AKITA announces first quarter results

CALGARY, AB, May 5, 2022 /CNW/ - AKITA Drilling Ltd. (TSX: AKT.A)

AKITA Drilling Ltd. ("AKITA" or the "Company") announces results for the three months ended March 31, 2022.

The gradual strengthening of demand in the North American drilling industry, that began in 2021 as oil and gas prices increased, accelerated in the latter part of 2021 and into the first quarter of 2022. Activity in the Company's Canadian division increased 47% with 722 operating days in the first quarter of 2022, compared to 490 operating days in the first quarter of 2021. The Company's US division experienced a similar increase with 1,017 operating days in the first quarter of 2022, up 44% year over year (Q1 2021 – 704 operating days). In the first quarter of 2022, the Company recorded a net loss of $2,933,000, compared to a net loss of $3,651,000 in the first quarter of 2021. Adjusted funds flow from operations increased to $4,996,000 in the first quarter of 2022 from $3,719,000 in the same period of 2021. Year over year results in the first quarter of 2022 improved over the same quarter of 2021, however moderate day rate increases did not keep pace with increasing costs and therefore results did not improve as significantly as activity levels did. In the first three months of 2022, the Company spent $6,412,000 on capital, primarily drill pipe and level-4 inspections compared to $1,604,000 in the same period of 2021. Debt increased to $95,000,000 in the quarter to fund capital spending as well as funding the seasonal working capital draw of the Canadian division.

With activity levels continuing to rise, the Company is anticipating meaningful day rate increases as current contracts are renewed throughout the remainder of the year. These rate increases will be most impactful in the second half of the year and are expected to result in significantly improved results.

Linda Southern-Heathcott, AKITA's Executive Chair and Chief Executive Officer stated: "The Company has made significant investments into its equipment over the last two quarters in anticipation of a very active and profitable second half of the year. While the supply chain disruptions seen in 2021 have persisted into 2022 resulting in continued rising costs, AKITA's history of cost control and focused spending in meaningful areas, complimented by our highly skilled rig crews and dedicated employees' focus on creating positive relationships with vendors and customers, has positioned the Company to have the right assets in the right places to take advantage of the continued industry recovery."

CONSOLIDATED FINANCIAL HIGHLIGHTS

 

Canadian Drilling Division

During the first quarter of 2022, AKITA achieved 722 operating days in Canada, which corresponds to a utilization rate of 40% compared to an industry utilization of 39%. For the first quarter of 2021, the Company's utilization rate was 27% (490 days) with an industry average of 27%.

Adjusted revenue in Canada increased to $21,063,000 in the first quarter of 2022 from $13,306,000 in the first quarter of 2021. Adjusted revenue per operating day⁽¹⁾ increased  to $29,173 in the first quarter of 2022 from $27,155 in the same period of 2021 due to higher day rates. The increasing activity level in Canada coming into the first quarter of 2022 allowed for day rate increases on all rigs operated by the Company during the quarter. Increased activity was the key driver in the increase in revenue quarter over quarter followed by increased revenue per day. 

Higher revenue in the quarter was offset by higher adjusted operating and maintenance expenses  which increased 67% to $15,858,000 in the first quarter of 2022 from $9,510,000 in the same period of 2021. This increase is largely due to higher activity as operating costs are directly tied to activity levels but also the increase in adjusted operating and maintenance expenses per day which rose to $21,964 in the three months ended March 31, 2022 from $19,408 in the same period of 2022. The increase in the per day amount is due to higher labour costs, which increased in the latter half of 2021 as well as high maintenance costs on reactivated rigs that had been down for significant amounts of time. Additionally, the Company received $889,000 in the first quarter of 2021 from the Canadian Emergency Wage Subsidy program (2022 – nil), which reduced adjusted operating and maintenance expense.

 United States Drilling Division

With the demand for drilling services increasing in the US gradually throughout 2021 and into 2022, operating days increased in the US division by 44%, to 1,017 (69% utilization) in the first quarter of 2022 from 704 (46% utilization) in the same period of 2021. 

The results in the US were similar to Canada in that revenue increased significantly due to higher activity however, the higher revenue was accompanied by higher associated costs.  Adjusted revenue in the US increased by 54% to $26,533,000 in the first quarter of 2022 from $17,188,000 in the first quarter of 2021. This increase is due mainly to higher activity levels but also an increase in revenue per day which rose 7% quarter over quarter. Moderate day rate increases were seen in the first quarter of 2022 on select rigs while the majority of the Company's US rates will be renegotiated in the second quarter of 2022. Revenue in the US accounted for 56% of the Company's adjusted revenue in the first quarter of 2022 (2021 - 57%).

Operating and maintenance costs are correlated to activity levels and increased to $21,620,000 in the first quarter of 2022 from $12,957,000 in the first quarter of 2021. This increase, which was mainly from higher activity levels, was exacerbated by high reactivation costs on rigs that had been racked for extended periods.

FURTHER INFORMATION

This news release shall be used as preparation for reading the full disclosure documents. AKITA's unaudited interim condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2022 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 Adjusted Operating and Maintenance Expenses in Canada

Adjusted revenue and adjusted 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 adjusted revenue and adjusted operating and maintenance expenses in AKITA's Canadian 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 adjusted revenue per day and adjusted operating and maintenance expense per day. The flow through charges do not have any impact on the Company's net earnings as the amounts offset each other.

Adjusted Revenue and Operating and Maintenance Expenses in United States

Excluded from adjusted revenue and adjusted operating and maintenance expenses in AKITA's 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 adjusted revenue per day and adjusted operating and maintenance expense 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.

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. In particular, forward-looking information in this news release includes, but is not limited to, references to the outlook for the drilling industry (including activity levels and day rates), the Company's relationships and customers and vendors, and the renewal of drilling contracts.

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.

Although the Company believes that the expectations reflected in the forward-looking information are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and no assurance can be given that these expectations will prove to be correct. By their nature, these forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and therefore carry 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.

The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of, among other things, prevailing economic conditions (including as may be affected by the COVID-19 pandemic); the level of exploration and development activity carried on by AKITA's customers, world crude oil prices and North American natural gas prices; global liquefied natural gas (LNG) demand, weather, access to capital markets; and government policies.  We caution that the foregoing list of factors is not exhaustive and that while relying on forward-looking statements to make decisions with respect to AKITA, 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 where required by law, the Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by it or on its behalf.

SOURCE AKITA Drilling Ltd.