Canadian Manufacturing

Analysts split over $45M drilling partner consolidation by Ensign Energy

The Calgary-based drilling company announced July 17 after markets closed that it would buy the 40% it doesn't already own in Trinidad Drilling

July 21, 2020  The Canadian Press

CALGARY — Analysts are split on the wisdom of Ensign Energy Services Inc.’s US$33.4-million move to buy out partner Halliburton Co.’s stake in an international drilling joint venture.

The Calgary-based drilling company announced July 17 after markets closed that it would buy the 40% it doesn’t already own in Trinidad Drilling International from its American oilfield services partner.

The joint venture operates five drilling rigs — two under long-term contracts in Kuwait, another under contract in Bahrain and two “cold-stacked” (idle) rigs in Mexico.

Ensign inherited its 60% stake in the partnership when it bought Calgary rival Trinidad Drilling Ltd. in 2018, but Canadian drillers have been loath to spend capital this year as oilfield activity slows due to the economic affect of the COVID-19 pandemic.

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Analyst Ian Gillies of Stifel FirstEnergy says in a report the purchase creates balance sheet risk, noting that Ensign also warns it may be in violation of a debt covenant later this year.

But RBC analysts say in report the “counter-cyclical” manoeuvre ahead of its bank line renewal and covenant relief discussions signals Ensign’s confidence.

Ensign’s shares fell by as much as four cents on July 20 to 69 cents before recovering to 73 cents. A year ago, they were trading for $4.40 each.