worst is probably behind us. No incidents with respect to personnel. And at this point, no impact on any of our rig assets.
Cole Pereira
Got it. Okay. That’s all from me. Thanks. I’ll turn it back.
Robert Geddes
Thanks, Cole.
Operator
Your next question comes from Waqar Syed with ATB Capital Markets. Please go ahead.
Waqar Syed
Thank you. Bob, you mentioned that there were 10 bids that you’ve won in the last two weeks. Could you maybe talk about what the rates were for these winning bids versus the rate that they realized in the last quarter?
Robert Geddes
Yes. They’re – as I mentioned, they’re the same. They haven’t gone up or down. On the high-spec triples, they went up by about $3,000 a day, but our average run rate for the high-spec double and the – the high-spec double specifically about the same. The conventional rigs probably stepped down a little bit.
Waqar Syed
Okay. And then you mentioned – I missed a little bit, you said with a point to the wildfires. There were three rigs that were evacuated. And then there was – how many one rig on watch or what do you exactly say?
Robert Geddes
Yes, we have three rigs evacuated and four rigs on watch where the fire is within 50 kilometers. So there – that’s kind of a radius that they – depending on the winds, of course, they keep an eye on.
Waqar Syed
Any thoughts on how many rigs have been affected – industry rigs have been affected because of wildfires?
Robert Geddes
Good question. If you look at the map of where all the wildfires are, it seems to be where the industry activity is, it’s kind of an interesting situation, but there’s – I would say probably half of them. And wildfires are spotty all over West and North of Edmonton and North and West of Calgary, more North and West of – Great Valley (0:28:46), I would say.
Waqar Syed
Okay. And then in terms of California outlook, you mentioned a few things, you’re moving one rig. What’s the – is it – so you have now, what, five or six rigs working in California, what’s the number?
Robert Geddes
Correct.
Waqar Syed
And how do you – I know it’s California is always reticent to predict where the rig count could go. But anything changing from a permitting perspective? Are you seeing any progress there? Or anything that you could add?
Robert Geddes
Not really. Just as soon as something changes, it ends up in the outlet court – pellet court, I’m sorry and everything stops again, right? But yes, it’s stop and go, stop and go, stop and go. The well servicing side got hit hard in the first quarter. In California, it didn’t come out of the gate as hard as we thought. But we’re back up to 85% utilization with our well service rigs. So that part is coming back strong.
Waqar Syed
And at the same kind of pricing level as before?
Robert Geddes
Yes, we haven’t had to reduce our pricing at all.
Waqar Syed
Now — and California has always been an issue with permitting. Is it particularly bad now? Or is it getting worse? Or is it just like the periodic issues that you see every couple of years?
Robert Geddes
Well, the permitting – the operators are building a construct of – if we can drill the well, emissions free, can we accelerate our permit? And that’s getting some traction. So all of a sudden, rigs that have high-line capability or perhaps our hydrogen emission-free project may get some momentum again, Nicole’s on top of that. So we’ll see, but it is California.
Waqar Syed
All right. Thank you very much, Bob. Appreciate the color.
Robert Geddes
Thanks, Waqar.
Operator
[Operator Instructions] Your next question comes from Josef Schachter with Schachter Energy Research. Please go ahead.
Josef Schachter
Good morning Bob and Mike and Nicole. Going a little more on the wildfires. If something happens and the ones that are on watch, how quickly do you need to get the equipment taken down and moved? And is that something that you guys have plans for that and places where you would move the rigs to, you got those kind of contingent brands?
Robert Geddes
Yes, we have an emergency response plan and truckers on standby for our high-value loads. The challenge is always access to the rig and forestry will shut down roads and not allow any access into it. That’s a situation on three of our rigs. Every morning, we’re able to get a chopper or a small plane in there, along with the operator to kind of take a look at what’s going on in the site.
It seems that the worst is behind us because it’s gotten cooler, a little wind and we’ve had some rain. So that’s the situation. As I mentioned, we haven’t had any of our assets affected by any degree, a couple of shacks here or there on the peripheral perimeter but that’s about it.
Josef Schachter
Okay. And the safety of all the crews and the manpower…
Robert Geddes
Correct, absolutely, first and foremost.
Josef Schachter
On the number of marketed rigs, you’ve gone from 247 to 232 down to 15. Are those rigs now ones you’ve sold? Or are they being taken and used parts for other rigs? Or what’s – is this a permanent decline of 15 rigs?
Robert Geddes
Yes, yes. The – it’s been an evolution of a move towards upgradable high-spec rigs as we work through the market. Every year, we decommissioned roughly 5% of the fleet. If you think of a rig having a 20- to 30-year actuarial life span. So 15 rigs, they get decommissioned. The spare parts get harvested, we generally cut up the mass and subs. So they have – they basically have no more further use and they don’t end up on the market in a Tier 2 or Tier 3 application that we may compete against somewhere else in the world. So they serve their useful life and they just get decommissioned.
Josef Schachter
Perfect. That’s it from me. Thanks very much.
Robert Geddes
Thanks, Josef.
Operator
Your next question comes from Waqar Syed with ATB Capital Markets. Please go ahead.
Waqar Syed
Yes. Thanks for getting back me to. I forgot to ask you, Bob, in terms of the – if the rigs are backward because of wildfire how does the contract work? Do you still get paid for those days when the rig is down or customer can declare force majeure and not pay? How does it work?
Robert Geddes
Yes. It generally starts all standby without crew, and then it can turn into a position where it’s a force majeure. But generally, the client works with us and it’s standby without crew – of course, the rigs are fully insured, but we’re hoping we don’t get to that position.
Waqar Syed
Sure. Okay. Thank you very much.
Robert Geddes
All right.
Operator
There are no further questions at this time. Please proceed.
Robert Geddes
Thank you, operator. So just to wrap up, the macro construct for the oil business remains strong for the back half of 2023 for gas. It will be well into 2024 before we see demand for gas wells increasing again the slip in commodity prices have generally put a pause in activity growth and rate momentum in general, but certain rig type classes still remain very tight and no rate degradation, especially in Canada and unexpected to be running around 125 rigs and 50 to 60 well service rigs into the third quarter and remaining part of the year.
Ensign has seen leading EDGE price stabilize and we continue to build out term to help derisk the future and reinforce our debt reduction targets. Ensign has $1.6 billion of contracted revenue forward with 60% of the fleet tied up under contract and over 30% of the active fleet on long-term contract of six months or greater. The weighted average contract tenure is about one year, and the average age of the fleet is roughly 11 years old with another 20 years of economic life ahead of it and is fully committed to the target of quickly delevering and reducing $600 million of debt over the next three years. We look forward to our next call in three months. Thank you.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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