Good afternoon, ladies and gentlemen, and welcome to the Ensign Energy Services Inc third quarter 2022 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please dial star zero for the operator. This call is being recorded on Friday, November 4th, 2022. I would now like to turn the conference over to Nicole Romanow. Please go ahead.
Thank you, Andrew. Good morning and welcome to Ensign Energy Services third quarter 2022 conference call and webcast. On our call today, Bob Geddes, President and COO, and Mike Gray, Chief Financial Officer, will review Ensign's third 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 third quarter earnings release and see our 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.
Thanks, Nicole. Hello, everyone. I'm happy to report that Ensign's third quarter results came in ahead of expectations, and most importantly, a solid indication that the OFS space is finally starting to deliver sustainable profits with positive net income. A few key highlights. In the U.S., we are definitely seeing another push on rates in the 10% range as operators quietly contract their most desired fleets moving forward. With our application of our EDGE AUTOPILOT drilling rig control system and our performance advisors, which help the operator reduce net well delivery costs, we actually deliver real value with our rate increases, which makes rate increases very sustainable. In our U.S. Southern business unit, the team successfully completed and commissioned nine high-spec triples on long-term contracts for the Permian at rates well into the mid upper 30s.
This brings us now to 31 rigs worldwide that we have received or that have received upgrades, largely funded by operators through covered costs and or incremental rate increases. Adding to the recent re-contracting of our two high-spec 2000 hp AC rigs in Bahrain, our international team in Oman secured long-term five-year contracts for three of our high-spec ADRs. All five of these rigs will utilize our EDGE AUTOPILOT drilling control system engaged on performance-based incentive contracts, which will enhance the rig operating margins. We currently have 124 rigs on the payroll today and have visibility to 140 by year-end. Most of that uptick in rig count will come from Canada and all with rate increases as we head into the winter, with winter rates being established. These will all have incremental boiler revenue as usual.
At the end of October, we rationalized our Canadian directional drilling business unit for approximately 7 million shares in Cathedral Energy Services, making us about a 4% owner in that business. The DD space in Canada is extremely competitive and crowded, necessitating a trade into a consolidation strategy to unlock the value in that business unit. The deal keeps Ensign vested into the upside that is anticipated as a result of the consolidation strategy, and it also allows Cathedral to have access to Ensign's EDGE AUTOPILOT drilling rig control system platform, which is arguably the most easily and cost-effectively drilling rig control system solution out there.
As we have expressed on prior calls, incremental CapEx for upgrade reactivations must be funded by the operator at least 50%, and that the day rate adjustments must be significant enough to generate sufficient cash flow to cover the remaining CapEx within six months. For upgrade requests less than CAD 1 million, we insist the operator cover the upgrade 100%. I think we've seen the wave of upgrades and associated capital requirements through 2022 slow down as the most desirable and easily upgradable rigs have been completed and reengaged into the market. As we wade through 2023, Ensign still has lots of upgradable rigs, especially in the double category in Canada, where we have 40 underutilized tele- doubles that can be upgraded to high-spec self-moving tele- doubles, along with our new EDGE AUTOPILOT Lite drilling rig control system for anywhere from CAD 2 million - CAD 4 million.
Again, we would be working with our clients to cover the upgrade costs for those transactions. While finding new skilled labor with rig experience is challenging, we continue to find ways to attract, recruit, and train new employees to the Ensign team. Ensign's Global Skills Standard, GSS, trains field personnel on a managed competency career path, much like you see in most other trades, and is arguably the most desirable training protocol in the space. We continue to drive efficiency through systems around the world. With that, we reduced our G&A per operating day by 12% in the quarter. With record penetration rates and reduced well delivery times, industry is finding accelerated wear on drill strings. In some cases, we're finding drill strings in the Permian lasting only three years versus eight years only a decade ago.
To address this accelerated wear issue, we are now modifying the current contract with our clients, whereby 100% of downgrades will be fully cost-recovered with new replacement joints at the operator's expense. Where operators have requested non-inventory drill strings, the operator will be requested to provide the pipe at their cost or accept a market rental charge. We've also started to see operators wanting to contract for longer terms, always a sign that they feel another rate push coming. With that, we will take term in the upper 30s, and we generally like to respond with defined bumps every six months or annually. I'll come back to an operational update, but before that, I'll turn it over to Mike Gray for a run on the numbers.
Thanks, Bob. Ensign's results for the first nine months of 2022 reflect positive improvements to oilfield services activity, day rates, and financial results year-over-year. Despite the recent pullback in commodity prices, the operating environment for oil and natural gas industry continues to improve. Overall operating days increased in the third quarter of 2022. Canadian operations recorded 4,009 operating days, an increase of 41%. U.S. operations recorded 4,937 operating days, a 61% increase, and International operations recorded 996 days, a 7% increase compared to the third quarter of 2021.
For the first nine months, September 30th, 2022, operating days were higher, with the Canadian operations achieving a 76% increase, the United States a 51% increase, and a 10% increase in the International operations when compared to the same period in 2021. The company generated revenue of CAD 432.6 million in the third quarter of 2022, a 61% increase compared to revenue of CAD 268.6 million generated in the third quarter of the prior year. For the first nine months ended September 30th, 2022, the company generated revenue of CAD 1.1 billion, a 59% increase compared to revenue of CAD 699.4 million generated in the same period of 2021.
Adjusted EBITDA for the third quarter of 2022 was CAD 105.4 million, 76% higher than adjusted EBITDA of CAD 59.8 million in the third quarter of 2021. Adjusted EBITDA for the nine months ended September 30th, 2022 totaled CAD 243.7 million, 57% higher than adjusted EBITDA of CAD 155.3 million generated in the same period in 2021. The 2022 increase in adjusted EBITDA is due to improved industry conditions, increasing both drilling and well servicing activity. In addition, operating activity increased as a result of the acquisition of 35 land-based drilling rigs during the third quarter of 2021.
Depreciation expense in the first nine months of 2022 was CAD 208.1 million, a decrease of 3% compared to CAD 214 million for the first nine months of 2021. General and administrative expense in the third quarter of 2022 was CAD 12.8 million or 2.9% of revenue compared to CAD 10 million or 3.2% revenue in the prior year. Capital purchases for the third quarter of 2022 were CAD 46.9 million, consisting of CAD 18.4 million in upgrade and growth capital and CAD 28.5 million in maintenance capital. Capital expenditures for 2022 is still targeted to be approximately CAD 165 million. On that note, I'll turn the call back to Bob.
Hey. Thanks, Mike. So let's start with the U.S. In the U.S., we operate a fleet of 89 high-spec ADR rigs and 48 well servicing rigs, along with a Rockies directional drilling business. The team has grown its market share in the U.S. up to 7%, most of which is concentrated in the highly active Permian region. Ensign also has a strong foothold in the Rockies and California, both challenging areas to operate in from a regulatory standpoint. With the nine recent upgrade reactivations in the Southern business unit now commissioned and out operating, we now have a total of 62 rigs in the payroll in the U.S. With the bid book recently picking up again, we are seeing visibility to 65-70 rigs operating by the end of the year.
The Permian now has 41 of our high-spec ADR, 1,500 ADR rigs operating with a high probability that we will exit closer to 45 by year-end in that area. California stays steady at eight rigs out of our 17 in the state. State licensing issues are still a challenge in California. Depending on whether licensing opens back up, we could see our U.S. California business unit moving back up to 10 rigs in short order. Rockies, currently at 13 drilling rigs, could possibly see another few rigs being picked up by the year-end. Our U.S. well servicing business, which operates a fleet of 47 relatively new well service rigs, continues to run at high utilization rates and keeps finding ways to grow its business year-over-year in both the Rockies and the California area.
Our directional drilling team in the Rockies continues to deliver high-performance service and has a steady book moving forward with a very local client base. As mentioned before, we are seeing a strong wave coming at us again for our high-spec triples, and we are solidly bidding into the upper 30s with six-man crew triplers and our EDGE AUTOPILOT platform. We still have lots of runway as rates need to be closer to CAD 50,000 per day all in before one could rationalize building a new super high-spec triple and receiving a reasonable rate of return above one's cost of capital. In Canada, we operate a fleet of 123 rigs that are focused in the Western Canadian Sedimentary Basin. Today, we have 46 rigs in the payroll, with bookings that will get us to 55 in short order, targeting 60 by year-end.
While we were able to elevate pricing right across all rig categories coming out of breakup, we have seen some price resistance in certain conventional rig type categories. This is a bit of what we call the backdraft effect as some of the mid-tier contractors look to get some rig and crew started up before the winter. That's not the case in the high-spec rig types, where we enjoy very strong utilization and leading-edge price traction. We continue to see growing demand occurring in the high-spec doubles and high-spec triple rig categories as the Clearwater moves over to deeper well plans and Duvernay volume stays strong. We're bidding the high-spec doubles in the low 20s and the high-spec triples in the low 30s as we enter into winter pricing scenarios.
I'll point out again that Ensign still has lots of upgradable rigs, especially in the double category in Canada, where we have 40 underutilized tele- doubles that can be upgraded to high-spec, self-moving pad tele- doubles, along with our EDGE AUTOPILOT Lite drilling rig control system for anywhere from CAD 2 million-CAD 4 million. Again, we would be working with our clients to cover the upgrade costs. For those transactions. We do see contractors moving rates slowly into winter, but expect rates to elevate another 10% through the first quarter of 2023 on spot pricing, setting the stage for the rest of 2023 for continuing rate increases of 10%-15%. Our well servicing business operates a fleet of 52 well service rigs in the Western Canadian Sedimentary Basin and have 15 operating today with visibility to 20 by year-end. Again, rates are moving with every program negotiation.
On the international front, we have a fleet of 34 drilling rigs, of which 14 are situated in Australia, eight in the Middle East, and 12 in Latin America, South America. As mentioned in my opening summary, our Middle East team were successfully re-contracting our Bahrain rigs onto five-year contracts with performance-based kickers, as well as successfully negotiating to put three of our high-spec ADRs in Oman to work on five-year contracts also with performance-based kickers. We are finding that there is a growing market for high performance applications of our EDGE AUTOPILOT drilling rig control system engaged on performance-based contracts, where both the operator and Ensign win. Our rigs in Kuwait are performing in the upper decile and have three more years on their primary term.
In Australia, where we operate one of the largest fleets in the country, we are finally emerging out of COVID challenges, which stunted the business levels severely in the first three quarters. Projects are coming back strong, and we expect a very strong year ahead. Rates on our deeper high-spec rigs have been moving up about 15%-20%, with a tighter market developing in the mid-size high-spec rigs. We have also planned two to three EDGE AUTOPILOT installations in the near future in Australia, which will generate incremental income of CAD 1,600 a day. Argentina has two rigs operating now, with a third opportunity being negotiated. The need to generate electricity in Argentina is driving a strong push for our deeper high-spec ADR rigs to deliver gas in-country cost-effectively.
In Venezuela, the prospect to get some of our fleet operating looks encouraging, but we won't hold our breath. In any case, our eight rigs are cold stacked in a secure site and ready to go back to work with very little capital once the U.S. lifts or modifies its current OFAC policy. On the technology front, we now have our EDGE AUTOPILOT platform installed on 56 rigs worldwide, and the other thing slowing us down or the only thing slowing us down is the global chip problem. With that, I'll turn it back to the operator for Q&A. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star key followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your question will be pulled in the order that they were received. Should you wish to decline from the pull process, please press the star key followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Aaron MacNeil from TD Securities. Please go ahead, sir.
Well, thanks for taking my questions. Mike, you know, obviously a big working capital build this quarter. I don't think we really need to get into the nuances of the why. But you know, more importantly, looking ahead, you know, what do you think working capital requirements will be, as well as maybe your, you know, first or initial blush at 2023 maintenance and growth capital? And I guess, you know, what I'm ultimately trying to drive at is, you know, what do you think cash flows available for debt reduction might look like in 2023? So I know you're not gonna give guidance, but any help on the other moving pieces might be helpful.
Yeah. So for the working capital, we saw about a CAD 76 million increase in accounts receivable. A lot of that was from the activity pickup we saw going from Q2 into Q3. From a capital perspective, I mean, we're still fairly firm on the CAD 165 million. We're about a CAD 133 million into it. So from the accounts receivables coming into the door with the, with sort of the CapEx requirements in Q4, and going into 2023, it'll be, I think, sort of less than what we have seen. So if anything, we'll see our liquidity build up and the free cash flow definitely go towards the balance sheet and reducing the credit facility.
Okay. Bob, you mentioned a slowdown in upgrades. You know, was that specific to a certain class? What would your inventory of rigs that can be upgraded to a, you know, 1,500 hp super-spec rig be? You know, maybe you could put it into buckets of CAD 1 million-CAD 2 million, CAD 3 million-CAD 5 million or, you know, whatever other buckets you feel are relevant. I've got a follow-up on the doubles, separately, so.
Right, right. What we mean is, through 2022, of course, there was a strong push from 2021. People started to get after the upgrade. So there was, you know, a strong push through 2022. The pace of upgrades has slowed down with the clients. They're kinda gotten through their 2022 budget. We're already starting to see some uptick and some conversation with clients, where they go, "Hey, we like this rig. Have you got another one just like it?" If we're talking the high-spec triple for a moment, we go, "Well, we can upgrade a rig.
Here's the scenarios, here's the day rate, and you're gonna have to fund the upgrade." We've got in the U.S., we've probably got at least another five to 10 triples that can be upgraded. I'd say, you know, they're probably in that three to five range that would fit into that question. In the high-spec doubles, of course, those would be focused in Canada, where we've got the greatest concentration of doubles. As I mentioned, we have 40 upgradable doubles. Some of them are already high-spec doubles that would be upgraded further because they're not fully utilized. We've still probably got about 10 of those that we can put to work.
We've got capacity for not a lot of money to put those to work. Those would be in the CAD 2 million-CAD 4 million range for the Canadian stuff, U.S., for the U.S. stuff.
Okay, that's great. I'll turn it over. Thanks for your time.
Thank you, Aaron.
Your next question comes from Cole Pereira from Stifel. Please go ahead.
Morning, all. So many of your peers in the U.S. guided to sequential increases in drilling margins of, call it, $1,000-$2,000 a day range in Q4. Obviously, you don't disclose this, but should we expect a sort of a similar range from Ensign?
Oh, yeah. Yeah. Yeah. It's the harbor moves similarly. Absolutely. Yeah.
Got it. You mentioned 60 rigs in Canada by year-end. Should we be thinking about that number as your Q1 peak, or could that figure go higher?
Oh, no. Q1 peak will go higher. I think we might get to 70 in Q1, peak 70.
Got it. As well, I know you kinda just briefly referenced it, but you know, maybe on a percentage or absolute basis, how many of your Tier 1 rigs in Canada do you expect to be active in Q1?
I would say probably close to 100%. We're probably on the Tier 1 high-spec triples. We're already at 90%, so you know, it's kind of the last you know, two or three going to work type of thing on the high-spec triples. On the high-spec doubles, you know, we've probably got capacity, and high-spec doubles can range. We're finding high-spec doubles are starting to push into the smaller what we call now super high-spec doubles are starting to push into the high-spec triple market. As you can imagine, we've got clients that currently have a high-spec double doing great work, great crews, and they wanna put bigger pumps on it. They wanna put a little bigger top drive, that type of thing.
So it's an evolution. There's some convergence there between our high-spec doubles and the high-spec triples that are out in the market currently. The margins are very equivalent. I mean, our super high-spec doubles are making the same margin as the high-spec triples in Canada.
And sorry, is that on a dollar basis or a percentage basis?
Dollar basis.
Got it. As well, you have a bond due in April 2024 that you'd need to refi in the next five months to avoid it going current. Obviously, the bond market's very challenging in the current environment. Can you just talk about how you're thinking about the strategy for that?
Yeah. We're looking at it. I mean, the story is definitely improving quarter-over-quarter. When you look at where consensus is to where we've been the last couple of years, the story is definitely strengthening. So the high yield market is in a bit of turmoil right now, as you said. But from our perspective, we're continuing to improve the story, and we'll look to hit the markets when we think we're ready from it going current. I mean, if it goes current, that's, it's not the end of the world by any means. So we'll look to do what's right with the company going forward.
Got it. So I mean, you would prefer to, you know, wait it out and maybe do a similar, call it, unsecured issue, as opposed to increasing the security or some sort of other dilutive event, or something of that nature?
We don't have any specifics. I mean, we'll look at all the different options that are in front of us and select what's best for the company going forward.
Got it. That makes sense. That's all for me. Thanks. I'll turn it back.
Thanks, Cole.
Your next question comes from Waqar Syed, ATB Capital Markets. Please go ahead.
Thank you for taking my question. Mike, in Q3, were there any rig reactivation costs that were embedded in the OpEx number?
There'd be some. We had some rigs in the U.S. that were reactivated. So yeah, there'd be a little bit. It wouldn't be material by any means.
CAD 2 million-CAD 3 million, is that a reasonable number?
Probably within the ballpark.
Okay. And then for Q4, do you have any guidance for rig reactivation costs?
We have the Oman rig starting up, which actually spudded this week and last week. So we'd have some start-up costs with that as they get on the payroll. And then throughout the United States, there might be one or two here and there. But for the most part, the international is where we'll see some reactivations.
And how big a number that would be for the international?
Once again, it's two rigs, so fairly immaterial.
Okay. Sounds good. Bob, in terms, you know, as you've re-contracted number of rigs in the Middle East, how does the new rate compare to the previous one and then the margin compare to, you know, where they were contracted before?
Yeah. The turnover rate, I mean, negotiations in the Middle East happen over, you know, a year or two type of timeframe, not over a month. The re-contracted rates are with our performance-based contract, slightly higher than where we were before. So there should be, you know, you could at least model the same, but with the application of our autopilot and our performance, we think, you know, in a P50, we can increase rates by about CAD 5,000 a day, P90 by about CAD 3,000 a day. Contract over contract.
Right. Okay. That makes sense. Mike, the net debt number went up by about CAD 58 million. You know, some of that was, you know, there was some cash outflow during the quarter, but beyond that, is it all translation effect of currency, or is there something else going on?
It'd be all FX, taking the high-yield issuance, which is about $417 million outstanding and translating at the quarter-end rate. I mean, when you look at foreign exchange this quarter, the income statement translation was almost CAD 0.10 lower than the quarter-end translation, just given the FX movement the last couple weeks of the U.S. dollar to CAD.
Right.
Yep. It was quite significant.
Okay. Great. Any early indication of where the CapEx could be for next year?
No particular guidance as of yet. So I mean, we're going through budget seasons right now, but, I mean, predominantly, we're looking at maintenance capital going forward and having customers pay for upgrades.
Yeah. It'll be less, I think. We're seeing some.
I'm sorry. Bob, you said year-over-year it'll be less?
Yeah. I think right now we're seeing that on a net basis. Again, we're pushing operators to cover any upgrade costs, and our strength in that positioning gets stronger as the market gets tighter. So be very surprised if it wasn't less year-over-year.
For sure. But I was just thinking from a you know cash flow statement perspective, the gross number that you report in there for CapEx, that number you know would still be higher year-over-year or could be flat to lower?
The gross amount should be lower from what we're seeing 'cause, like, it'll predominantly be maintenance capital. We've done 30+ rig upgrades and activations, so there's less rigs to be activated, but those would have to be at probably higher costs of which would be, hopefully funded by the customer. So from our point of view, as it stands right now, it would be less unless we get into an upgrade cycle.
Okay. Great. Thank you very much.
Thanks, Waqar.
Your next question is from John Gibson from BMO. Please go ahead.
Morning, all. Bob, your commentary on this call seems to be more bullish in terms of rig adds and pricing relative to forward guidance in the release this morning, particularly in the U.S. Just wondering how we should reconcile these statements, just given, you know, the market dynamics for pricing and margins, combined with the expected rig adds you touched on this morning.
Yeah. I think, I mean, generally, the comments are pointed in the same direction. We're, you know, the commentary that I provide is the reality we see down on the sales desk and the operations side. That's what's happening. So yeah.
Okay. Fair enough. Just last one from me. You spoke to contract terms maybe extending on the high-spec rig classes.
Mm-hmm.
Can you put some goalposts around the lengths of contracts you're signing now versus, you know, say, a few months ago?
Yeah, yeah. Well, it's always a balance. We always find that when operators start asking us for a term, you know, when they go from six months to one year and one year to two year, and we're getting some clients saying they wanna tie the rig up for two years, those are leading indicators, of course, that they also believe that rates are gonna move up, so they're trying to tie that in.
We've structured any kind of conversation along the lines like that where we say, "Well, we'll tie a new two-year contract, but we're going to already establish what the second year of that contract term would look like, and it'd be a 10%-15% bump." We've also got some clients where we're purposely saying, "You can have the rig, the rig isn't going away, but we're gonna renegotiate every six months." And every client is a little bit different in that regard. You know, we wanna make sure we keep our cadence proper and our rig turnover, contract turnover such that we don't have them all coming off at the same time, because that's never good in the market as well.
We like to, you know, cadence about a quarter every quarter of the fleet is the ideal situation, and we're getting pretty close to that. We've got a pretty good contract book on cadence that I think will allow us to react quick on any and the upcoming continued upside that we continue to see, you know, quarter-over-quarter. These things go in pushes. You know, at the beginning of 2022, we had a push of, you know, on the high-spec triples, CAD 5,000-CAD 8,000 a day. And then of course, the backdraft effect, which I call, you know, when the mid-cap companies come in and they take up some market share back and they do that with a little bit of rate.
So you see a rate steadying through that process. Now we're seeing them utilize the market share that they seem to feel comfortable with, and now there's another push. We're able to push another CAD 2,000-CAD 3,000 a day increases in current bid process.
Got it. Maybe I'll just sneak one more in. You talked about day rates of, you know, upwards of CAD 50,000 needed to contemplate new builds. It seems to be moving up constantly. Is that just based on your expectations for a new build price and just given the inflationary environment over the past few months or?
Yeah. Yeah.
What's going on there?
Yeah. No, you nailed it. I think the cost to build a high-spec, a super high-spec triple is CAD 30,000-CAD 35,000. Base operating costs are a little bit higher. I mean, everyone is seeing. I mentioned drill pipe. One example, drill pipe costs are up significantly from where they used to be because we're drilling wells faster. The other thing is, you know, and I pointed out a reasonable rate of return above one's cost of capital. Everyone's cost of capital is moving up as well, right? So now we're into, you know, close to CAD 50 ,000 a day before I think anyone would sensibly contemplate a new build.
Great. Appreciate the color. I'll turn it back.
Thank you.
There are no further questions. Oh, I'm sorry, there is a question now in the queue. This question is from Keith Mackey from RBC Capital Markets. Please go ahead.
Hey, Keith.
Keith Mackey, please go ahead.
We're still here on this end.
Keith is live. Keith's microphone is live at the moment.
Hi, can you hear me?
Yeah.
Oh, there we go.
Hello, Keith.
Hi. Sorry about that. I apologize if there's some background noise. I just had one question to start off with. You've mentioned, you talked about your Canadian directional drilling business, and talked about the competitive dynamics of why. Just curious how you're thinking about your U.S. directional business in the Rockies, and do you see the same sort of dynamic down there, or is that a more favorable business to move on, do you think?
Yeah. It's quite a completely different business down in the Rockies. The Rockies is a much smaller business area. You know, Canada, Calgary, you know, the center of the Canadian oil field service space, so there's about 20-some directional companies in Calgary. In the Rockies, there's barely a handful. And we focus on, we have a directional drilling mud motor shop where we take motors and we basically manage the motors for the operators. So we basically don't do a lot of directional drilling in the U.S. We've kind of focused in on a key area that we can make a 30% margin and we've got a good client base that we service well.
And they're quite loyal and we do a heck of a job there. So it's not to be confused with the Canadian directional drilling space, which we did not build our mud motors in shop. We would build that out. We would assemble them and re-bearing them, but we were more of a what you would consider a competitive directional drilling business with directional drillers, well plans, things like that in Canada. So it's just a different business down there.
Okay. Thanks for that. Maybe a follow-up would be, how are you thinking about the portfolio, the balance sheet, and financial liquidity over the next, you know, three to six to 12 months? Are there other assets you'd consider monetizing for the right price, or are you pretty happy with what you've got where you've got it?
Yeah. When we look at liquidity, we'll definitely see it expand, going into year-end and then going forward as well. I mean, the large chunks of CapEx were spent, looking for the customer to pay for the upgrades next year. So from our perspective, liquidity will continue to grow. The balance sheet will be in better shape, quarter-over-quarter with improved results as well. So from our perspective, it's just being laser- focused on the balance sheet, laser- focused on cost, and laser- focused on performance.
Thanks. That's it for me.
Thanks, Keith.
There are no further questions at this time. Please proceed.
All right. Well, let me wrap up here. It's clear that the $12 trillion under-investment in the oil and gas business over the last decade has created the opportunity for drilling companies like Ensign to see more opportunities to expand our active operating rig count. With that, the ability to move our rates more into a range that provides a reasonable rate of return on the capital invested. In addition, the capital investments industry has made in high torque top drives, self-moving pad systems, additional high pressure pumping capacity, and the application of drilling rig control systems that use algorithms and AI to replicate record wells over and over again, provide real value to our clients with reduced well cycle times and reduced well costs. As most of you on the call understand, the drilling contracting business has lots of margin torque in upcycle markets.
So let me suggest we're definitely at the front end of that upcycle market. Look forward to reviewing our Q4 results in the new year with you. Have a safe and merry Thanksgiving and a Merry Christmas. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you now please disconnect your lines.