AKITA Drilling Ltd. Announces Record First Quarter Earnings and Funds Flow

CALGARY, April 24, 2012 /CNW/ - AKITA Drilling Ltd. is pleased to report that it has achieved record first quarter earnings and funds flow from operations during 2012.

AKITA Drilling Ltd.'s net earnings for the three months ended March 31, 2012 were $13,904,000 ($0.77 per share) on revenue of $78,774,000 compared to $7,952,000 ($0.44 per share) on revenue of $57,444,000 for the corresponding period in 2011.  Funds flow from operations for the quarter ended March 31, 2012 was $20,362,000 compared to $13,712,000 in the corresponding quarter in 2011.  The revenue, earnings and funds flow were record results for any quarter for AKITA Drilling Ltd.

Strong market conditions contributed to the positive performance for all depth categories and rig types.  The most significant improvement, compared to the corresponding quarter in 2011, was for conventional triples.  Demand for this rig category has been improving over the past two fiscal quarters, largely attributable to the increased development of selected "liquids-rich" natural gas resources in which the rig capacity requirements exceed those available from doubles.  Management anticipates this trend to continue for well designs involving drilling longer horizontal legs and larger diameter holes.

During the first quarter of 2012, the Company announced the award of multi-year contracts to build two pad rigs for two major independent operators with drilling programs in the Wood Buffalo region of northeast Alberta.  In addition to these major announcements, AKITA Drilling Ltd. entered into an agreement with a major independent operator to convert an existing conventional triple into a pad rig to provide drilling services under a two-year agreement to develop potash resources in Saskatchewan.

Future prospects for AKITA Drilling Ltd. remain positive.  Most of the Company's 15 pad rigs are expected to drill through the break-up period and beyond.  The remaining pad rigs and most of the conventional rigs in the Company's fleet should re-commence drilling operations once road bans are removed.  Management anticipates lower demand for shallow rigs that are located in gas prone regions until the winter drilling season.

Selected information from AKITA Drilling Ltd.'s Management's Discussion and Analysis for the Quarterly Report is as follows:

Revenue and Operating & Maintenance Expenses

$Million
Three Months Ended March 31				2012				2011		Change		% Change
Revenue				78.8				57.4		21.4		37%
Operating & Maintenance Expenses				49.2				36.6		12.6		34%
Operating Margin (Note)				29.6				20.8		8.8		42%

Note:  Operating margin is the difference between revenue and operating & maintenance expenses.

$Dollars
Three Months Ended March 31				2012				2011		Change		% Change
Revenue per Operating Day				31,409				28,480		2,929		10%
Operating & Maintenance Expenses per Operating Day				19,617				18,169		1,449		8%
Operating Margin (Note) per Operating Day				11,792				10,311		1,481		14%

Note:  Operating margin is the difference between revenue and operating & maintenance expenses.

During the quarter, the Company achieved record results in terms of quarterly revenue.  Revenue increased to $78,774,000 during the first quarter of 2012 from $57,444,000 during the first quarter of 2011 as a result of improving market conditions combined with an increase in the overall size of AKITA's rig fleet.  All categories of AKITA's rig fleet made significant contributions to the improved results.  The first quarter of 2012 represented the eighth consecutive quarter in which revenue exceeded the comparative period for the Company.

In addition to an increase in total revenue for the quarter, revenue per operating day increased to $31,409 during the first quarter of 2012 from $28,480 in the first quarter of 2011.  As with the increase in overall revenue, revenue per day increased for all rig categories in AKITA's fleet, but was most pronounced in the conventional triples.

Operating and maintenance costs increased due to higher activity levels and amounted to $49,200,000 or $19,617 per operating day during the first quarter of 2012 compared to $36,646,000 or $18,169 per operating day in the same period of the prior year.  Higher day rates during the first quarter of 2012 compared to the comparative period in 2011 more than offset the impact of increasing operating and maintenance costs.  Consequently, operating margins increased during the first quarter of 2012 compared to the comparative basis on both a "per operating day" and "total operating margin" basis.

From time to time, the Company requires customers to make pre-payments prior to the provision of drilling services.  At March 31, 2012, however, the Company had not received any pre-payments from customers for drilling services (March 31, 2011 - $222,000).

Depreciation Expense

$Million
Three Months Ended March 31				2012					2011		Change		% Change
Depreciation Expense				7.3					5.7		1.6		28%

The depreciation expense increase to $7,266,000 during the first quarter of 2012 from $5,663,000 in the corresponding period in 2011 was largely attributable to the increase in overall rig activity as well as an increase in the average cost base for AKITA's rigs.  In the first quarter of 2012, drilling rig depreciation accounted for 97% of total depreciation expense (Q1, 2011 - 96%).

Selling and Administrative Expense

$Million
Three Months Ended March 31				2012				2011		Change		% Change
Selling & Administrative Expense				5.0				4.6		0.4		9%

Selling and administrative expenses were 6.3% of total revenue in the first quarter of 2012 compared to 7.9% of total revenue in the first quarter of 2011, largely as a result of increased revenue in 2012.  The single largest component was salaries and benefits, which accounted for 60% of these expenses (54% in Q1, 2011).

Other Income

$Million
Three Months Ended March 31				2012				2011		Change		% Change
Interest Income				0.1				0.2		(0.1)		(50%)
Gain on sale of joint venture rigs and other assets				1.2				0.0		1.2		N/A

The Company invests any cash balances in excess of its ongoing operating requirements in bank guaranteed highly liquid investments.  Interest income decreased to $112,000 from $168,000 in the corresponding period as a result of reduced cash and short term deposit balances coupled with an overall reduction in short-term interest rates.  The Company has undertaken significant capital expenditures related to the construction of new rigs and the conversion of conventional rigs into pad rigs, thereby reducing AKITA's cash balances.

During the first quarter of 2012, the Company disposed of its interests in its remaining two arctic drilling camps and other non-core assets resulting in a $1,156,000 gain (Q1, 2011 - gains from disposals of non-core assets - $34,000).

Income Tax Expense

$Million
Three Months Ended March 31					2012				2011		Change		% Change
Current Tax Expense					4.5				2.9		1.6		55%
Deferred Tax Expense					0.2				0.0		0.2		N/A
Total Income Tax Expense					4.7				2.9		1.8		62%

Total income tax expense increased to $4,720,000 in the first quarter of 2012 from $2,858,000 in the corresponding period in 2011 due to higher pre-tax earnings.

Net Income and Funds Flow

$Million
Three Months Ended March 31					2012					2011		Change		% Change
Net Income					13.9					8.0		5.9		74%
Funds Flow From Operations (Note)					20.4					13.7		6.7		49%

Note: See commentary regarding non-standard accounting measure.

During the quarter, the Company achieved record results in terms of quarterly net income and funds flow from operations.  Net income increased to $13,904,000 or $0.77 per Class A Non-Voting and Class B Common Share (basic and diluted) for the first quarter of 2012 from $7,952,000 or $0.44 per share (basic and diluted) in the first quarter of 2011.  Funds flow from operations increased to $20,362,000 in the first quarter of 2012 from $13,712,000 in the corresponding quarter in 2011.  Record net income and funds flow from operations that occurred in 2012 were directly attributable to higher activity levels and increased operating margins per operating day versus the first quarter of 2011.

Non Standard Accounting Measure

Funds flow from operations is not a recognized measure under IFRS.  AKITA's method of determining funds flow from operations may differ from methods used by other companies and involves including cash flow from operating activities before working capital changes.  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.

Fleet and Rig Utilization

AKITA had 38 drilling rigs, including eight that operated under joint ventures, (35.075 net to AKITA) at the end of the first quarter of 2012 compared to 36 rigs (33.225 net) in the corresponding period of 2011.  In the first quarter of 2012, AKITA achieved 2,508 operating days, representing a utilization rate of 72.5%.  During the comparative quarter in 2011, the Company achieved 2,017 operating days, representing 62.2% utilization.  At March 31, 2012, all of AKITA's rigs were located in Canada.

Liquidity and Capital Resources

Cash used for capital expenditures totalled $17,396,000 in the first quarter of 2012 and included $12,688,000 for current period expenditures with the balance relating to changes in non-cash working capital.  The most significant expenditure related to completing the conversion of a conventional triple into a pad rig.  This rig recommenced operations as a pad rig during the first quarter of 2012 and will begin operating later this year under a multi-year contract.  Additional capital related to costs for newly approved rigs as well as for routine capital expenditures.  Cash used for capital expenditures during the corresponding period in 2011 totalled $11,134,000.

At March 31, 2012, AKITA's balance sheet included working capital (current assets minus current liabilities) of $51,835,000 compared to working capital of $64,412,000 at March 31, 2011 and working capital of $44,265,000 at December 31, 2011.  The seasonal nature of AKITA's business typically results in higher non-cash working capital balances at the end of the first quarter than at year-end due to the high seasonal activity levels encountered in the first quarter.

The Company chooses to maintain a conservative balance sheet due to the cyclical nature of the industry.  In addition to its cash and term deposit balances, during 2011, the Company established an operating loan facility with its principal banker totalling $50,000,000, having an initial five year term.  Although the facility has been advanced in order to provide financing for a broad range of alternatives, including general corporate purposes, capital expenditures and acquisitions, management intends to access this facility primarily to enable the Company to fund new rig construction requirements related to drilling contracts that it might be awarded.  The interest rate on the facility varies based upon the actual amounts borrowed, and ranges from 0.4% to 1.4% over prime interest rates or 1.4% to 2.4% over guaranteed notes, depending on the preference of the Company.  The Company did not access this facility during 2011 or in the first quarter of 2012.

The Company had nine rigs operating under multi-year contracts at March 31, 2012.  Of these contracts, one is anticipated to expire in 2012, five in 2013 and three in 2014.  In addition to the foregoing, the Company has commenced construction on two additional rigs with associated multi-year contracts.

During 2011, the Company guaranteed bank loans made to joint venture partners totalling $2,700,000 for a period of four years.  The Company has provided an assignment of monies on deposit totalling $3,000,000 with respect to these loans.  These funds have been classified as "restricted cash" on the balance sheet.  The Company's security from its partners for these guarantees includes interests in specific rig assets.

Business Developments

During the first quarter of 2012, the Company announced that it had been awarded multi-year contracts to build two pad rigs for two major independent operators with drilling programs in the Wood Buffalo region of northeast Alberta.  In addition to these major announcements, AKITA entered into an agreement with a major independent operator to convert an existing conventional triple into a pad rig to provide drilling services under a two-year agreement.

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 News Release 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.

Selected financial information for the Company is as follows:

AKITA DRILLING LTD
Interim Consolidated Statements of Financial Position
Unaudited			March 31			March 31			December 31
(000's of Canadian Dollars)			2012			2011			2011
Assets
Current Assets
	Cash and cash equivalents		$ 10,698		$	42,489		$	18,228
	Term deposits		7,500			2,500			9,500
	Accounts receivable		62,127			43,823			48,351
	Income taxes recoverable		-			-			-
	Prepaid expenses and other		1,010			1,093			413
			81,335			89,905			76,492
Non-current Assets
Restricted cash			3,000			-			3,000
Other long term assets			190			-			200
Investment property			619			-			626
Property, plant and equipment			172,251			140,752			166,812
Total Assets			$ 257,395		$	230,657		$	247,130
Liabilities
Current Liabilities
	Bank indebtedness		-			-			-
	Accounts payable and accrued liabilities		$ 25,900		$	21,861		$	27,550
	Deferred revenue		-			222			146
	Dividends payable		1,262			1,269			1,262
	Income taxes payable		2,338			2,141			3,269
			29,500			25,493			32,227
Non-current Liabilities
Deferred income taxes			12,444			13,238			12,264
Pension liability			1,633			1,496			1,535
Total Liabilities			43,577			40,227			46,026
Shareholders' Equity
Class A and Class B shares			23,308			23,447			23,308
Contributed surplus			2,829			2,573			2,758
Accumulated other comprehensive income			-			-			-
Retained earnings			187,681			164,410			175,038
Total Equity			213,818			190,430			201,104
Total Liabilities and Equity			$ 257,395			$ 230,657		$	247,130

AKITA DRILLING LTD
Interim Consolidated Statements of Net Income and Comprehensive Income
			Three Months Ended
Unaudited			March 31
(000's of Canadian Dollars except per share amounts)				2012			2011
Revenue			$	78,774		$	57,444
Costs and expenses
	Operating and Maintenance			49,200			36,646
	Depreciation			7,266			5,663
	Selling and administrative			4,963			4,552
Total costs and expenses				61,429			46,861
Revenue less costs and expenses				17,345			10,583
Other income (losses)
	Interest income			112			168
	Interest expense			(1)			(5)
	Gain on sale of joint venture interests in rigs and other assets			1,156			34
	Other gains and losses (net)			12			30
Total other income				1,279			227
Income before income taxes				18,624			10,810
Income taxes				4,720			2,858
Net income for the period attributable to shareholders				13,904			7,952
Other comprehensive income (loss)
Cumulative translation adjustment				-			(50)
Comprehensive income for the period attributable to shareholders			$	13,904		$	7,902
Earnings per Class A and Class B Share
	Basic		$	0.77		$	0.44
	Diluted		$	0.77		$	0.44

 

AKITA DRILLING LTD
Interim Consolidated Statements of Cash Flow
		Three Months Ended
Unaudited		March 31
(000's of Canadian Dollars)			2012			2011
Operating Activities
Net income		$	13,904		$	7,952
Non-cash items included in net income
	Depreciation		7,266			5,663
	Deferred income taxes		180			3
	Expense for defined benefit pension plan		98			67
	Stock options charged to expense		71			61
	Gain on sale of joint venture interests in rigs and other assets		(1,157)			(34)
			20,362			13,712
Change in non-cash working capital
	Accounts receivable		(13,776)			(10,484)
	Prepaid expenses and other		(597)			(871)
	Accounts payable and accrued liabilities		3,059			2,311
	Deferred revenue		(146)			222
			(11,460)			(8,822)
			8,902			4,890
Interest paid			(1)			(1)
Income tax expense - non cash			4,540			2,855
Income tax paid			(5,471)			(799)
Net Cash from operating activities			7,970			6,945
Investing Activities
Capital expenditures			(17,396)			(11,134)
Change in cash restricted for loan guarantees			-			2,500
Redemption of term deposits			2,000			7,500
Proceeds on sale of joint venture interests in rigs and other assets			1,157			34
Change in non-cash working capital			-			-
Net Cash used in investing activities			(14,239)			(1,100)
Financing Activities
Dividends paid			(1,261)			(1,270)
Proceeds received on exercise of stock options			-			-
Change in loan commitment fee			-			-
Net Cash used in financing activities			(1,261)			(1,270)
Effect of exchange rate changes on cash and cash equivalents			-			(50)
Increase (Decrease) in Cash and Cash Equivalents			(7,530)			4,525
Cash and cash equivalents, beginning of period			18,228			37,964
Cash and Cash Equivalents, End of Period		$	10,698		$	42,489

 

AKITA DRILLING LTD
Interim Consolidated Statements of Changes in Shareholders' Equity
Unaudited
(000's of Canadian Dollars)		Attributable to the Shareholders of the Company
		Class A			Class B			Total						Accumulated
		Non-Voting			Common			Class A and			Contributed			Other			Retained			Total
		Shares			Shares			Class B			Surplus			Comprehensive			Earnings			Equity
								Shares						Income
Balance at December 31, 2010	$	22,081		$	1,366		$	23,447		$	2,512		$	50		$	157,728		$	183,737
Net earnings for the period		-			-			-			-			-			7,952			7,952
Foreign currency translation adjustment		-			-			-			-			(50)			-			(50)
Shares repurchased		-			-			-			-			-			-			-
Stock options charged to expense		-			-			-			61			-			-			61
Dividends		-			-			-			-			-			(1,270)			(1,270)
Balance at March 31, 2011	$	22,081		$	1,366		$	23,447		$	2,573		$	-		$	164,410		$	190,430
Net earnings for the period		-			-			-			-			-			15,401			15,401
Shares repurchased		(139)			-			(139)			-			-			(979)			(1,118)
Stock options exercised		-			-			-			-			-			-			-
Stock options charged to expense		-			-			-			185			-			-			185
Dividends		-			-			-			-			-			(3,794)			(3,794)
Balance at December 31, 2011	$	21,942		$	1,366		$	23,308		$	2,758		$	-		$	175,038		$	201,104
Net earnings for the period		-			-			-			-			-			13,904			13,904
Foreign currency translation adjustment		-			-			-			-			-			-			-
Shares repurchased		-			-			-			-			-			-			-
Stock options charged to expense		-			-			-			71			-			-			71
Dividends		-			-			-			-			-			(1,261)			(1,261)
Balance at March 31, 2012	$	21,942		$	1,366		$	23,308		$	2,829		$	-		$	187,681		$	213,818