AKITA Drilling Ltd. Announces Year-to-Date Earnings and Cash Flow
CALGARY, Oct. 27, 2016 /CNW/ - AKITA Drilling Ltd.'s net loss for the three months ended September 30, 2016 was $4,668,000 (net loss of $0.26 per share basic and diluted) on revenue of $6,616,000, compared to a net loss of $7,581,000 (net loss of $0.42 per share basic and diluted) on revenue of $22,021,000 for the corresponding period in 2015. The third quarter of 2015 included an asset impairment expense of $8,200,000. Funds flow from operations for the quarter ended September 30, 2016 was $2,197,000 compared to $8,225,000 in the corresponding quarter in 2015.
Net income for the nine months ended September 30, 2016 was $9,443,000 ($0.53 per share basic and diluted) on revenue of $52,253,000 and included a contract cancellation fee. Comparative figures for the corresponding nine month period in 2015 were a net loss of $4,983,000 (net loss of $0.28 per share basic and diluted) and revenue of $91,272,000. Funds flow from operations for the January to September period in 2016 was $30,268,000 compared to $31,356,000 for the comparative period in 2015.
Prices for crude oil have strengthened in the third quarter of 2016 with West Texas Intermediate "WTI" closing the month of September at $48.26 USD, up 30% over the start of the year and up 6% over the same period in 2015. This is an encouraging trend, however prices remain below what is needed to create a meaningful recovery in the industry. Natural gas prices have also strengthened over the quarter but not to the same extent as crude oil prices and are still well below 2015 prices. Oil and gas producers continue to be very cautious with capital spending, creating few opportunities in the western Canadian drilling industry. The lack of drilling opportunities in the industry has created an over-supply of drilling rigs in the western Canadian market, resulting in severe pressure on day rates and fewer active rigs, averaging 109 active rigs in the third quarter of 2016 versus an average of 183 active rigs in the third quarter of 2015. The pressure on day rates combined with fewer operating days (373 in the third quarter of 2016 compared to 839 during the same period of 2015) were the contributing factors to AKITA's loss in the quarter.
Management's focus continues to be on maintaining AKITA's financial strength through prudent capital management and cost controls. Management is not anticipating a meaningful economic recovery in the near term but believes AKITA is well positioned to capitalize on opportunities as they arise and will continue to maintain and grow our high performance drilling rigs for our customers.
Basis of Analysis in this MD&A and Non-GAAP Financial Measures
The Company reports its joint venture activities in the financial statements in accordance with International Financial Reporting Standards ("IFRS"), 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 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 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 measure ("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 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, 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 between conventional and pad and singles, doubles and triples can also influence these results. Readers should also be aware that AKITA includes standby revenue in its determination of "per operating day" results.
During the nine months ended September 30, 2016, the Company's revenue included a material contract cancellation fee. This fee has been excluded in the Company's adjusted revenue and adjusted operating margin, and adjusted operating margin per operating day analysis.
Funds flow from operations is considered a non-GAAP financial measure 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 as well as equity income from joint ventures adjusted for income tax amounts paid 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.
Revenue and Operating & Maintenance Expenses
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||
| 2016 |
2015 |
Change |
% |
2016 |
2015 |
Change |
% |
||
| Revenue per Interim Financial Statements |
6.6 |
22.0 |
(15.4) |
(70%) |
52.2 |
91.3 |
(39.1) |
(43%) |
|
| Proportionate Share of Revenue from |
|||||||||
| Joint Ventures(1) |
4.5 |
6.3 |
(1.8) |
(29%) |
11.5 |
28.8 |
(17.3) |
(60%) |
|
| Contract Cancellation Revenue |
- |
- |
- |
- |
(28.3) |
- |
(28.3) |
N/A |
|
| Adjusted Revenue(1) |
11.1 |
28.3 |
(17.2) |
(61%) |
35.4 |
118.1 |
(82.7) |
(70%) |
|
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||
| 2016 |
2015 |
Change |
% |
2016 |
2015 |
Change |
% |
||
| Operating & Maintenance Expenses per |
|||||||||
| Interim Financial Statements |
5.7 |
14.2 |
(8.5) |
(60%) |
16.4 |
59.3 |
(42.9) |
(72%) |
|
| Proportionate Share of Operating & |
|||||||||
| Maintenance Expenses from |
|||||||||
| Joint Ventures(1) |
3.1 |
4.0 |
(0.9) |
(23%) |
7.2 |
17.1 |
(9.9) |
(58%) |
|
| Adjusted Operating & Maintenance |
|||||||||
| Expenses(1)(3) |
8.8 |
18.2 |
(9.4) |
(52%) |
23.6 |
76.4 |
(52.8) |
(69%) |
|
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||
| 2016 |
2015 |
Change |
% |
2016 |
2015 |
Change |
% |
||
| Adjusted Revenue(1) |
11.1 |
28.3 |
(17.2) |
(61%) |
35.4 |
118.1 |
(82.7) |
(70%) |
|
| Adjusted Operating & Maintenance |
|||||||||
| Expenses(1) |
8.8 |
18.2 |
(9.4) |
(52%) |
23.6 |
76.4 |
(52.8) |
(69%) |
|
| Adjusted Operating Margin(1)(2)(3) |
2.3 |
10.1 |
(7.8) |
(77%) |
11.8 |
41.7 |
(29.9) |
(72%) |
|
| $ Dollars |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||
| 2016 |
2015 |
Change |
% |
2016 |
2015 |
Change |
% |
||
| Adjusted Revenue per Operating Day(1) |
29,804 |
33,797 |
(3,993) |
(12%) |
32,503 |
35,148 |
(2,646) |
(8%) |
|
| Adjusted Operating & Maintenance |
|||||||||
| Expenses per Operating Day(1) |
23,670 |
21,607 |
2,064 |
10% |
21,528 |
22,738 |
(1,210) |
(5%) |
|
| Adjusted Operating Margin per |
|||||||||
| Operating Day(1)(2) |
6,134 |
12,191 |
(6,057) |
(50%) |
10,974 |
12,410 |
(1,436) |
(12%) |
|
| (1) |
Proportionate share of revenue from joint ventures, adjusted revenue, proportionate share of operating & maintenance expenses |
| (2) |
Adjusted operating margin is the difference between adjusted revenue and adjusted operating & maintenance expenses. |
| (3) |
Balances may differ from financial statements as a result of rounding. |
Third Quarter Comparatives
During the third quarter of 2016, adjusted revenue decreased to $11,117,000 ($29,804 per day) compared to $28,356,000 ($33,797 per day) during the third quarter of 2015 as a result of weak market conditions which affected all rig categories. Excess rig capacity throughout the industry has led to increased competition combined with continued downward pressure on day rates resulting in the decrease on a per day basis.
Adjusted operating and maintenance costs are tied to operating days and amounted to $8,829,000 ($23,670 per operating day) during the third quarter of 2016 compared to $18,128,000 ($21,607 per operating day) in the same period of the prior year. The decrease in operating and maintenance costs, on a total basis, resulted primarily from reduced drilling activity. The increase on a "per day" basis, resulted from costs incurred to prepare idle rigs for the upcoming winter drilling programs with no corresponding operating days. The effect of this seasonal activity was less in 2015, as it was diluted by more rigs operating during the quarter.
The adjusted operating margin for the Company decreased to $2,288,000 in the third quarter of 2016 from $10,228,000 during the corresponding quarter of 2015. The decreased adjusted operating margin is a direct result of decreased drilling activity as AKITA's operating days declined 56% in the third quarter of 2016 compared to the same period in 2015. On a per day basis, adjusted operating margin decreased to $6,134 in the third quarter of 2016 from $12,191 in the comparative period of 2015. This decrease is a combination of the reduced day rates and increased costs for non-operating rigs noted above.
Year-to-Date Comparatives
During the first nine months of 2016, adjusted revenue decreased to $35,493,000 from $118,063,000 during the first nine months of 2015 as a result of lower drilling activity. Adjusted revenue per operating day decreased to $32,503 during the first nine months of 2016 from $35,148 in the comparative nine month period of 2015. This decrease is due to increased competition in the drilling industry as rigs compete for fewer jobs driving day rates lower.
While adjusted revenue for the nine months ended September 30, 2016 declined by 70% compared to the corresponding period in 2015, revenue per the interim financial statements decreased by only 43%. Offsetting the reduction in adjusted revenue was contract cancellation revenue of $28,250,000 (2015 - nil) related to a multi-year contract that was cancelled in January of 2016 for one of AKITA's pad triple rigs. Payment of the contract cancellation fee was divided into three payments, the first which was received during the first quarter of 2016. The remaining amounts are included in current and long-term receivables on the Company's Statement of Financial Position.
Adjusted operating and maintenance expenses are tied to operating days and amounted to $23,509,000 ($21,528 per operating day) during the first nine months of 2016 compared to $76,377,000 ($22,738 per operating day) in the same period of the prior year. The decrease on a per day basis is a result of both a change in rig mix over 2015 and ongoing cost controls.
The adjusted operating margin for the Company decreased to $11,984,000 in the first nine months of 2016 from $41,686,000 during the corresponding period of 2015. On a per day basis, adjusted operating margin decreased to $10,974 for the nine months ended September 30, 2016 from $12,410 in the corresponding period of 2015. This decrease in adjusted operating margin is a result of lower day rates resulting from higher competition within the industry.
Depreciation and Amortization Expense
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||
| 2016 |
2015 |
Change |
% Change |
2016 |
2015 |
Change |
% Change |
|||
| Depreciation and Amortization Expense |
5.9 |
8.9 |
(3.0) |
(34%) |
17.6 |
26.3 |
(8.7) |
(33%) |
||
Depreciation and amortization expense was 34% lower in the third quarter of 2016 compared to the corresponding quarter of 2015. As AKITA depreciates its rig fleet on a unit of production basis, the decrease in the depreciation and amortization expense is directly related to the 56% decrease in the number of operating days when comparing the third quarter of 2016 to the corresponding period of 2015. On a per day basis, depreciation in the third quarter of 2016 ($15,796 per day) was higher than the third quarter of 2015 ($10,634 per day), as rigs are subject to certain minimum annual depreciation (in addition to the unit of production basis for depreciation).
Depreciation and amortization expense for the first nine months of 2016 totalled $17,551,000 compared to $26,266,000 for the corresponding period in 2015. As with the depreciation and amortization expense for the third quarter, lower rig activity levels were the driver behind the lower depreciation and amortization expense in 2016 to date. In the first nine months of 2016, drilling rig depreciation accounted for 96% of total depreciation and amortization expense (2015 - 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 ventured activities.
Selling and Administrative Expenses
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||
| 2016 |
2015 |
Change |
% Change |
2016 |
2015 |
Change |
% Change |
|||
| Selling & Administrative Expenses |
2.9 |
3.6 |
(0.7) |
(19%) |
9.9 |
12.0 |
(2.1) |
(18%) |
||
| per Interim Financial Statements |
||||||||||
Selling and administrative expenses were 28% of adjusted revenue in the first nine months of 2016 compared to 10% of adjusted revenue in the first nine months of 2015. The increase 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. The single largest component of selling and administrative expenses was salaries and benefits, which accounted for 57% of these expenses (59% in 2015).
Equity Income from Joint Ventures
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||
| 2016 |
2015 |
Change |
% Change |
2016 |
2015 |
Change |
% Change |
|||
| Proportionate Share of Revenue |
4.5 |
6.3 |
(1.8) |
(29%) |
11.5 |
26.8 |
(15.3) |
(57%) |
||
| from Joint Ventures(1) |
||||||||||
| Proportionate Share of Operating |
3.1 |
4.0 |
(0.9) |
(23%) |
7.2 |
17.1 |
(9.9) |
(58%) |
||
| & Maintenance Expenses from |
||||||||||
| Joint Ventures(1) |
||||||||||
| Proportionate Share of Selling & |
0.1 |
0.1 |
0.0 |
0% |
0.1 |
0.3 |
(0.2) |
(67%) |
||
| Administrative Expenses from |
||||||||||
| Joint Ventures(1) |
||||||||||
| Equity Income from Joint Ventures |
1.3 |
2.2 |
(0.9) |
(41%) |
4.2 |
9.4 |
(5.2) |
(56%) |
||
| per Interim Financial Statements |
||||||||||
| (1) |
Proportionate share of revenue from joint ventures, proportionate share of operating & maintenance expenses from joint |
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)
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||
| 2016 |
2015 |
Change |
% Change |
2016 |
2015 |
Change |
% Change |
|||
| Total Other Income (Loss) |
0.2 |
0.2 |
0.0 |
0% |
0.6 |
0.1 |
0.5 |
500% |
||
Interest income increased to $741,000 in the first nine months of 2016 from $100,000 in the corresponding period in 2015, primarily due to accrued interest ($584,000) on receivable balances related to the contract cancellation discussed previously. The balance of interest income consists of interest on cash and term deposit balances.
During the first nine months of 2016, the Company incurred interest expense of $121,000 related to the future cost of the Company's defined benefit pension plan. During the corresponding nine month period in 2015, AKITA incurred interest expense of $321,000 primarily as a result of the Company's indebtedness as well as the future cost of the defined benefit pension plan.
During the first nine months of 2016, the Company sold some ancillary assets for $139,000 that resulted in a gain of $36,000. During the first nine months of 2015, the Company disposed of certain non-core assets for $1,023,000 resulting in a loss of $61,000.
"Net other gains (losses)" of ($85,000) for the nine months ended September 30, 2016 relate primarily to the discount of the long-term receivable associated with the contract cancellation fee. Approximately 69% of amounts recorded as "Net other gains (losses)" during the first nine months of 2015 related to foreign exchange associated with rig construction.
Income Tax Expense
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||
| 2016 |
2015 |
Change |
% Change |
2016 |
2015 |
Change |
% Change |
|||
| Current Tax Expense (Recovery) |
(2.4) |
(1.4) |
(1.0) |
(71%) |
1.0 |
(1.0) |
2.0 |
200% |
||
| Deferred Tax Expense (Recovery) |
0.8 |
(1.4) |
2.2 |
157% |
2.7 |
1.0 |
1.7 |
170% |
||
| Income Tax Expense (Recovery) |
(1.6) |
(2.8) |
1.2 |
43% |
3.7 |
(0.0) |
3.7 |
NA |
||
Income tax expense increased to $3,784,000 in the first nine months of 2016 from a recovery of $50,000 in the corresponding period in 2015 mainly due to higher pre-tax earnings resulting from the contract cancellation fee. Deferred taxes for the nine months ended September 30, 2016, were higher than the corresponding period in 2015 as the Company recorded an asset impairment expense in the third quarter of 2015 resulting in lower future tax obligations.
Net Income (Loss), Funds Flow and Net Cash From Operating Activities
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||
| 2016 |
2015 |
Change |
% Change |
2016 |
2015 |
Change |
% Change |
|||
| Net Income (Loss) |
(4.7) |
(7.6) |
2.9 |
38% |
9.4 |
(5.0) |
14.4 |
288% |
||
| Funds Flow from Operations(1) |
2.2 |
8.2 |
(6.0) |
(73%) |
30.2 |
31.4 |
(1.2) |
(4%) |
||
| (1) |
Funds flow from operations is an additional GAAP measure under IFRS. See commentary in "Basis of Analysis in this |
During the three months ended September 30, 2016, the Company reported a net loss of $4,668,000 or $0.26 per Class A Non-Voting and Class B Common Share (basic and diluted) compared to a net loss of $7,581,000 or $0.42 per share (basic and diluted) in the comparative quarter of 2015. The reduction in the net loss in 2016 when compared to the same period in 2015 was due to the asset impairment of $8,200,000 recorded in the third quarter of 2015 with no impairment recorded in the third quarter of 2016.
Funds flow from operations decreased to $2,197,000 during the third quarter of 2016 from $8,225,000 in the corresponding quarter in 2015. Funds flow from operations was negatively affected by weaker drilling activity in the third quarter of 2016.
Net income increased to $9,443,000 or $0.53 per Class A Non-Voting and Class B Common Shares (basic and diluted) for the first nine months of 2016 from a loss of $4,983,000 or $0.28 per share (basic and diluted) in the corresponding period of 2015. Funds flow from operations decreased to $30,268,000 during the first nine months of 2016 from $31,356,000 in the corresponding period in 2015. The increase in net income for the nine month period ended September 30, 2016 was directly attributable to the contract cancellation fee recorded in the first quarter of 2016 combined with the asset impairment recorded in the third quarter of 2015.
Funds flow decreased as a result of a 67% decrease in operating days from the first nine months of 2016 compared to the corresponding period in 2015. The reduction in operating days was offset by the contract cancellation revenue.
The following table reconciles funds flow and cash flow from operations:
| $ Millions |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||
| 2016 |
2015 |
Change |
% Change |
2016 |
2015 |
Change |
% Change |
||
| Funds Flow from Operations(1) |
2.2 |
8.2 |
(6.0) |
(73%) |
30.2 |
31.4 |
(1.2) |
(4%) |
|
| Change in Non-Cash Working Capital |
(3.7) |
0.4 |
(4.1) |
(1025%) |
(4.6) |
15.6 |
(20.2) |
(130%) |
|
| Equity Income from Joint Ventures |
(1.3) |
(2.3) |
1.0 |
44% |
(4.2) |
(9.4) |
5.2 |
55% |
|
| Change in Long-Term Receivable |
(0.1) |
0.0 |
(0.1) |
N/A |
(9.5) |
0.0 |
(9.5) |
N/A |
|
| Interest Paid |
0.0 |
0.0 |
(0.0) |
N/A |
0.0 |
(0.2) |
0.2 |
100% |
|
| Current Income Tax Expense (Recovery) |
(2.5) |
(1.3) |
(1.2) |
(92%) |
1.0 |
(1.0) |
2.0 |
200% |
|
| Income Tax Recovered |
3.2 |
1.3 |
1.9 |
146% |
0.0 |
1.0 |
(1.0) |
(100%) |
|
| Net Cash from Operating Activities |
(2.2) |
6.3 |
(8.5) |
(135%) |
12.9 |
37.4 |
(24.5) |
(66%) |
|
| (1) |
Funds flow from operations is an additional GAAP measure under IFRS. See commentary in "Basis of Analysis in this MD&A |
Liquidity and Capital Resources
Cash used for capital expenditures totalled $2,637,000 in the first nine months of 2016 (2015 - $15,335,000). All of the year to date capital spending relates to routine items while nearly three quarters of the 2015 capital expenditures related to the completion of a triple pad rig.
At September 30, 2016, AKITA's Statement of Financial Position included working capital (current assets minus current liabilities) of $30,038,000 compared to working capital of $12,267,000 at September 30, 2015, and working capital of $16,002,000 at December 31, 2015. 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. Non-cash working capital amounted to $11,621,000 at September 30, 2016, compared to a non-cash working capital of $6,633,000 at December 31, 2015. Working capital at September 30, 2016 improved compared to September 30, 2015, as a result of cost controls over capital and operating expenses as well as the first payment and receivable associated with the contract cancellation fee.
The Company chooses to maintain a conservative Statement of Financial Position due to the cyclical nature of the industry. In addition to its cash and term deposit balances, the Company has an operating loan facility with its principal banker totalling $100,000,000 that is available until 2020. Although 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 varies based upon the actual amounts borrowed, and ranges from 0.45% to 1.45% over prime interest rates or 1.45% to 2.45% over guaranteed notes, depending on the preference of the Company. The Company did not have any borrowings from this facility at September 30, 2016 or 2015.
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. The last dividend increase was declared on March 5, 2014.
During the 10 year period since 2006, AKITA has repurchased 592,708 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 two rigs under multi-year contracts at September 30, 2016. Of these contracts, one is anticipated to expire in 2017 and one 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, 2016, AKITA provided $4,262,000 in deposits with its bank for those purposes (September 30, 2015 - $7,183,000 and December 31, 2015 - $5,978,000). 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 Statements of Financial Position.
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 Statements of Financial Position |
||||||||
| Unaudited |
September 30, |
September 30, |
December 31, |
|||||
| $ Thousands |
2016 |
2015 |
2015 |
|||||
| Assets |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ |
18,417 |
$ |
4,803 |
$ |
9,369 |
||
| Accounts receivable |
17,571 |
13,813 |
14,310 |
|||||
| Income taxes recoverable |
- |
1,616 |
3,279 |
|||||
| Prepaid expenses and other |
295 |
457 |
75 |
|||||
| 36,283 |
20,689 |
27,033 |
||||||
| Non-current Assets |
||||||||
| Long-term receivable |
9,528 |
- |
- |
|||||
| Restricted cash |
4,262 |
7,183 |
5,978 |
|||||
| Other long-term assets |
925 |
944 |
917 |
|||||
| Investments in joint ventures |
5,108 |
3,465 |
3,941 |
|||||
| Property, plant and equipment |
201,728 |
258,939 |
216,647 |
|||||
| Total Assets |
$ |
257,834 |
$ |
291,220 |
$ |
254,516 |
||
| Liabilities |
||||||||
| Current Liabilities |
||||||||
| Accounts payable and accrued liabilities |
$ |
3,684 |
$ |
6,865 |
$ |
9,506 |
||
| Dividends payable |
1,525 |
1,525 |
1,525 |
|||||
| Income taxes payable |
1,036 |
- |
- |
|||||
| 6,245 |
8,422 |
11,031 |
||||||
| Non-current Liabilities |
||||||||
| Financial instruments |
60 |
140 |
117 |
|||||
| Deferred income taxes |
21,933 |
28,039 |
19,203 |
|||||
| Deferred share units |
200 |
265 |
171 |
|||||
| Pension liability |
4,051 |
3,750 |
3,794 |
|||||
| Total Liabilities |
32,489 |
40,616 |
34,316 |
|||||
| Shareholders' Equity |
||||||||
| Class A and Class B shares |
23,871 |
23,871 |
23,871 |
|||||
| Contributed surplus |
4,223 |
3,878 |
3,946 |
|||||
| Accumulated other comprehensive loss |
(244) |
(280) |
(244) |
|||||
| Retained earnings |
197,495 |
223,135 |
192,627 |
|||||
| Total Equity |
225,345 |
250,604 |
220,200 |
|||||
| Total Liabilities and Equity |
$ |
257,834 |
$ |
291,220 |
$ |
254,516 |
||
| AKITA Drilling Ltd. |
|||||||||||
| Interim 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 |
2016 |
2015 |
2016 |
2015 |
|||||||
| Revenue |
$ |
6,616 |
$ |
22,021 |
$ |
52,253 |
$ |
91,272 |
|||
| Costs and expenses |
|||||||||||
| Operating and maintenance |
5,738 |
14,158 |
16,356 |
59,260 |
|||||||
| Depreciation and amortization |
5,892 |
8,922 |
17,551 |
26,266 |
|||||||
| Asset impairment loss |
- |
8,200 |
- |
8,200 |
|||||||
| Selling and administrative |
2,878 |
3,601 |
9,878 |
12,038 |
|||||||
| Total costs and expenses |
14,508 |
34,881 |
43,785 |
105,764 |
|||||||
| Revenue less costs and expenses |
(7,892) |
(12,860) |
8,468 |
(14,492) |
|||||||
| Equity income from joint ventures |
1,344 |
2,283 |
4,188 |
9,356 |
|||||||
| Other income (loss) |
|||||||||||
| Interest income |
248 |
32 |
741 |
100 |
|||||||
| Interest expense |
(40) |
(36) |
(121) |
(321) |
|||||||
| Gain (loss) on sale of assets |
5 |
50 |
36 |
(61) |
|||||||
| Net other gains (losses) |
25 |
123 |
(85) |
385 |
|||||||
| Total other income |
238 |
169 |
571 |
103 |
|||||||
| Income (loss) before income taxes |
(6,310) |
(10,408) |
13,227 |
(5,033) |
|||||||
| Income taxes |
(1,642) |
(2,827) |
3,784 |
(50) |
|||||||
| Net income (loss) and comprehensive income |
$ |
(4,668) |
$ |
(7,581) |
$ |
9,443 |
$ |
(4,983) |
|||
| Earnings (Loss) per Class A and Class B Share |
|||||||||||
| Basic |
$ |
(0.26) |
$ |
(0.42) |
$ |
0.53 |
$ |
(0.28) |
|||
| Diluted |
$ |
(0.26) |
$ |
(0.42) |
$ |
0.53 |
$ |
(0.28) |
|||
| AKITA Drilling Ltd. |
||||||||||
| Interim Statements of Cash Flows |
||||||||||
| Three Months Ended |
Nine Months Ended |
|||||||||
| Unaudited |
September 30, |
September 30, |
September 30, |
September 30, |
||||||
| $ Thousands |
2016 |
2015 |
2016 |
2015 |
||||||
| Operating Activities |
||||||||||
| Net income (loss) and comprehensive income (loss) |
$ |
(4,668) |
$ |
(7,581) |
$ |
9,443 |
$ |
(4,983) |
||
| Non-cash items included in net income (loss): |
||||||||||
| Depreciation and amortization |
5,892 |
8,922 |
17,551 |
26,266 |
||||||
| Asset impairment loss |
- |
8,200 |
- |
8,200 |
||||||
| Deferred income tax expense (recovery) |
834 |
(1,429) |
2,730 |
986 |
||||||
| Defined benefit pension plan expense |
108 |
114 |
324 |
344 |
||||||
| Stock options and deferred share units expense |
54 |
75 |
313 |
495 |
||||||
| (Gain) loss on sale of assets |
(6) |
(50) |
(36) |
61 |
||||||
| Unrealized foreign currency loss |
- |
- |
- |
73 |
||||||
| Unrealized gain on financial guarantee contracts |
(17) |
(26) |
(57) |
(86) |
||||||
| Funds flow from operations |
2,197 |
8,225 |
30,268 |
31,356 |
||||||
| Change in non-cash working capital |
(3,691) |
389 |
(4,646) |
15,585 |
||||||
| Equity income from joint ventures |
(1,344) |
(2,283) |
(4,188) |
(9,356) |
||||||
| Change in long-term receivables |
(86) |
- |
(9,528) |
- |
||||||
| Pension benefits paid |
(22) |
(6) |
(37) |
(20) |
||||||
| Interest paid |
- |
- |
(1) |
(214) |
||||||
| Income tax expense (recovery) - current |
(2,476) |
(1,398) |
1,054 |
(1,036) |
||||||
| Income taxes (paid) recoverable |
3,264 |
1,398 |
(18) |
1,036 |
||||||
| Net cash from (used in) operating activities |
(2,158) |
6,325 |
12,904 |
37,351 |
||||||
| Investing Activities |
||||||||||
| Capital expenditures |
(1,107) |
(3,461) |
(2,637) |
(15,335) |
||||||
| Change in non-cash working capital related to capital |
86 |
(2,663) |
(1,414) |
(9,948) |
||||||
| Distributions from investments in joint ventures |
10 |
2,394 |
3,021 |
12,105 |
||||||
| Change in cash restricted for loan guarantees |
530 |
1,299 |
1,716 |
2,198 |
||||||
| Proceeds on sale of assets |
8 |
209 |
133 |
995 |
||||||
| Net cash from (used in) investing activities |
(473) |
(2,222) |
819 |
(9,985) |
||||||
| Financing Activities |
||||||||||
| Change in operating loan facility |
- |
(2,500) |
- |
(20,000) |
||||||
| Dividends paid |
(1,525) |
(1,525) |
(4,575) |
(4,575) |
||||||
| Loan commitment fee |
- |
- |
(100) |
- |
||||||
| Net cash used in financing activities |
(1,525) |
(4,025) |
(4,675) |
(24,575) |
||||||
| Increase (decrease) in cash and cash equivalents |
(4,156) |
78 |
9,048 |
2,791 |
||||||
| Cash and cash equivalents, beginning of period |
22,573 |
4,725 |
9,369 |
2,012 |
||||||
| Cash and cash equivalents, End of Period |
$ |
18,417 |
$ |
4,803 |
$ |
18,417 |
$ |
4,803 |
||
SOURCE AKITA Drilling Ltd.
Darcy Reynolds, Vice President, Finance, (403) 292-7530
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