CALGARY, Oct. 31, 2017 /CNW/ - AKITA Drilling Ltd.'s
net loss for the three months ended September 30, 2017 was $3,811,000 (net loss of $0.21 per share basic & diluted) on revenue
of $14,908,000 compared to a net loss
of $4,668,000 (net loss of
$0.26 per share basic & diluted)
on revenue of $6,616,000 for the
corresponding period of 2016. Funds flow from operations decreased
to $1,472,000 in the third quarter of
2017 from $2,197,000 in the
corresponding period of 2016.
AKITA incurred a net loss of $13,277,000 for the nine months ended
September 30, 2017 ($0.74 per share basic & diluted) on revenue
of $52,087,000 compared to net
earnings of $9,443,000 ($0.53 per share basic & diluted) on revenue
of $52,253,000 ($24,003,000 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 September period of 2017 was
$6,549,000 compared to $30,268,000 for the same period in 2016.
AKITA's rig activity has increased significantly in the third
quarter of 2017 to 810 operating days or 32% utilization compared
to 373 operating days or 13% utilization in the third quarter of
2016. This increase in utilization is attributable to higher crude
oil prices which improved 7.5% in the third quarter of 2017 over
the same period in 2016. This improvement in activity however, has
not been enough to impact day rates in a meaningful way and
therefore margins remain low, affecting both funds flow from
operations and net earnings. Higher utilization rates across the
Canadian market are needed to influence pricing.
During the third quarter AKITA completed construction of and
deployed its newest pad drilling rig, Rig 57. This rig is a 4,000
metre AC heavy pad double drilling rig that is well suited for both
the Montney formation and heavy
oil drilling. Currently the rig is drilling for heavy oil for one
of the Company's core customers in the Fort McMurray area. During the third quarter
AKITA also began preparing two rigs to move to Texas where the Company intends to establish a
presence in the Southern United
States. Both rigs are scheduled to be moved from
Canada in the fourth quarter of
2017.
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.
Average West Texas Intermediate crude oil prices for the third
quarter of 2017 were 7.5% higher than in the same period of 2016
and 11% higher on a year-to-date basis when comparing the nine
months ended September 30, 2017 to
the corresponding period in 2016. Increasing crude oil prices have
had a positive effect on drilling activity in the western Canadian
sedimentary basin.
Although activity levels have improved significantly in the
third quarter of 2017 over the same period in 2016, the
corresponding increase in day rates has been minimal due to the
continued oversupply of rigs in the industry in relation to demand.
These low day rates affect the Company's results, as detailed in
this MD&A.
The following table summarizes third quarter and year-to-date
utilization for AKITA and industry for 2017 and 2016:
Utilization
Rates
Expressed in Percentages
|
Three Months
Ended
September
30
|
|
Nine Months
Ended
September
30
|
|
AKITA
|
Industry(1)
|
|
AKITA
|
Industry(1)
|
2017
|
32%
|
30%
|
|
36%
|
29%
|
2016
|
13%
|
16%
|
|
13%
|
15%
|
During the third quarter of 2017, AKITA's utilization exceeded
industry utilization as it typically does due to the higher than
average percentage of pad drilling rigs in AKITA's fleet. Pad
drilling rigs are less impacted by the seasonal nature of the
Canadian drilling industry, which normally peaks in the first
quarter of the year and declines in the second quarter due to road
bans associated with spring break-up, and have a higher number of
operating days than conventional rigs. Drilling activity typically
begins to improve in the third quarter. AKITA's utilization
throughout 2017 has remained above 30% for each quarter.
Fleet and Rig Utilization
At September 30, 2017, AKITA had
29 drilling rigs, including eight that operated under joint
ventures (27.75 net to AKITA), compared to 31 rigs (28.225 net) in
the corresponding period of 2016. AKITA's newest rig, a heavy AC
pad double, began operations in the third quarter of
2017.
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Operating
days
|
|
810
|
373
|
437
|
117%
|
|
2,701
|
1,092
|
1,609
|
147%
|
Utilization
rate
|
|
32%
|
13%
|
19
|
146%
|
|
36%
|
13%
|
23
|
177%
|
Revenue and Operating & Maintenance Expenses
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Revenue per interim
financial statements
|
14.9
|
6.6
|
8.3
|
126%
|
|
52.1
|
52.2
|
(0.1)
|
0%
|
Proportionate share
of revenue from joint ventures(1)
|
5.8
|
4.5
|
1.3
|
29%
|
|
19.2
|
11.5
|
7.7
|
67%
|
Contract cancellation
revenue
|
-
|
-
|
-
|
-
|
|
-
|
(28.3)
|
28.3
|
(100%)
|
Adjusted
revenue(1)
|
20.7
|
11.1
|
9.6
|
86%
|
|
71.3
|
35.4
|
35.9
|
101%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Operating &
maintenance expenses per interim
financial statements
|
11.8
|
5.7
|
6.1
|
107%
|
|
44.2
|
16.4
|
27.8
|
170%
|
Proportionate share
of operating & maintenance
expenses from joint ventures(1)
|
4.6
|
3.1
|
1.5
|
48%
|
|
13.9
|
7.2
|
6.7
|
93%
|
Adjusted operating
& maintenance expenses(1)
|
16.4
|
8.8
|
7.6
|
86%
|
|
58.1
|
23.6
|
34.5
|
146%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Adjusted
revenue(1)
|
20.7
|
11.1
|
9.6
|
86%
|
|
71.3
|
35.4
|
35.9
|
101%
|
Adjusted operating
& maintenance expenses(1)
|
16.4
|
8.8
|
7.6
|
86%
|
|
58.1
|
23.6
|
34.5
|
146%
|
Adjusted operating
margin(1)(2)
|
4.3
|
2.3
|
2.0
|
87%
|
|
13.2
|
11.8
|
1.4
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
$ Dollars
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Adjusted revenue per
operating day(1)
|
25,586
|
29,804
|
(4,218)
|
(14%)
|
|
26,400
|
32,503
|
(6,103)
|
(19%)
|
Adjusted operating
& maintenance expenses per operating
day(1)
|
20,287
|
23,670
|
(3,383)
|
(14%)
|
|
21,514
|
21,528
|
(14)
|
(0%)
|
Adjusted operating
margin per operating day(1)(2)
|
5,299
|
6,134
|
(835)
|
(14%)
|
|
4,886
|
10,975
|
(6,089)
|
(55%)
|
(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.
|
Third Quarter Comparatives
During the third quarter of 2017, adjusted revenue increased to
$20,699,000 ($25,586 per operating day) compared to
$11,117,000 ($29,804 per operating day) during the third
quarter of 2016 as a result of increased activity in the industry.
The decrease in adjusted revenue per operating day is due to an
increased number of single and light double rigs, which command
lower day rates than pad rigs, working in the third quarter of 2017
compared to the same period in 2016.
Adjusted operating and maintenance costs are tied to operating
days and amounted to $16,412,000
($20,287 per operating day) during
the third quarter of 2017 compared to $8,829,000 ($23,670
per operating day) in the same period of the prior year. The
overall increase in adjusted operating and maintenance costs, on a
total basis, resulted from increased drilling activity. The
decrease on a "per operating day" basis, is a result of the change
in rig mix noted above. Single and light double rigs require fewer
crew members to effectively operate than pad rigs and therefore
costs per operating day were lower in the third quarter of 2017
than in the third quarter of 2016.
The adjusted operating margin for the Company increased to
$4,287,000 in the third quarter of
2017 from $2,288,000 during the
corresponding quarter of 2016. The increased adjusted
operating margin is a direct result of increased drilling activity
as AKITA's operating days increased 117% in the third quarter of
2017 compared to the same period in 2016. On a "per operating day"
basis, adjusted operating margin decreased to $5,299 in the third quarter of 2017 from
$6,134 in the comparative period of
2016. The reason for the decrease is the change of the rig mix as
noted above.
Year-to-Date Comparatives
During the first nine months of 2017, adjusted revenue increased
to $71,307,000 from $35,493,000 during the first nine months of 2016
as a result of higher drilling activity. Adjusted revenue per
operating day decreased to $26,400
during the first nine months of 2017 from $32,503 in the comparative nine month period of
2016. This decrease is due primarily to the mix of rigs working
during the period as day rates have not changed significantly
between the two periods.
Adjusted operating and maintenance expenses are tied to
operating days and amounted to $58,110,000 ($21,514 per operating day) during the first nine
months of 2017 compared to $23,508,000 ($21,528 per operating day) in the same
period of the prior year as a result of more operating days. On a
"per operating day" basis there appears to be little change between
periods; however, this is the net effect of a decrease in adjusted
operating and maintenance expenses because of the mix of rigs
working noted above offset by increased costs per operating day due
to rig start-up costs in the first half of 2017.
The adjusted operating margin for the Company increased to
$13,197,000 in the first nine months
of 2017 from $11,984,000 during the
corresponding period of 2016 due to the 147% increase in drilling
activity. On a "per operating day" basis, adjusted operating margin
decreased to $4,886 for the nine
months ended September 30, 2017 from
$10,975 in the corresponding period
of 2016. This decrease in adjusted operating margin is primarily
the result of changes in the rigs working between the comparable
periods as noted above and rig start-up costs in the first quarter
of 2017.
Depreciation and Amortization Expense
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Depreciation and
amortization expense
|
6.5
|
5.9
|
0.6
|
10%
|
|
21.0
|
17.6
|
3.4
|
19%
|
Depreciation and amortization expense was 10% higher in the
third quarter of 2017 compared to the corresponding quarter 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 117% increase in the number of operating
days when comparing the third quarter of 2017 to the corresponding
period of 2016. On a "per operating day" basis, depreciation in the
third quarter of 2017 ($8,096 per
operating day) was lower than the third quarter of 2016
($15,796 per operating day), as rigs
are subject to certain minimum annual depreciation (in addition to
the unit of production basis for depreciation) and therefore the
cost per day decreases as activity increases.
Depreciation and amortization expense for the first nine months
of 2017 totalled $21,020,000 compared
to $17,551,000 for the corresponding
period in 2016. As with the depreciation and amortization
expense for the third quarter, higher rig activity levels were the
driver behind the higher depreciation and amortization expense in
2017 to date. In the first nine months of 2017 drilling rig
depreciation accounted for 97% of total depreciation and
amortization expense in the third quarter of 2017 (2016 -
96%).
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
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Selling &
administrative expenses
|
2.9
|
2.9
|
(0.0)
|
(0%)
|
|
10.2
|
9.9
|
0.3
|
3%
|
Selling and administrative expenses were 14% of adjusted revenue
in the first nine months of 2017 compared to 28% of adjusted
revenue in the first nine months of 2016. The decrease in selling
and administrative expenses when compared to adjusted revenue is a
result of the fixed nature of the majority of the Company's selling
and administrative expenses, therefore as adjusted revenue
increases the percentage of selling and administrative expenses to
adjusted revenue decreases. The single largest component of selling
and administrative expenses was salaries and benefits, which
accounted for 53% of these expenses in the third quarter of 2017
(2016 - 57%).
Equity Income from Joint Ventures
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Proportionate share
of revenue from joint
ventures(1)
|
5.8
|
4.5
|
1.3
|
29%
|
|
19.2
|
11.5
|
7.7
|
67%
|
Proportionate share
of operating &
maintenance expenses from joint ventures(1)
|
4.6
|
3.1
|
1.5
|
48%
|
|
13.9
|
7.2
|
6.7
|
93%
|
Proportionate share
of selling &
administrative expenses from joint
ventures(1)
|
0.1
|
0.1
|
0.0
|
0%
|
|
0.3
|
0.1
|
0.2
|
200%
|
Equity income from
joint ventures per interim
financial statements
|
1.1
|
1.3
|
(0.2)
|
(15%)
|
|
5.0
|
4.2
|
0.8
|
19%
|
(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
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Total other income
(loss)
|
|
0.1
|
0.2
|
(0.1)
|
(50%)
|
|
0.5
|
0.6
|
(0.1)
|
(17%)
|
Interest income decreased to $342,000 in the first nine months of 2017 from
$741,000 in the corresponding period
in 2016, primarily due to the decrease in accrued interest relating
to receivable amounts on contract cancellation revenue recorded in
2016.
During the first nine months of 2017, the Company incurred
interest expense of $126,000 (2016 -
$121,000) related to the future cost
of the Company's defined benefit pension
plan.
During the first nine months of 2017, the Company sold some
ancillary assets for $188,000 (2016 -
$133,000) that resulted in a gain of
$160,000 (2016 - $36,000).
Income Tax Expense (Recovery)
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Current tax expense
(recovery)
|
|
0.1
|
(2.4)
|
2.5
|
104%
|
|
(3.0)
|
1.0
|
(4.0)
|
(400%)
|
Deferred tax expense
(recovery)
|
|
(1.4)
|
0.8
|
(2.2)
|
(275%)
|
|
(1.6)
|
2.7
|
(4.3)
|
(159%)
|
Income tax expense
(recovery)
|
|
(1.3)
|
(1.6)
|
0.3
|
19%
|
|
(4.6)
|
3.7
|
(8.3)
|
(224%)
|
Income tax expense decreased to a recovery of $4,633,000 in the first nine months of 2017 from
an expense of $3,784,000 in the
corresponding period in 2016 mainly due to higher pre-tax earnings
resulting from the contract cancellation fee recorded in 2016.
Deferred taxes for the nine months ended September 30, 2017 were less than the
corresponding period in 2016 due to higher depreciation in
2017.
Net Income (Loss), Funds Flow and Net Cash From Operating
Activities
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Net income
(loss)
|
|
(3.8)
|
(4.7)
|
0.9
|
19%
|
|
(13.3)
|
9.4
|
(22.7)
|
(241%)
|
Funds flow from
operations(1)
|
|
1.5
|
2.2
|
(0.7)
|
(32%)
|
|
6.5
|
30.2
|
(23.7)
|
(78%)
|
(1)
|
Funds flow from
operations is a non-GAAP financial measure under IFRS. See
commentary in "Basis of Analysis in this MD&A, Non-GAAP and
Additional GAAP Items".
|
During the three months ended September
30, 2017, the Company reported a net loss of $3,811,000 or $0.21
per Class A Non-Voting and Class B Common Share (basic and diluted)
compared to a net loss of $4,668,000
or $0.26 per share (basic and
diluted) in the comparative quarter of 2016. The reduction in the
net loss in 2017 when compared to the same period in 2016 was due
to higher activity in 2017.
Funds flow from operations decreased to $1,472,000 during the third quarter of 2017 from
$2,197,000 in the corresponding
quarter in 2016. The decrease in funds flow from operations
compared to the increase in net income is the effect of deferred
income tax which increased net income in 2017. However this is
removed from funds flow from operations as it is a non-cash
item.
Net income decreased to a loss of $13,277,000 or $0.74 per Class A Non-Voting and Class B Common
Shares (basic and diluted) for the first nine months of 2017 from
net income of $9,443,000 or
$0.53 per share (basic and diluted)
in the corresponding period of 2016. Funds flow from
operations decreased to $6,549,000
during the first nine months of 2017 from $30,268,000 in the corresponding period in
2016. The decrease in both net income and funds flow for the
nine month period ended September 30,
2017 was directly attributable to the contract cancellation
fee recorded in the first quarter of 2016.
The following table reconciles funds flow and cash flow from
operations:
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
$ Millions
|
2017
|
2016
|
Change
|
% Change
|
|
2017
|
2016
|
Change
|
% Change
|
Funds flow from
operations(1)
|
1.5
|
2.2
|
(0.7)
|
(32%)
|
|
6.5
|
30.2
|
(23.7)
|
(78%)
|
Change in non-cash
working capital
|
(1.8)
|
(3.7)
|
1.9
|
51%
|
|
7.0
|
(8.0)
|
15.0
|
188%
|
Equity income from
joint ventures
|
(1.1)
|
(1.3)
|
0.2
|
15%
|
|
(5.0)
|
(4.2)
|
(0.8)
|
(19%)
|
Change in long-term
receivable
|
0.0
|
(0.1)
|
0.1
|
100%
|
|
0.0
|
(9.5)
|
9.5
|
100%
|
Current income tax
expense (recovery)
|
0.1
|
(2.5)
|
2.6
|
104%
|
|
(3.0)
|
1.1
|
(4.1)
|
(373%)
|
Income tax
recovered
|
2.3
|
3.2
|
(0.9)
|
(28%)
|
|
2.3
|
3.3
|
(1.0)
|
(30%)
|
Net cash from
operating activities
|
1.0
|
(2.2)
|
3.2
|
145%
|
|
7.8
|
12.9
|
(5.1)
|
(40%)
|
(1)
|
Funds flow from
operations is a non-GAAP financial 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 $16,779,000 in the first nine months of 2017
(2016 - $2,637,000). Half of the
capital spending year-to-date in 2017 relates to the construction
of the Company's newest rig that was completed in the third
quarter. Capital spending for the first nine months of 2016 related
to routine capital items.
At September 30, 2017, AKITA's
Statements of Financial Position included working capital (current
assets minus current liabilities) of $20,140,000 compared to working capital of
$30,038,000 at September 30, 2016, and working capital of
$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 early in the second quarter and decline thereafter
as a result of spring break-up and reduced drilling activities.
Working capital at September 30, 2017
decreased compared to September 30,
2016, as a result of the decrease in the Company's cash
balance due to increased capital spending.
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 September
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 437,908 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 drilling rig under a multi-year contract at
September 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 September 30, 2017, AKITA provided $1,890,000 in deposits with its bank for those
purposes (September 30, 2016 -
$4,262,000 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 Consolidated 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 International Financial Reporting Standards,
("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 expense, 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
|
|
September
30,
|
September
30,
|
December
31,
|
$
Thousands
|
|
2017
|
2016
|
2016
|
Assets
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
4,675
|
$
|
18,417
|
$
|
14,250
|
|
Accounts
receivable
|
|
23,474
|
17,571
|
28,220
|
|
Income taxes
recoverable
|
|
3,051
|
-
|
2,356
|
|
Prepaid expenses and
other
|
|
567
|
295
|
74
|
|
|
31,767
|
36,283
|
44,900
|
Non-current
assets
|
|
|
|
|
|
Long-term
receivable
|
|
-
|
9,528
|
-
|
|
Restricted
cash
|
|
1,890
|
4,262
|
2,969
|
|
Other long-term
assets
|
|
748
|
925
|
894
|
|
Investments in joint
ventures
|
|
4,359
|
5,108
|
3,252
|
|
Property, plant and
equipment
|
|
201,819
|
201,728
|
205,892
|
Total
Assets
|
|
$
|
240,583
|
$
|
257,834
|
$
|
257,907
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
10,102
|
$
|
3,684
|
$
|
8,468
|
|
Dividends
payable
|
|
1,525
|
1,525
|
1,525
|
|
Income taxes
payable
|
|
-
|
1,036
|
-
|
|
|
11,627
|
6,245
|
9,993
|
Non-current
liabilities
|
|
|
|
|
|
Financial
instruments
|
|
15
|
60
|
41
|
|
Deferred income
taxes
|
|
22,033
|
21,933
|
23,702
|
|
Deferred share
units
|
|
375
|
200
|
222
|
|
Pension
liability
|
|
4,568
|
4,051
|
4,303
|
Total
liabilities
|
|
38,618
|
32,489
|
38,261
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
Class A and Class B
shares
|
|
23,871
|
23,871
|
23,871
|
|
Contributed
surplus
|
|
4,456
|
4,223
|
4,285
|
|
Accumulated other
comprehensive loss
|
|
(366)
|
(244)
|
(366)
|
|
Retained
earnings
|
|
174,004
|
197,495
|
191,856
|
Total
equity
|
|
201,965
|
225,345
|
219,646
|
Total Liabilities
and Equity
|
|
$
|
240,583
|
$
|
257,834
|
$
|
257,907
|
AKITA Drilling
Ltd.
|
|
|
|
|
Interim
Consolidated Statements of Net Income (Loss) and Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
Unaudited
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
$
Thousands
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Revenue
|
$
|
14,908
|
$
|
6,616
|
$
|
52,087
|
$
|
52,253
|
|
|
|
|
|
Costs and
Expenses
|
|
|
|
|
|
Operating and
maintenance
|
11,806
|
5,738
|
44,172
|
16,356
|
|
Depreciation and
amortization
|
6,550
|
5,892
|
21,020
|
17,551
|
|
Selling and
administrative
|
2,861
|
2,878
|
10,249
|
9,878
|
Total costs and
expenses
|
21,217
|
14,508
|
75,441
|
43,785
|
|
|
|
|
|
Revenue less costs
and expenses
|
(6,309)
|
(7,892)
|
(23,354)
|
8,468
|
|
|
|
|
|
Equity Income from
Joint Ventures
|
1,081
|
1,344
|
4,992
|
4,188
|
|
|
|
|
|
Other Income
(Loss)
|
|
|
|
|
|
Interest
income
|
111
|
248
|
342
|
741
|
|
Interest
expense
|
(42)
|
(40)
|
(126)
|
(121)
|
|
Gain on sale of
assets
|
20
|
5
|
160
|
36
|
|
Net other gains
(losses)
|
37
|
25
|
76
|
(85)
|
Total other
income
|
126
|
238
|
452
|
571
|
|
|
|
|
|
Income (loss)
before income taxes
|
(5,102)
|
(6,310)
|
(17,910)
|
13,227
|
|
|
|
|
|
Income
Taxes
|
(1,291)
|
(1,642)
|
(4,633)
|
3,784
|
|
|
|
|
|
Net Income (Loss)
and Comprehensive Income
(Loss) for the Period Attributable to
Shareholders
|
$
|
(3,811)
|
$
|
(4,668)
|
$
|
(13,277)
|
$
|
9,443
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss)
per Class A and Class B Share
|
|
|
|
|
|
Basic
|
$
|
(0.21)
|
$
|
(0.26)
|
$
|
(0.74)
|
$
|
0.53
|
|
Diluted
|
$
|
(0.21)
|
$
|
(0.26)
|
$
|
(0.74)
|
$
|
0.53
|
AKITA Drilling
Ltd.
|
|
|
|
|
|
Interim
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
Unaudited
|
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
$
Thousands
|
|
2017
|
2016
|
2017
|
2016
|
Operating
Activities
|
|
|
|
|
|
Net income (loss) and
comprehensive income (loss)
|
|
$
|
(3,811)
|
$
|
(4,668)
|
$
|
(13,277)
|
$
|
9,443
|
Non-cash items
included in net income (loss):
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
6,550
|
5,892
|
21,020
|
17,551
|
|
Deferred income tax
expense (recovery)
|
|
(1,375)
|
834
|
(1,669)
|
2,730
|
|
Defined benefit
pension plan expense
|
|
112
|
108
|
337
|
324
|
|
Stock options and
deferred share units expense
|
|
23
|
54
|
324
|
313
|
|
Gain on sale of
assets
|
|
(20)
|
(6)
|
(160)
|
(36)
|
|
Unrealized gain on
financial guarantee contracts
|
|
(7)
|
(17)
|
(26)
|
(57)
|
Funds flow from
operations
|
|
1,472
|
2,197
|
6,549
|
30,268
|
Change in non-cash
working capital
|
|
(1,751)
|
(3,691)
|
6,985
|
(7,925)
|
Equity income from
joint ventures
|
|
(1,081)
|
(1,344)
|
(4,992)
|
(4,188)
|
Change in long-term
receivables
|
|
-
|
(86)
|
-
|
(9,528)
|
Post-employment
benefits
|
|
(24)
|
(22)
|
(72)
|
(37)
|
Interest
paid
|
|
-
|
-
|
-
|
(1)
|
Current income tax
expense (recovery)
|
|
84
|
(2,476)
|
(2,964)
|
1,054
|
Income taxes
recoverable
|
|
2,270
|
3,264
|
2,269
|
3,261
|
Net cash from
(used in) operating activities
|
|
970
|
(2,158)
|
7,775
|
12,904
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
Capital
expenditures
|
|
(4,577)
|
(1,107)
|
(16,779)
|
(2,637)
|
Change in non-cash
working capital related to capital
|
|
883
|
86
|
(1,098)
|
(1,414)
|
Distributions from
investments in joint ventures
|
|
935
|
10
|
3,885
|
3,021
|
Change in cash
restricted for loan guarantees
|
|
363
|
530
|
1,079
|
1,716
|
Proceeds on sale of
assets
|
|
20
|
8
|
188
|
133
|
Net cash from
(used in) investing activities
|
|
(2,376)
|
(473)
|
(12,725)
|
819
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
Dividends
paid
|
|
(1,525)
|
(1,525)
|
(4,575)
|
(4,575)
|
Loan commitment
fee
|
|
-
|
-
|
(50)
|
(100)
|
Net cash used in
financing activities
|
|
(1,525)
|
(1,525)
|
(4,625)
|
(4,675)
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
(2,931)
|
(4,156)
|
(9,575)
|
9,048
|
Cash and cash
equivalents, beginning of period
|
|
7,606
|
22,573
|
14,250
|
9,369
|
|
|
|
|
|
|
Cash and Cash
Equivalents, End of Period
|
|
$
|
4,675
|
$
|
18,417
|
$
|
4,675
|
$
|
18,417
|
SOURCE AKITA Drilling Ltd.