CALGARY, July 28, 2017 /CNW/ - AKITA Drilling's net
loss for the three months ended June 30,
2017 was $4,491,000 (net loss
of $0.25 per share basic &
diluted) on revenue of $17,986,000
compared to a net loss of $4,062,000
(net loss of $0.23 per share basic
& diluted) on revenue of $3,646,000 for the corresponding period of 2016.
Funds flow from operations increased to $3,254,000 in the second quarter of 2017 from
$2,688,000 in the corresponding
period of 2016.
The Company incurred a net loss of $9,466,000 for the six months ended June 30, 2017 ($0.53 per share basic & diluted) on revenue
of $37,179,000 compared to net
earnings of $14,111,000 ($0.79 per share basic & diluted) on revenue
of $45,636,000 ($17,386,000 from direct operations and
$28,250,000 from contract
cancellation revenue) in the comparative period in 2016. Funds flow
from operations for the January to June period of 2017 was
$5,078,000 compared to $28,071,000 for the same period in 2016.
Improving crude oil prices beginning in the second quarter of
2016 and continuing through the first quarter of 2017 had a
positive effect on activity in the drilling industry. In response
to this increase in activity, management's focus for the six months
ended June 30, 2017 has been to
improve the Company's utilization, with more rigs and employees
working. AKITA's utilization increased to 37% for the 6 months
ended June 30, 2017 from 13% in the
corresponding period of 2016. AKITA's focus on increasing its rig
utilization had some downside, as rates in the drilling market
continue to be at the bottom range of the cycle impacting the
Company's margins which were significantly lower year to date in
2017, compared to the same period in 2016.
Selected information from AKITA Drilling Ltd.'s Management
Discussion and Analysis from the Quarterly Report as
follows:
Introduction and General Overview
Activity levels in the contract drilling industry are highly
correlated to the market prices of crude oil and natural gas. The
average WTI crude oil prices for the six months ended June 30, 2017 increased 16% compared to the same
period in 2016. Natural gas prices, per AECO spot prices, have
followed a similar pattern with an increase of 23% in the average
price of natural gas for the first 6 months of 2017 compared to the
first 6 months in 2016. The increase in both crude oil and natural
gas prices had a positive effect on drilling activity in the
western Canadian sedimentary basin.
Despite the higher activity levels, however, day rates in the
drilling industry remain at the bottom of the cycle as the demand
for drilling rigs has not caught up to the supply of rigs
available. The impact of these low day rates on the Company's
results is detailed subsequently in this MD&A.
In addition to considerations regarding the cyclical nature of
AKITA's business, readers should be aware that historically, the
first quarter of the calendar year is the most active in the
drilling industry. Lower activity levels that result from
spring break-up and associated travel bans on public roads
typically characterize the second quarter. AKITA's second
quarter in 2017 was only slightly less active than the first
quarter of 2017 due to the number of pad rigs working which are
less impacted by travel bans than conventional rigs.
The following table summarizes second quarter and year-to-date
utilization for AKITA and industry for 2017 and 2016:
Utilization
Rates
Expressed in
Percentages
|
|
|
|
Three Months
Ended
June 30
|
|
|
Six Months
Ended
June
30
|
|
|
|
|
AKITA
|
Industry(1)
|
|
|
AKITA
|
Industry(1)
|
2017
|
|
|
|
36.5
|
17.7
|
|
|
37.3
|
28.3
|
2016
|
|
|
|
4.3
|
7.0
|
|
|
12.8
|
14.2
|
During the second quarter of 2017, AKITA's utilization exceeded
industry utilization as it typically does due to the high
percentage of the Company's rig fleet being pad rigs compared to
the industry. Pad rigs can generally drill through spring break-up
provided they are already on a pad before road bans begin. Triple
pad rigs accounted for 92% of AKITA's operating days for the second
quarter of 2017. For the six months ended June 30, 2017, 70% of the Company's operating
days were from triple pad rigs, 6% from double pad rigs, 9% from
conventional doubles and 15% from conventional singles.
Fleet and Rig Utilization
At June 30, 2017 AKITA had 28
drilling rigs, including eight that operated under joint ventures
(26.750 net to AKITA), compared to 31 rigs (28.225 net) in the
corresponding period of 2016 (five rigs decommissioned and two
added). There were no changes to AKITA's rig fleet during the
first 6 months of 2017.
|
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
|
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Operating
days
|
|
931
|
121
|
810
|
669%
|
|
1,892
|
719
|
1,173
|
163%
|
Utilization
rate
|
|
36.5%
|
4.3%
|
32.2
|
749%
|
|
37.3%
|
12.8%
|
24.5
|
191%
|
Revenue and Operating & Maintenance Expenses
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Revenue per interim
financial statements
|
18.0
|
3.6
|
14.4
|
400%
|
|
37.2
|
45.6
|
(8.4)
|
(18%)
|
Proportionate share
of revenue from joint ventures(1)
|
7.3
|
1.3
|
6.0
|
462%
|
|
13.4
|
7.0
|
6.4
|
91%
|
Contract cancellation
revenue
|
-
|
-
|
-
|
-
|
|
-
|
(28.3)
|
28.3
|
(100%)
|
Adjusted
revenue(1)
|
25.3
|
4.9
|
20.4
|
416%
|
|
50.6
|
24.3
|
26.3
|
108%
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Operating &
maintenance expenses per interim
|
|
|
|
|
|
|
|
|
|
financial
statements
|
14.6
|
1.5
|
13.1
|
873%
|
|
32.4
|
10.6
|
21.8
|
206%
|
Proportionate share
of operating & maintenance
|
|
|
|
|
|
|
|
|
|
expenses from joint
ventures(1)
|
5.3
|
0.9
|
4.4
|
489%
|
|
9.3
|
4.1
|
5.2
|
127%
|
Adjusted operating
& maintenance expenses(1)
|
19.9
|
2.4
|
17.5
|
729%
|
|
41.7
|
14.7
|
27.0
|
184%
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Adjusted
revenue(1)
|
25.3
|
4.9
|
20.4
|
416%
|
|
50.6
|
24.3
|
26.3
|
108%
|
Adjusted operating
& maintenance expenses(1)
|
19.9
|
2.4
|
17.5
|
729%
|
|
41.7
|
14.7
|
27.0
|
184%
|
Adjusted operating
margin(1)(2)
|
5.4
|
2.5
|
2.9
|
116%
|
|
8.9
|
9.6
|
(0.7)
|
(7%)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Dollars
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Adjusted revenue per
operating day(1)
|
27,142
|
41,025
|
(13,883)
|
(34%)
|
|
26,748
|
33,903
|
(7,154)
|
(21%)
|
Adjusted operating
& maintenance expenses
|
|
|
|
|
|
|
|
|
|
per operating
day(1)
|
21,434
|
19,694
|
1,740
|
9%
|
|
22,039
|
20,417
|
1,622
|
8%
|
Adjusted operating
margin per operating day(1)(2)
|
5,708
|
21,331
|
(15,623)
|
(73%)
|
|
4,709
|
13,486
|
(8,776)
|
(65%)
|
|
|
(1)
|
Proportionate
share of revenue from joint ventures, adjusted revenue,
proportionate share of operating & maintenance expenses from
joint ventures, adjusted operating & maintenance expenses,
adjusted operating margin, adjusted revenue per operating day,
adjusted operating & maintenance expenses per operating day and
adjusted operating margin per operating day are non-GAAP financial
measures. See commentary in "Basis of Analysis in this
MD&A, Non-GAAP and Additional GAAP Items".
|
(2)
|
Adjusted operating
margin is the difference between adjusted revenue and adjusted
operating & maintenance expenses.
|
Second Quarter Comparatives
During the second quarter of 2017, adjusted revenue increased to
$25,269,000 ($27,142 per operating day) compared to
$4,964,000 ($41,025 per operating day) during the second
quarter of 2016 as a result of increased drilling activity in the
industry. The decrease in adjusted revenue per operating day
reflects the current pricing environment in the industry where
bottom of the cycle pricing is still required to put rigs to work.
The effect on day rates of the mix of the rigs working in the
second quarter of 2017 compared to the same period in 2016 was
minimal, as essentially all drilling days were generated by pad
triples.
Adjusted operating and maintenance costs are tied to operating
days and amounted to $19,955,000
($21,434 per operating day) during
the second quarter of 2017 compared to $2,383,000 ($19,694
per operating day) in the same period of the prior year. The
increase in operating and maintenance costs on a total basis
resulted from increased drilling activity, and on a "per day" basis
more rigs that require larger crews and second rig managers worked
in the second quarter of 2017 compared to the same period in
2016.
The adjusted operating margin for the Company increased to
$5,314,000 in the second quarter of
2017 from $2,581,000 during the
corresponding quarter of 2016. The increase in adjusted
operating margin is a direct result of increased drilling activity
as AKITA's operating days increased 669% in the second quarter of
2017 compared to the same period in 2016. On a per day basis,
adjusted operating margin decreased to $5,708 in the second quarter of 2017 from
$21,331 in the comparative period of
2016. The decrease was a result of the lower day rates
discussed above with no corresponding reduction in operating costs
per day.
Year-to-Date Comparatives
During the first six months of 2017, adjusted revenue increased
to $50,608,000 from $24,376,000 during the first six months of 2016
as a result of higher drilling activity. Adjusted revenue per
operating day decreased to $26,748
during the first six months of 2017 from $33,903 in the comparative six month period of
2016. This decrease is due mainly to a higher percentage of the
rigs in 2016 working under term contracts compared to 2017 where
most rigs were working for market rates which due to increased
competition in the drilling industry are at bottom of the cycle
levels.
Adjusted operating and maintenance costs are tied to operating
days and amounted to $41,698,000
($22,039 per operating day) during
the first six months of 2017 compared to $14,680,000 ($20,417 per operating day) in the same period of
the prior year. The increase on a per day basis is a result
of higher maintenance costs due to more rigs starting up in the
first half of 2017 compared to the same period in 2016.
The adjusted operating margin for the Company decreased to
$8,910,000 in the first six months of
2017 from $9,696,000 during the
corresponding period of 2016. On a per day basis, adjusted
operating margin decreased to $4,709
for the six months ended June 30,
2017 from $13,486 in the
corresponding period of 2016. This decrease in margin per day is a
result of the pricing pressure noted above.
Depreciation and Amortization Expense
|
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Depreciation and
amortization expense
|
|
7.7
|
5.4
|
2.3
|
42.6%
|
|
14.5
|
11.7
|
2.8
|
23.9%
|
Depreciation and amortization expense increased to $7,735,000 in the second quarter of 2017 compared
to $5,384,000 in the corresponding
period of 2016. As AKITA depreciates its rig fleet on a unit of
production basis, the increase in the depreciation and amortization
expense is directly related to the 669% increase in the number of
operating days when comparing the second quarter of 2017 to the
corresponding period of 2016. On a per operating day basis
depreciation in the second quarter of 2017 ($8,308 per operating day) was significantly lower
than the second quarter of 2016 ($44,496 per operating day), as rigs that do not
operate are subject to minimum annual depreciation.
Depreciation and amortization expense for the first six months
of 2017 totalled $14,471,000 compared
to $11,659,000 for the corresponding
period in 2016. As with the depreciation and amortization
expense for the second quarter, higher rig activity levels were the
driver behind the higher depreciation and amortization expense in
2017 to date. In the first six months of 2017, drilling rig
depreciation accounted for 97% of total depreciation and
amortization expense (2016 - 95%).
While AKITA conducts several of its drilling operations via
joint ventures, the drilling rigs used to conduct those activities
are owned jointly by AKITA and its joint venture partners, and not
the joint ventures themselves. Therefore, the joint ventures
do not hold any property, plant, or equipment assets
directly. Consequently, the depreciation balance reported
above includes depreciation on assets involved in both wholly-owned
and joint venture activities.
Selling and Administrative Expenses
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
2017
|
2016
|
Change
|
%Change
|
|
2017
|
2016
|
Change
|
%Change
|
Selling and
administrative expenses per
|
|
|
|
|
|
|
|
|
|
interim financial
statements
|
3.4
|
3.0
|
0.4
|
13%
|
|
7.4
|
7.0
|
0.4
|
6%
|
Proportionate share
of selling and
|
|
|
|
|
|
|
|
|
|
administrative
expenses from joint ventures(1)
|
0.1
|
0.0
|
0.1
|
100%
|
|
0.2
|
0.1
|
0.1
|
100%
|
Adjusted selling and
administrative expenses(1)
|
3.5
|
3.0
|
0.5
|
17%
|
|
7.6
|
7.1
|
0.5
|
7%
|
(1)
|
Proportionate
share of selling and administrative expenses from joint ventures
and adjusted selling and administrative expenses are non-GAAP
financial measures. See commentary in "Basis of Analysis in
this MD&A, Non-GAAP and Additional GAAP Items".
|
Adjusted selling and administrative expenses were 14% of
adjusted revenue in the first six months of 2017 compared to 29% of
adjusted revenue in the first six months of 2016. The decrease in
selling and administrative expenses when compared to adjusted
revenue is a result of increased adjusted revenue and the fixed
nature of the majority of the Company's selling and administrative
costs. The single largest component of selling and administrative
expenses was salaries and benefits, which accounted for 54% of
these expenses (2016 - 57%).
Equity Income from Joint Ventures
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
2017
|
2016
|
Change
|
%Change
|
|
2017
|
2016
|
Change
|
%Change
|
Proportionate share of
revenue from
|
|
|
|
|
|
|
|
|
|
joint
ventures(1)
|
7.3
|
1.3
|
6.0
|
462%
|
|
13.4
|
7.0
|
6.4
|
91%
|
Proportionate share
of operating and
|
|
|
|
|
|
|
|
|
|
maintenance expenses
from joint ventures(1)
|
5.3
|
0.9
|
4.4
|
489%
|
|
9.3
|
4.1
|
5.2
|
127%
|
Proportionate share
of selling and
|
|
|
|
|
|
|
|
|
|
administrative
expenses from joint ventures(1)
|
0.1
|
0.0
|
0.1
|
100%
|
|
0.2
|
0.1
|
0.1
|
100%
|
Equity income from
joint ventures per
|
|
|
|
|
|
|
|
|
|
interim financial
statements
|
1.9
|
0.4
|
1.5
|
383%
|
|
3.9
|
2.8
|
1.1
|
39%
|
(1)
|
Proportionate
share of revenue from joint ventures, proportionate share of
operating & maintenance expenses from joint ventures and
proportionate share of selling & administrative expenses from
joint ventures are non-GAAP financial measures. See
commentary in "Basis of Analysis in this MD&A, Non-GAAP and
Additional GAAP Items".
|
The Company provides the same drilling services and utilizes the
same management, financial and reporting controls for its joint
venture activities as are in place for its wholly-owned
operations. The analyses of these activities are incorporated
throughout the relevant sections of this MD&A.
Other Income (Loss)
|
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Total other income
(loss)
|
|
0.2
|
0.3
|
(0.1)
|
(33%)
|
|
0.3
|
0.3
|
0.0
|
0%
|
Interest income decreased to $231,000 in the first six months of 2017 from
$493,000 in the corresponding period
in 2016 primarily due to accrued interest ($394,000) on receivable balances related to a
contract cancellation that occurred in the first quarter of
2016. The remaining balance of interest income consists of
interest on cash and term deposit balances.
During the first six months of 2017, the Company incurred
interest expense of $84,000 (2016 -
$80,000) related to the future cost
of the Company's defined benefit pension plan.
During the first six months of 2017, the Company sold some
ancillary assets for $167,000 (2016 -
$125,000) that resulted in a gain of
$140,000 (2016 - $30,000).
Income Tax Expense
|
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Current tax expense
(recovery)
|
|
(1.0)
|
(2.6)
|
1.6
|
62%
|
|
(3.0)
|
3.5
|
(6.5)
|
(186%)
|
Deferred tax expense
(recovery)
|
|
(0.3)
|
1.1
|
(1.4)
|
(127%)
|
|
(0.3)
|
1.9
|
(2.2)
|
(116%)
|
Income tax expense
(recovery)
|
|
(1.3)
|
(1.5)
|
0.2
|
13%
|
|
(3.3)
|
5.4
|
(8.7)
|
(161%)
|
Income tax expense (recovery) decreased to a recovery of
$3,343,000 in the first six months of
2017 from an expense of $5,426,000 in
the corresponding period in 2016 mainly due to higher pre-tax
earnings resulting from the contract cancellation revenue recorded
in the first quarter of 2016. Deferred taxes for the six
months ended June 30, 2017 were lower
than the same period in 2016 as the Company incurred higher
depreciation expense in the first half of 2017 compared to the
first half of 2016.
Net Income (Loss), Funds Flow and Net Cash From Operating
Activities
|
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Net income
(loss)
|
|
(4.5)
|
(4.1)
|
(0.4)
|
(10%)
|
|
(9.5)
|
14.1
|
(23.6)
|
(167%)
|
Funds flow from
operations(1)
|
|
3.3
|
2.7
|
0.6
|
22%
|
|
5.1
|
28.1
|
(23.0)
|
(82%)
|
(1)
|
Funds flow from
operations is an additional GAAP measure under IFRS. See
commentary in "Basis of Analysis in this MD&A, Non-GAAP and
Additional GAAP Items".
|
During the three months ended June 30,
2017, the Company reported a net loss of $4,491,000 or $0.25
per Class A Non-Voting and Class B Common Share (basic and diluted)
compared to a net loss of $4,062,000
or $0.23 per share (basic and
diluted) in the comparative quarter of 2016. Lower operating
margins per day and increased depreciation were the primary factors
for the increased loss in 2017.
Funds flow from operations increased to $3,254,000 during the second quarter of 2017 from
$2,688,000 in the corresponding
quarter in 2016 due to increased activity in 2017.
The Company incurred a net loss of $9,466,000 or $0.53
per Class A Non-Voting and Class B Common Shares (basic and
diluted) for the first six months of 2017 compared to net income of
$14,111,000 or $0.79 per share (basic and diluted) in the
corresponding period of 2016. Funds flow from operations
decreased to $5,078,000 during the
first six months of 2017 from $28,071,000 in the corresponding period in
2016. The decrease in both net income and funds flow for the
six month period ended June 30, 2017
was directly attributable to the contract cancellation revenue
recorded in the first quarter of 2016 as well as lower day
rates.
The following table reconciles funds flow and cash flow from
operations:
|
Three Months Ended
June 30
|
|
Six Months Ended June
30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Funds flow from
operations(1)
|
3.2
|
2.7
|
0.5
|
19%
|
|
5.1
|
28.0
|
(22.9)
|
(82%)
|
Change in non-cash
working capital
|
3.1
|
2.7
|
0.4
|
15%
|
|
8.6
|
(4.2)
|
12.8
|
307%
|
Equity income from
joint ventures
|
(1.8)
|
(0.4)
|
(1.4)
|
(350%)
|
|
(3.9)
|
(2.8)
|
(1.1)
|
(39%)
|
Change in long-term
receivable
|
0.0
|
(0.1)
|
0.1
|
100%
|
|
0.0
|
(9.4)
|
9.4
|
100%
|
Current income tax
expense (recovery)
|
(1.0)
|
(2.7)
|
1.7
|
63%
|
|
(3.0)
|
3.5
|
(6.5)
|
(186%)
|
Net cash from
operating activities
|
3.4
|
2.2
|
1.2
|
55%
|
|
6.8
|
15.1
|
(8.3)
|
(55%)
|
(1)
|
Funds flow from
operations is an additional GAAP measure under IFRS. See
commentary in "Basis of Analysis in this MD&A, Non-GAAP and
Additional GAAP Items".
|
Liquidity and Capital Resources
Cash used for capital expenditures totalled $12,202,000 in the first six months of 2017 (2016
- $1,530,000). Year to date in
2017, 42% of capital expenditures relate to costs incurred to
construct a double pad rig that is expected to be completed in the
third quarter. The rest of the capital spending in 2017 year to
date relates to routine capital items as did all capital spending
in the first six months of 2016.
At June 30, 2017, AKITA's
Statements of Financial Position included working capital (current
assets minus current liabilities) of $24,557,000 compared to $31,373,000 at June 30,
2016 and $34,907,000 at
December 31, 2016. Readers
should be aware of the seasonal nature of AKITA's business and its
effect on non-cash working capital balances. Typically,
non-cash working capital balances reach annual maximum levels at
the end of the first quarter or during the second quarter as a
result of spring break-up. Non-cash working capital amounted
to $16,951,000 at June 30, 2017 compared to non-cash working
capital of $20,675,000 at
December 31, 2016. Note that the
non-cash working capital amount at December
31, 2016 included $20,068,000
in accounts receivable related to contract cancellation compared to
$9,990,000 at June 30, 2017. Working capital at
June 30, 2017 decreased compared to
June 30, 2016 as a result of
increased capital spending by the Company as noted above.
The Company chooses to maintain a conservative Statement of
Financial Position due to the cyclical nature of the
industry. In addition to its cash balances, the Company has
an operating loan facility with its principal banker totalling
$50,000,000 that is available until
2020. The facility has been provided in order to finance
general corporate needs, capital expenditures and acquisitions.
Management intends to access this facility primarily to enable the
Company to explore expansion opportunities or to fund new rig
construction requirements related to drilling contracts that it
might be awarded. The interest rate on the facility is 1.25%
over prime interest rate or 2.5% over guaranteed notes, depending
on the preference of the Company. The Company did not have
any borrowings from this facility at June
30, 2017 or at any time during 2016.
The Company's objectives when managing capital are:
- to safeguard the Company's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders; and
- to augment existing resources in order to meet growth
opportunities.
The Company manages its capital structure and makes adjustments
in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to
maintain or adjust the capital structure, the Company may adjust
the amount of dividends paid to shareholders, repurchase or issue
new shares, sell assets or take on long-term debt. Since
1999, dividend rates have increased eight times with no
decreases.
During the 10 year period since 2007, AKITA has repurchased and
cancelled 443,208 Class A Non-Voting shares through normal course
issuer bids and has issued 122,200 Class A Non-Voting shares upon
exercise of stock options.
The Company had one rig under a multi-year contract at
June 30, 2017 which is due to expire
in 2018.
From time to time, the Company may provide guarantees for bank
loans to joint venture partners in respect of sales of rig
interests to joint venture partners. At June 30, 2017, AKITA provided $2,253,000 in deposits with its bank for those
purposes (June 30, 2016 -
$4,792,000 and December 31, 2016 - $2,969,000). AKITA's security from its
partners for these guarantees includes interests in specific rig
assets. These balances have been classified as restricted
cash on the Interim Statements of Financial Position.
Basis of Analysis in this MD&A, Non-GAAP and Additional
GAAP Items
The Company reports its joint venture activities in the
financial statements in accordance with IFRS 11 "Joint
Arrangements". In determining the classification of its Joint
Arrangements, AKITA considers whether the Joint Arrangements are
structured through separate vehicles, if the legal form of the
separate vehicles confers upon the parties direct rights to assets
and obligations for liabilities relating to the Joint Arrangements,
whether the contractual terms between the parties confer upon them
rights to assets and obligations for liabilities relating to the
arrangements as well as if other facts and circumstances lead to
rights for assets and obligations for liabilities being conferred
upon the parties to the Joint Arrangement prior to concluding that
AKITA's joint ventures are properly classified as joint ventures
rather than joint operations. Under IFRS 11, AKITA is
required to report its joint venture assets, liabilities and
financial activities using the equity method of accounting.
However, for purposes of analysis in this MD&A, the
proportionate share of assets, liabilities and financial activities
is included as non-GAAP financial measures ("Adjusted") where
appropriate. The Company provides the same drilling services
and utilizes the same management, financial and reporting controls
for its joint venture activities as are in place for its
wholly-owned operations. None of AKITA's joint ventures are
individually material in size when considered in the context of
AKITA's overall operations.
Adjusted operating margin, adjusted revenue per operating day,
adjusted operating and maintenance expenses per operating day and
adjusted operating margin per operating day are not recognized GAAP
measures under IFRS. Management and certain investors may
find such operating margin data to be a useful measurement tool, as
it provides an indication of the profitability of the business
prior to the influence of depreciation, overhead expenses,
financing costs and income taxes. Management and certain
investors may find "per operating day" measures for adjusted
revenue and adjusted operating margin indicate pricing strength
while adjusted operating and maintenance expenses per operating day
demonstrates a degree of cost control and provides a proxy for
specific inflation rates incurred by the Company. Readers
should be cautioned that in addition to the foregoing, other
factors, including the mix of rigs that are utilized can also
influence these results. Readers should also be aware that
AKITA includes standby revenue in its determination of "per
operating day" results.
Funds flow from operations is considered an additional GAAP item
under IFRS. AKITA's method of determining funds flow from
operations may differ from methods used by other companies and
includes cash flow from operating activities before working capital
changes, equity income from joint ventures, and income tax amounts
paid or recovered during the period. Management and certain
investors may find funds flow from operations to be a useful
measurement to evaluate the Company's operating results at year-end
and within each year, since the seasonal nature of the business
affects the comparability of non-cash working capital changes both
between and within periods.
Forward-looking Statements
From time to time AKITA makes forward-looking statements.
These statements include but are not limited to comments with
respect to AKITA's objectives and strategies, financial condition,
results of operations, the outlook for the industry and risk
management.
By their nature, these forward-looking statements involve
numerous assumptions, inherent risks and uncertainties, both
general and specific, and the risk that the predictions and other
forward-looking statements will not be realized. Readers of
this MD&A are cautioned not to place undue reliance on these
statements as a number of important factors could cause actual
future results to differ materially from the plans, objectives,
estimates and intentions expressed in such forward-looking
statements.
Forward-looking statements may be influenced by factors such as
the level of exploration and development activity carried on by
AKITA's customers; world crude oil prices and North American
natural gas prices; weather; access to capital markets and
government policies. We caution that the foregoing list of
factors is not exhaustive and that investors and others should
carefully consider the foregoing factors as well as other
uncertainties and events prior to making a decision to invest in
AKITA. Except as required by law, the Company does not
undertake to update any forward-looking statements, whether written
or oral, that may be made from time to time by it or on its
behalf.
Selected Financial Information for the Company is as
follows:
AKITA Drilling
Ltd.
|
Interim
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
June
30,
|
June 30,
|
December
31,
|
$
Thousands
|
|
|
2017
|
2016
|
2016
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
$
|
7,606
|
$
|
22,573
|
$
|
14,250
|
|
Accounts
receivable
|
|
|
21,989
|
12,269
|
28,220
|
|
Income taxes
recoverable
|
|
|
5,405
|
-
|
2,356
|
|
Prepaid expenses and
other
|
|
|
705
|
491
|
74
|
|
|
|
35,705
|
35,333
|
44,900
|
Non-current
assets
|
|
|
|
|
|
|
Long-term
receivable
|
|
|
-
|
9,442
|
-
|
|
Restricted
cash
|
|
|
2,253
|
4,792
|
2,969
|
|
Other long-term
assets
|
|
|
858
|
957
|
894
|
|
Investments in joint
ventures
|
|
|
4,213
|
3,774
|
3,252
|
|
Property, plant and
equipment
|
|
|
203,682
|
206,483
|
205,892
|
Total
Assets
|
|
|
$
|
246,711
|
$
|
260,781
|
$
|
257,907
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
|
$
|
9,623
|
$
|
2,187
|
$
|
8,468
|
|
Dividends
payable
|
|
|
1,525
|
1,525
|
1,525
|
|
Income taxes
payable
|
|
|
-
|
248
|
-
|
|
|
|
11,148
|
3,960
|
9,993
|
Non-current
liabilities
|
|
|
|
|
|
|
Financial
instruments
|
|
|
22
|
77
|
41
|
|
Deferred income
taxes
|
|
|
23,408
|
21,099
|
23,702
|
|
Deferred share
units
|
|
|
368
|
216
|
222
|
|
Pension
liability
|
|
|
4,480
|
3,965
|
4,303
|
Total
liabilities
|
|
|
39,426
|
29,317
|
38,261
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
Class A and Class B
shares
|
|
|
23,871
|
23,871
|
23,871
|
|
Contributed
surplus
|
|
|
4,440
|
4,149
|
4,285
|
|
Accumulated other
comprehensive loss
|
|
|
(366)
|
(244)
|
(366)
|
|
Retained
earnings
|
|
|
179,340
|
203,688
|
191,856
|
Total
equity
|
|
|
207,285
|
231,464
|
219,646
|
Total Liabilities
and Equity
|
|
|
$
|
246,711
|
$
|
260,781
|
$
|
257,907
|
AKITA Drilling
Ltd.
|
Interim
Consolidated Statements of Net Income (Loss) and Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
Unaudited
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
$
Thousands
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Revenue
|
$
|
17,986
|
$
|
3,646
|
$
|
37,179
|
$
|
45,636
|
|
|
|
|
|
Costs and
Expenses
|
|
|
|
|
|
Operating and
maintenance
|
14,632
|
1,464
|
32,367
|
10,618
|
|
Depreciation and
amortization
|
7,735
|
5,384
|
14,471
|
11,659
|
|
Selling and
administrative
|
3,409
|
3,037
|
7,387
|
6,999
|
Total costs and
expenses
|
25,776
|
9,885
|
54,225
|
29,276
|
|
|
|
|
|
Revenue less costs
and expenses
|
(7,790)
|
(6,239)
|
(17,046)
|
16,360
|
|
|
|
|
|
Equity Income from
Joint Ventures
|
1,849
|
389
|
3,911
|
2,844
|
|
|
|
|
|
Other Income
(Loss)
|
|
|
|
|
|
Interest
income
|
111
|
245
|
231
|
493
|
|
Interest
expense
|
(42)
|
(40)
|
(84)
|
(80)
|
|
Gain (loss) on sale
of assets
|
64
|
57
|
140
|
30
|
|
Net other gains
(losses)
|
20
|
57
|
39
|
(110)
|
Total other income
(loss)
|
153
|
319
|
326
|
333
|
|
|
|
|
|
Income (loss)
before income taxes
|
(5,788)
|
(5,531)
|
(12,809)
|
19,537
|
|
|
|
|
|
Income
Taxes
|
(1,297)
|
(1,469)
|
(3,343)
|
5,426
|
|
|
|
|
|
Net Income (Loss)
and Comprehensive Income
|
|
|
|
|
(Loss) for the
Period Attributable to Shareholders
|
$
|
(4,491)
|
$
|
(4,062)
|
$
|
(9,466)
|
$
|
14,111
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss)
per Class A and Class B Share
|
|
|
|
|
|
Basic
|
$
|
(0.25)
|
$
|
(0.23)
|
$
|
(0.53)
|
$
|
0.79
|
|
Diluted
|
$
|
(0.25)
|
$
|
(0.23)
|
$
|
(0.53)
|
$
|
0.79
|
AKITA Drilling
Ltd.
|
|
|
|
|
|
Interim
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
Unaudited
|
|
June
30,
|
June 30,
|
June
30,
|
June 30,
|
$
Thousands
|
|
2017
|
2016
|
2017
|
2016
|
Operating
Activities
|
|
|
|
|
|
Net income (loss) and
comprehensive income (loss)
|
|
$
|
(4,491)
|
$
|
(4,062)
|
$
|
(9,466)
|
$
|
14,111
|
Non-cash items
included in net income (loss):
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
7,735
|
5,384
|
14,471
|
11,659
|
|
Deferred income tax
expense
|
|
(265)
|
1,148
|
(294)
|
1,896
|
|
Defined benefit
pension plan expense
|
|
112
|
107
|
225
|
216
|
|
Stock options and
deferred share units expense
|
|
236
|
187
|
301
|
259
|
|
(Gain) loss on sale
of assets
|
|
(64)
|
(57)
|
(140)
|
(30)
|
|
Unrealized gain on
financial guarantee contracts
|
|
(9)
|
(19)
|
(19)
|
(40)
|
Funds flow from
operations
|
|
3,254
|
2,688
|
5,078
|
28,071
|
Change in non-cash
working capital
|
|
3,057
|
2,664
|
8,736
|
(4,234)
|
Equity income from
joint ventures
|
|
(1,849)
|
(389)
|
(3,911)
|
(2,844)
|
Change in long-term
receivable
|
|
-
|
(119)
|
-
|
(9,442)
|
Post-employment
benefits
|
|
(24)
|
(7)
|
(48)
|
(15)
|
Interest
paid
|
|
1
|
(1)
|
-
|
(1)
|
Income tax expense
(recovery) - current
|
|
(1,032)
|
(2,617)
|
(3,049)
|
3,530
|
Income taxes paid
(recovered)
|
|
-
|
-
|
-
|
(3)
|
Net cash from
operating activities
|
|
3,407
|
2,219
|
6,806
|
15,062
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
Capital
expenditures
|
|
(7,615)
|
(1,157)
|
(12,202)
|
(1,530)
|
Change in non-cash
working capital related to capital
|
|
504
|
(147)
|
(1,981)
|
(1,500)
|
Net distributions
from investments in joint ventures
|
|
1,889
|
559
|
2,950
|
3,011
|
Change in cash
restricted for loan guarantees
|
|
360
|
525
|
716
|
1,186
|
Change in term
deposits
|
|
-
|
16,000
|
-
|
-
|
Proceeds on sale of
assets
|
|
87
|
65
|
167
|
125
|
Net cash used in
investing activities
|
|
(4,775)
|
15,845
|
(10,350)
|
1,292
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
Dividends
paid
|
|
(1,525)
|
(1,525)
|
(3,050)
|
(3,050)
|
Loan commitment
fee
|
|
-
|
-
|
(50)
|
(100)
|
Net cash used in
financing activities
|
|
(1,525)
|
(1,525)
|
(3,100)
|
(3,150)
|
|
|
|
|
|
|
Increase in cash
and cash equivalents
|
|
(2,893)
|
16,539
|
(6,644)
|
13,204
|
Cash and cash
equivalents, beginning of period
|
|
10,499
|
6,034
|
14,250
|
9,369
|
|
|
|
|
|
|
Cash and Cash
Equivalents, End of Period
|
|
$
|
7,606
|
$
|
22,573
|
$
|
7,606
|
$
|
22,573
|
SOURCE AKITA Drilling Ltd.