AKITA announces 2023 annual results with net income of $18.4 million and repayment of $24 million in debt

Mar 21, 2024

CALGARY, AB, March 21, 2024 /CNW/ - AKITA Drilling Ltd. (TSX: AKT.A)

AKITA Drilling Ltd. ("AKITA" or the "Company") announces net earnings of $18,415,000 for the year ended December 31, 2023, compared to $4,288,000 in 2022, an increase of 329% year over year and a return to a positive retained earnings balance. Significantly improved earnings translated into a 31% increase in adjusted funds flow from operations, which increased to $45,522,000 in 2023, from $34,813,000 in 2022. Both net income and adjusted funds flow from operations were the highest achieved since 2014. Despite improved financial results, activity was down year over year with the Canadian division achieving 2,239 operating days in 2023, compared to 2,518 operating days in 2022 and the US division achieving 3,853 operating days in 2023, compared to 4,088 operating days in 2022. In the US, 2023 started at full capacity but began to decline over the second half of the year while Canada fell behind 2022 in the second quarter and remained behind for the balance of the year. Improved operating margins per day, driven by improved day rates, were the key driver for the Company's improved year over year results. Operating margin per operating day increased 30% in Canada and 31% in the US. Capital spending for the year was $24,592,000 in 2023 compared to $17,982,000 in 2022, and included the cost of upgrading one Canadian oil sands configured rig to position it for deep gas drilling. The Company's debt balance decreased by $24,000,000 in 2023, exceeding the Company's $20,000,000 debt repayment target, and now sits at $69,542,000 total debt compared to $93,514,000 total debt a year prior.

Colin Dease, AKITA's Chief Executive Officer stated: "2023 was a successful year, surpassing our debt repayment target, returning to positive retained earnings, improving our year over year safety results and taking our first step to reconfigure our fleet of oil sands rigs so they are well equipped for both SAGD drilling as well as deep gas drilling in order to increase our exposure to one of Canada's strongest market segments. I would like to thank everyone at AKITA and our First Nation, Métis and Inuvialuit partners for making 2023 a strong year and for their continued commitment to this company"

CONSOLIDATED FINANCIAL HIGHLIGHTS

($Thousands except per share amounts)	For the three months ended December 31,				For the year ended December 31,
($Thousands except per share amounts)	2023	2022	Change	% Change	2023	2022	Change	% Change
Revenue	47,317	59,525	(12,208)	(21 %)	225,479	200,996	24,483	12 %
Operating and maintenance expenses	38,228	40,666	(2,438)	(6 %)	167,029	151,884	15,145	10 %
Operating margin	9,089	18,859	(9,770)	(52 %)	58,450	49,112	9,338	19 %
Margin %	19 %	32 %	(13 %)	(41 %)	26 %	24 %	2 %	8 %

Net cash from operating activities	17,523	8,035	9,488	118 %	35,567	18,198	17,369	95 %

Adjusted funds flow from operations⁽¹⁾	7,177	16,144	(8,967)	(56 %)	45,522	34,813	10,709	31 %
Per share	0.18	0.41	(0.23)	(56 %)	1.15	0.88	0.27	31 %

Net income (loss)	(1,166)	8,813	(9,979)	(113 %)	18,415	4,288	14,127	329 %
Per share	(0.03)	0.22	(0.25)	(114 %)	0.46	0.11	0.35	318 %

Capital expenditures	12,822	4,917	7,905	161 %	24,592	17,982	6,610	37 %

Weighted average shares outstanding	39,684	39,650	34	0 %	39,659	39,623	36	0 %

Total assets					263,640	268,281	(4,641)	(2 %)
Total debt					69,542	93,514	(23,972)	(26 %)

⁽¹⁾ See "Non-GAAP and Supplementary Financial Measures" near the end of this release for further detail.

United States Operations

$Thousands except per day amounts
	For the three months ended December 31,				For the year ended December 31,
	2023	2022	Change	% Change	2023	2022	Change	% Change
Revenue US	35,549	44,839	(9,290)	(21 %)	169,474	145,717	23,757	16 %
Flow through charges⁽¹⁾	(4,183)	(5,383)	1,200	22 %	(17,610)	(14,919)	(2,691)	(18 %)
Adjusted revenue US⁽¹⁾	31,366	39,456	(8,090)	(21 %)	151,864	130,798	21,066	16 %

Operating and maintenance expenses US	29,293	29,861	(568)	(2 %)	125,473	110,086	15,387	14 %
Flow through charges⁽¹⁾	(4,183)	(5,383)	1,200	22 %	(17,610)	(14,919)	(2,691)	(18 %)
Adjusted operating and maintenance expenses US⁽¹⁾	25,110	24,478	632	3 %	107,863	95,167	12,696	13 %

Adjusted operating margin US⁽¹⁾	6,256	14,978	(8,722)	(58 %)	44,001	35,631	8,370	23 %
Margin %⁽¹⁾	20 %	38 %	(18 %)	(47 %)	29 %	27 %	2 %	7 %

Operating days	812	1,046	(234)	(22 %)	3,853	4,088	(235)	(6 %)

Adjusted revenue per operating day⁽¹⁾	38,628	37,721	907	2 %	39,414	31,996	7,418	23 %

Adjusted operating and maintenance expenses per operating day⁽¹⁾	30,924	23,402	7,522	32 %	27,995	23,280	4,715	20 %
Adjusted operating margin per operating day⁽¹⁾	7,704	14,319	(6,615)	(46 %)	11,419	8,716	2,703	31 %

Utilization⁽¹⁾	59 %	71 %	(12 %)	(17 %)	70 %	70 %	0 %	0 %

Rig count	15	16	(1)	(6 %)	15	16	(1)	(6 %)

⁽¹⁾ See "Non-GAAP and Supplementary Financial Measures" near the end of this release for further detail.

The Company's US division began the year operating at full capacity with all 14 marketed rigs active until August when the declining rig count in the industry began to affect the Company, dropping AKITA's US rig count to ten active rigs in September before hitting a low of eight active rigs in October of 2023, and ending the year with nine active rigs. Adjusted operating margin increased 23% to $44,001,000 in 2023, from $35,631,000 in 2022 despite a 6% decrease in year over year operating days. Higher revenue per operating day was the cause of the increased adjusted operating margin. Revenue per day increased 23% to $39,414 in 2023, from $31,996 in 2022, peaking at $40,499 in the second quarter of 2023 and ending the year at $38,628, 2% above the same period of 2022. Pressure on day rates as the active industry rig count fell was the cause of the decrease in rates. Revenue in the US accounted for 64% of the Company's total 2023 adjusted revenue, consistent with 63% in 2022. Adjusted operating margin in the US was 65% of the total for the Company in 2023, up from 64% in 2022.

Adjusted operating and maintenance costs increased to $107,863,000 in 2023 from $95,167,000 in 2022, due to higher per day costs, which increased to $27,995 in 2023 from $23,280 in 2022 and peaked in the fourth quarter of 2023 at $30,924. The cause of the increased adjusted operating and maintenance costs is an overall increase in all costs associated with operating a drilling rig. This includes the provision of more ancillary items, such as rental drill pipe at the Company's expense, as competition increased in response to the reduced active industry rig count. Adjusted operating and maintenance costs were positively impacted by the receipt of a $4.0 million Employee Retention Credit ("ERC") from the IRS. The ERC is a COVID-19 related credit, granted to employers that retained a certain number of employees while experiencing significant decreases in revenue during the pandemic. This amount reduced the total operating costs in the year (2022 - $2.0 million).

Canadian Operations

$Thousands except per day amounts
	For the three months ended December 31,				For the year ended December 31,
	2023	2022	Change	% Change	2023	2022	Change	% Change
Revenue Canada	11,768	14,686	(2,918)	(20 %)	56,005	55,279	726	1 %
Revenue from joint venture drilling rigs	7,672	6,546	1,126	17 %	35,662	25,958	9,704	37 %
Flow through charges⁽¹⁾	(860)	(712)	(148)	(21 %)	(5,986)	(3,800)	(2,186)	(58 %)
Adjusted revenue Canada⁽¹⁾	18,580	20,520	(1,940)	(9 %)	85,681	77,437	8,244	11 %

Operating and maintenance expenses Canada	8,935	10,806	(1,871)	(17 %)	41,556	41,799	(243)	(1 %)

Operating and maintenance expenses from joint venture drilling rigs	6,129	4,470	1,659	37 %	27,144	19,635	7,509	38 %
Flow through charges⁽¹⁾	(860)	(712)	(148)	(21 %)	(5,986)	(3,800)	(2,186)	(58 %)
Adjusted operating and maintenance expenses Canada⁽¹⁾	14,204	14,564	(360)	(2 %)	62,714	57,634	5,080	9 %

Adjusted operating margin Canada⁽¹⁾	4,376	5,956	(1,580)	(27 %)	22,967	19,803	3,164	16 %

Margin %⁽¹⁾	24 %	29 %	(5 %)	(17 %)	27 %	26 %	1 %	4 %

Operating days	465	583	(118)	(20 %)	2,239	2,518	(279)	(11 %)

Adjusted revenue per operating day⁽¹⁾	39,957	35,197	4,760	14 %	38,268	30,753	7,515	24 %
Adjusted operating and maintenance expenses per operating day⁽¹⁾	30,546	24,981	5,565	22 %	28,010	22,889	5,121	22 %
Adjusted operating margin per operating day⁽¹⁾	9,411	10,216	(805)	(8 %)	10,258	7,864	2,394	30 %

Utilization⁽¹⁾	25 %	32 %	(7 %)	(22 %)	31 %	34 %	(3 %)	(9 %)

Rig count	20	20	-	0 %	20	20	-	0 %
⁽¹⁾ See "Non-GAAP and Supplementary Financial Measures" near the end of this release for further detail.

Results in Canada improved in 2023, with adjusted operating margin increasing 16% to $22,967,000 in the year from $19,803,000 in 2022. This increase was driven by improved day rates throughout the fleet which increased 24% in 2023 when compared to 2022. The impact of improved day rates was partially offset somewhat by reduced activity in 2023 compared to 2022. Operating days fell by 11% in the year due to prolonged forest fires and conservation activities, which reduced second quarter activity and led to fewer operating days for AKITA's double rigs. During 2023, AKITA achieved 2,239 operating days in Canada, which corresponds to an annual utilization rate of 31%, compared to a 2023 industry average of 36% and a 2022 utilization rate for the Company of 34% (2,518 days).

Adjusted operating and maintenance expenses increased 9% to $62,714,000 in 2023 from $57,634,000 in 2022. The increase was not in-line with the 11% decrease in operating days but was reflective of increased per day costs. On a per day basis, adjusted operating and maintenance costs increased to $28,010 in 2023 from $22,889 in 2022. Higher labour costs, which make up 68% of the total operating and maintenance expense in 2023, were the main cause of the increase. Also contributing to higher operating and maintenance costs in 2023 were higher maintenance costs in the year overall due to startup costs on two rigs.

FURTHER INFORMATION

This news release shall be used as preparation for reading the full disclosure documents. AKITA's audited consolidated financial statements and management's discussion and analysis for the year ended December 31, 2023 will be available on the AKITA website (www.akita-drilling.com) or via SEDAR (www.sedar.com) or can be requested in print from the Company.

Non-GAAP and Supplementary Financial Measures

Non-GAAP Financial Measures
Adjusted Revenue and Operating and Maintenance Expenses

Revenue and operating and maintenance expenses in AKITA's Canadian operating segment include revenue and expenses from AKITA's wholly-owned drilling rigs as well as its share of joint venture revenue and expenses.

Excluded from the revenue and expenses in AKITA's Canadian and US operating segment are flow through charges that are billed to operators and repaid to the Company. The volume and timing of the flow through charges can artificially impact the operational per day analysis and as a result management and certain investors may find the comparability between periods is improved when these flow through charges are excluded from revenue per day and operating and maintenance expenses per day. The flow through charges do not have any impact on the Company's net earnings as the amounts offset each other.

Adjusted Funds Flow from Operations
Adjusted funds flow from operations is not a recognized GAAP measure under IFRS and readers should note that AKITA's method of determining adjusted 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. Nonetheless, management and certain investors may find adjusted 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.

	For the three months ended December 31,		For the year ended December 31,
$Thousands	2023	2022	2023	2022
Net cash from operating activities	17,523	8,035	35,567	18,198
Interest paid	1,243	2,142	6,292	6,622
Interest expense	(1,294)	(2,181)	(6,502)	(6,777)
Post-employment benefits paid	79	378	322	584
Equity income from joint ventures	1,488	2,001	8,184	5,954
Change in non-cash working capital	(11,862)	5,769	1,659	10,232
Adjusted funds flow from operations	7,177	16,144	45,522	34,813

Non-GAAP Ratios
"Adjusted funds flow from operations per share" is calculated on the same basis as net loss per class A and class B share basic and diluted, utilizing the basic and diluted weighted average number of class A and class B shares outstanding during the periods presented.

"Adjusted revenue per operating day" may be useful to analysts, investors, other interested parties and management as a measure of pricing strength and is calculated by dividing adjusted revenue by the number of operating days for the period.

"Adjusted operating and maintenance expenses per operating day" may be useful to analysts, investors, other interested parties and management as it demonstrates a degree of cost control and provides a proxy for specific inflation rates incurred by the Company

FORWARD-LOOKING INFORMATION:

Certain statements contained in this news release may constitute forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "will", "intend", "should", and similar expressions.

Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information.

The Company's actual results could differ materially from those anticipated in this forward-looking information as a result of regulatory decisions, competitive factors in the industries in which the Company operates, prevailing economic conditions, and other factors, many of which are beyond the control of the Company.

The Company believes that the expectations reflected in the forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking information should not be unduly relied upon.

Any forward-looking information contained in this news release represents the Company's expectations as of the date hereof, and is subject to change after such date. The Company disclaims any intention or obligation to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required by applicable securities legislation.

SOURCE AKITA Drilling Ltd.

For further information: INVESTOR INQUIRIES: Darcy Reynolds, CPA, CA, Vice President, Finance and Chief Financial Officer, (403) 292-7537