S&P ups Ensign Energy Services

S&P said it raised its ratings for Ensign Energy Services Inc. and its senior unsecured notes to CCC+ from SD, selective default, and CCC-, respectively.

Ensign announced a new C$369 million three-year term facility with its banking syndicate, which along with estimated free cash flow generation of about C$200 million this year will likely enable full repayment of the C$555 million of senior unsecured notes due April 2024. The company also extended the maturity on its C$900 million credit facility to October 2026.

“We view these transactions favorably as it alleviates near-term refinancing risk,” S&P said in a statement.

The agency noted “We project meaningful positive free cash flow generation but believe liquidity will remain constrained. Ensign's EBITDA rose by 76% in the first half of 2023, largely spurred by higher drilling activity. While rig count softened in recent weeks, we believe rig activity will pick up in 2024, underpinned by a constructive pricing environment. This is also demonstrated by higher utilization and day rates across the industry, especially on the super-spec rigs, which remain in tight supply following years of underinvestment and land rig fleet rationalization.

“Based on our forecasts and Ensign's contractual book (close to $1 billion of contracted revenue), we project the company will generate positive free operating cash flows (FOCF) averaging C$200 million-C$225 million annually in 2023 and 2024.”

The outlook is negative.

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