AKITA announces third quarter results and net income of $3.9 million for the quarter.

CALGARY, AB, Nov. 1, 2023 /CNW/ - AKITA Drilling Ltd. (TSX: AKT.A)

AKITA Drilling Ltd. ("AKITA" or the "Company") announces results for the nine months ended September 30, 2023.

The Company's net income increased to $3,880,000 in the third quarter of 2023 up from $2,660,000 during the same period of 2022. With a fifth consecutive quarter of positive earnings, the Company has returned to a positive retained earnings balance ($3,672,000) which has been in a deficit position since the asset impairment recorded in the first quarter of 2021. Higher day rates drove the improved earnings as activity levels fell between the two quarters (1,491 operating days in the third quarter of 2023 versus 1,676 in the same period of 2022).  Adjusted funds flow from operations increased 18% to $10,566,000 in the third quarter of 2023, from $8,957,000 in the same period of 2022, also driven by improved rates. Net cash from operations decreased to $2,308,000 for the three months ended September 30, 2023, compared to $3,727,000 in the same period of 2022, due to a third quarter working capital build in 2023. Total debt decreased to $79,233,000 at the end of the third quarter of 2023 from $94,436,000 at the same time in 2022. In Canada, the Company began the quarter operating 10 rigs which declined to five at the end of the quarter primarily due to timing of operator programs which will reverse in the fourth quarter. In the US the active rigs for the Company went from 14 at the start of the quarter and down to 8 active rigs at the end of the third quarter of 2023 as the active rig count continued to fall for the US industry as a whole. AKITA anticipates the active rig count for the Company will partially rebound in the fourth quarter of 2023.

The Company spent $4,566,000 on routine capital items in the third quarter of 2023, up from $3,020,000 over the same period in 2022. In addition to routine capital items the Company commenced an upgrade to one of its oil sands designed rigs to enable the rig to be competitive in the deep gas market in Canada. This upgrade is anticipated to be done mid fourth quarter of 2023 at a cost of approximately $4,000,000.

Colin Dease, AKITA's Chief Executive Officer stated: "AKITA's US active rig count stayed constant at 14 rigs until the third quarter of 2023 despite broader market declines in the industry, highlighting the marketability of our US fleet. We are confident our lull in activity will be short lived and we are looking forward to 2024 and increased activity in both Canada and the US.

CONSOLIDATED FINANCIAL HIGHLIGHTS

($Thousands except per share amounts)				For the three months ended September 30,				For the nine months ended September 30,
				2023	2022	Change	% Change	2023	2022	Change	% Change
Revenue				54,813	53,526	1,287	2 %	178,162	141,471	36,691	26 %
Operating and maintenance expenses				41,387	40,755	632	2 %	128,801	111,218	17,583	16 %
Operating margin				13,426	12,771	655	5 %	49,361	30,253	19,108	63 %
Margin %				24 %	24 %	0 %	0 %	28 %	21 %	7 %	33 %
Net cash from operating activities				2,308	3,727	(1,419)	(38 %)	18,044	10,163	7,881	78 %
Adjusted funds flow from operations^(1)				10,566	8,957	1,609	18 %	38,346	18,669	19,677	105 %
Per share				0.27	0.23	0.04	17 %	0.97	0.47	0.50	106 %
Net income (loss)				3,880	2,660	1,220	46 %	19,580	(4,525)	24,105	533 %
Per share				0.10	0.07	0.03	43 %	0.49	(0.11)	0.60	545 %
Capital expenditures				4,566	3,020	1,546	51 %	11,770	13,065	(1,295)	(10 %)
Weighted average shares outstanding				39,650	39,624	26	0 %	39,650	39,614	36	0 %
Total assets				267,061	262,576	4,485	2 %	267,061	262,576	4,485	2 %
Total debt				79,223	94,436	(15,213)	(16 %)	79,223	94,436	(15,213)	(16 %)
^(1) See "Non-GAAP and Supplementary Financial Measures" near the end of this release for further detail.

Canadian Drilling Division

$Thousands except per day amounts
			For the three months ended September 30,				For the nine months ended September 30,
			2023	2022	Change	% Change	2023	2022	Change	% Change
Revenue Canada			15,104	12,988	2,116	16 %	44,237	40,593	3,644	9 %
Revenue from joint venture drilling rigs			11,099	8,458	2,641	31 %	27,990	19,412	8,578	44 %
Flow through charges^(1)			(3,117)	(1,447)	(1,670)	(115 %)	(5,126)	(3,088)	(2,038)	(66 %)
Adjusted revenue Canada^(1)			23,086	19,999	3,087	15 %	67,101	56,917	10,184	18 %
Operating and maintenance expenses Canada			10,226	10,064	162	2 %	32,621	30,993	1,628	5 %
Operating and maintenance expenses from joint venture drilling rigs			8,641	6,647	1,994	30 %	21,015	15,165	5,850	39 %
Flow through charges^(1)			(3,117)	(1,447)	(1,670)	(115 %)	(5,126)	(3,088)	(2,038)	(66 %)
Adjusted operating and maintenance expenses Canada^(1)			15,750	15,264	486	3 %	48,510	43,070	5,440	13 %
Adjusted operating margin Canada^(1)			7,336	4,735	2,601	55 %	18,591	13,847	4,744	34 %
Margin %^(1)			32 %	24 %	8 %	33 %	28 %	24 %	4 %	17 %
Operating days			583	644	(61)	(9 %)	1,774	1,935	(161)	(8 %)
Adjusted revenue per operating day^(1)			39,599	31,054	8,545	28 %	37,825	29,414	8,411	29 %
Adjusted operating and maintenance  expenses per operating day^(1)			27,015	23,702	3,313	14 %	27,345	22,258	5,087	23 %
Adjusted operating margin per operating day^(1)			12,584	7,352	5,232	71 %	10,480	7,156	3,324	46 %
Utilization^(1)			32 %	35 %	(3 %)	(9 %)	32 %	35 %	(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.

During the third quarter of 2023, AKITA achieved 583 operating days in Canada, which corresponds to a utilization rate of 32%, compared to 35% (644 days) in the third quarter of 2023 and compared to an industry average of 38% in the third quarter of 2023. The decrease in activity for AKITA was a result of a lull in the demand for the Company's oil sands rigs, as programs ended during the quarter and the effect of one of the Company's customers being acquired. This decrease in activity for the Company was mitigated by increased day rates which resulted in the adjusted operating margin in Canada increasing to $7,336,000 in the third quarter of 2023, up from $4,735,000 in the same period of 2022.

Adjusted revenue per operating day was the key driver for improved results in Canada in the quarter, increasing 28% quarter over quarter to $39,599 in the third quarter of 2023. Corresponding to this increase in revenue per day is a 14% increase in adjusted operating and maintenance expense per day between the third quarter of 2022 and 2023. Together, these two factors resulted in a 71% increase in adjusted operating margin per operating day, increasing to $12,584 per day in the third quarter of 2023, up from $7,352 in the same period of 2022. 

United States Drilling Division

$Thousands except per day amounts
			For the three months ended September 30,				For the nine months ended September 30,
			2023	2022	Change	% Change	2023	2022	Change	% Change
Revenue US			39,709	40,537	(828)	(2 %)	133,925	100,878	33,047	33 %
Flow through charges^(1)			(4,355)	(4,215)	(140)	(3 %)	(13,427)	(9,536)	(3,891)	(41 %)
Adjusted revenue US^(1)			35,354	36,322	(968)	(3 %)	120,498	91,342	29,156	32 %
Operating and maintenance expenses US			31,161	30,691	470	2 %	96,180	80,225	15,955	20 %
Flow through charges^(1)			(4,355)	(4,215)	(140)	(3 %)	(13,427)	(9,536)	(3,891)	(41 %)
Adjusted operating and maintenance expenses US^(1)			26,806	26,476	330	1 %	82,753	70,689	12,064	17 %
Adjusted operating margin US^(1)			8,548	9,846	(1,298)	(13 %)	37,745	20,653	17,092	83 %
Margin %^(1)			24 %	27 %	(3 %)	(11 %)	31 %	23 %	8 %	35 %
Operating days			908	1,032	(124)	(12 %)	3,041	3,042	(1)	(0 %)
Adjusted revenue per operating day^(1)			38,936	35,196	3,740	11 %	39,624	30,027	9,597	32 %
Adjusted operating and maintenance expenses per operating day^(1)			29,522	25,655	3,867	15 %	27,212	23,238	3,974	17 %
Adjusted operating margin per operating day^(1)			9,414	9,541	(127)	(1 %)	12,412	6,789	5,623	83 %
Utilization^(1)			66 %	70 %	(4 %)	(6 %)	74 %	70 %	4 %	6 %
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.

  Results in the Company's US operating segment declined in the third quarter of 2023 when compared to the same period of 2022. Activity decreased 12% in the third quarter of 2023 to 908 operating days compared to 1,032 in the third quarter of 2022. This reduction in activity for the Company combined with a slight reduction in adjusted operating margin per day of $127 resulted in a decrease in the adjusted operating margin in the US to $8,548,000 in the third quarter of 2023, down from $9,846,000 in the third quarter of 2022. Although this decrease does not appear significant when comparing the third quarter of 2023 to the third quarter of 2022, the decrease is more significant when compared to the second quarter of 2023. In the second quarter of 2023, the Company's adjusted operating margin per operating day was $13,742, the 20% decrease in adjusted operating margin per operating day between the second and third quarters of 2023 was a result of adjusted revenue per operating day decreasing 4% as some higher margin contacts ended in the quarter and adjusted operating and maintenance expense per day increasing 3% between the two quarters as maintenance costs increased. At the end of the third quarter, AKITA's US division was operating eight rigs, down from 14 at the start of the quarter.

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 September 30, 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 Adjusted 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 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.

$Thousands	For the three months ended September 30,		For the nine months ended September 30,
	2023	2022	2023	2022
Net cash from operating activities	2,308	3,727	18,044	10,163
Interest paid	1,340	2,044	5,049	4,480
Interest expense	(1,393)	(2,019)	(5,208)	(4,596)
Post-employment benefits paid	77	70	243	206
Equity income from joint ventures	2,362	1,687	6,696	3,953
Change in non-cash working capital	5,872	3,448	13,522	4,463
Adjusted funds flow from operations	10,566	8,957	38,346	18,669

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, advantages associated with the percentage of pad drilling rigs in the Company's Canadian drilling fleet, the renewal of drilling contracts, and debt repayment.

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; 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.

INVESTOR INQUIRIES: Darcy Reynolds, CPA, CA, Vice President, Finance and Chief Financial Officer, [phone]