CALGARY,
July 25, 2016 /CNW/ - AKITA Drilling
Ltd.'s net loss for the three months ended June 30, 2016 was $4,062,000 (net loss of $0.23 per share basic and diluted) on revenue of
$3,646,000, compared to net loss of
$1,620,000 (net loss of $0.09 per share basic and diluted) on revenue of
$22,536,000 for the corresponding
period in 2015. Funds flow from operations for the quarter ended
June 30, 2016 was $2,688,000 compared to $9,072,000 in the corresponding quarter in
2015.
Net income for the six months ended June 30, 2016 was $14,111,000 ($0.79
per share) on revenue of $45,636,000
which included a contract cancellation fee. Comparative
figures for the corresponding six month period in 2015 were net
income of $2,598,000 ($0.14 per share basic and diluted) and revenue of
$69,251,000. Funds flow from
operations for the January to June period in 2016 was $28,071,000 compared to $23,131,000 for the comparative period in
2015.
Crude oil and natural gas prices have recovered
slightly over the first quarter of 2016 with West Texas
Intermediate ("WTI") closing at $48.33
USD at June 30, 2016 which is
31% higher than in the first quarter of 2016. Oil and gas companies
remain very cautious with capital spending resulting in limited
opportunities for companies in the contract drilling segment. The
western Canadian active rig count for the six months ended
June 30, 2016 has declined 49% when
compared to the same period of 2015. AKITA's rig utilization for
the six months ended June 30, 2016
declined 71% with only 719 operating days versus 2,520 operating
days in the same period of 2015. This significant decline in
activity is the primary driver for AKITA's net loss in the second
quarter of 2016.
During these challenging times, management's
focus has been to preserve AKITA's strong financial position.
Working capital at June 30, 2016 has
increased to $31,373,000 from
$16,002,000 at December 31, 2015 and cash and cash equivalent
balances have increased 140% over the same time frame. Capital
spending has been limited to routine capital and totalled
$1,530,000 for the six months ended
June 30, 2016 compared to
$11,874,000 for the six months ended
June 30, 2015, which included
significant rig construction costs.
Despite small improvements in crude oil and
natural gas prices, management anticipates the balance of 2016 and
into 2017 to remain very challenging for AKITA and the contract
drilling industry as a whole. Despite this challenge, management
believes the Company is in a strong position and is poised to
pursue opportunities as they arise.
Selected information from AKITA Drilling Ltd.'s
Management Discussion and Analysis from the Quarterly Report as
follows:
Basis of Analysis in this MD&A,
Non-Standard and Additional GAAP Items
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-standard information ("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.
During the six months ended June 30, 2016, the Company included a material
contract cancellation fee in revenue. The effect of this fee has
been excluded in the Company's adjusted revenue and adjusted
operating margin analysis.
Operating margin, revenue per operating day,
operating and maintenance expenses per operating day and operating
margin per operating day are not recognized 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 revenue and operating margin
indicate pricing strength while 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.
Funds flow from operations is considered an
additional GAAP 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 June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Revenue per Interim
Financial
Statements
|
3.6
|
22.5
|
(18.9)
|
(84%)
|
|
45.6
|
69.3
|
(23.7)
|
(34%)
|
Proportionate Share of
Revenue from Joint
Ventures(1)
|
1.3
|
7.7
|
(6.4)
|
(83%)
|
|
7.0
|
20.5
|
(13.5)
|
(66%)
|
Contract Cancellation
Revenue
|
-
|
-
|
-
|
-
|
|
(28.3)
|
-
|
(28.3)
|
N/A
|
Adjusted
Revenue(1)
|
4.9
|
30.2
|
(25.3)
|
(84%)
|
|
24.3
|
89.8
|
(65.5)
|
(73%)
|
|
|
|
|
|
|
|
|
|
|
$
Millions
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Operating & Maintenance
Expenses per Interim
Financial
Statements
|
1.5
|
13.9
|
(12.4)
|
(89%)
|
|
10.6
|
45.1
|
(34.5)
|
(76%)
|
Proportionate Share of
Operating & Maintenance
Expenses from Joint
Ventures(1)
|
0.9
|
4.9
|
(4.0)
|
(82%)
|
|
4.1
|
13.1
|
(9.0)
|
(69%)
|
Adjusted Operating &
Maintenance
Expenses(1)
|
2.4
|
18.8
|
(16.4)
|
(87%)
|
|
14.7
|
58.2
|
(43.5)
|
(75%)
|
|
|
|
|
|
|
|
|
|
|
$
Millions
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Adjusted
Revenue(1)
|
4.9
|
30.2
|
(25.3)
|
(84%)
|
|
24.3
|
89.8
|
(65.5)
|
(73%)
|
Adjusted Operating &
Maintenance
Expenses(1)
|
2.4
|
18.8
|
(16.4)
|
(87%)
|
|
14.7
|
58.2
|
(43.5)
|
(75%)
|
Adjusted Operating
Margin(1)(2)(3)
|
2.5
|
11.4
|
(8.9)
|
(78%)
|
|
9.6
|
31.6
|
(22.0)
|
(70%)
|
|
|
|
|
|
|
|
|
|
|
$
Dollars
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Adjusted Revenue per
Operating
Day(1)
|
41,025
|
34,130
|
6,895
|
20%
|
|
33,903
|
35,598
|
(1,695)
|
(5%)
|
Adjusted Operating &
Maintenance Expenses per
Operating
Day(1)
|
19,694
|
21,175
|
(1,481)
|
(7%)
|
|
20,417
|
23,115
|
(2,698)
|
(12%)
|
Adjusted Operating Margin
per Operating
Day(1)(2)
|
21,331
|
12,955
|
8,376
|
65%
|
|
13,486
|
12,483
|
1,003
|
8%
|
(1)
|
Proportionate share of
revenue from joint ventures, adjusted revenue, proportionate share
of operating & maintenance expenses from joint ventures,
adjusted operating & maintenance expenses, adjusted operating
margin, adjusted revenue per operating day, adjusted operating
& maintenance expenses per operating day and adjusted operating
margin per operating day are non-standard accounting
measures. See commentary in "Basis of Analysis in this
MD&A, Non-Standard and Additional GAAP
Items".
|
(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.
|
Second Quarter Comparatives
During the second quarter of 2016, adjusted
revenue decreased to $4,964,000
($41,025 per day) compared to
$30,205,000 ($34,130 per day) during the second quarter of
2015 as a result of weak market conditions which affected all rig
categories. The increase on a per day basis was a result of the rig
mix in the second quarter of 2016 as compared to the same period in
2015 in which a broader mix of rigs were operating as opposed to
only triple pad rigs in 2016.
Adjusted operating and maintenance costs are tied
to operating days and amounted to $2,383,000 ($19,694
per operating day) during the second quarter of 2016 compared to
$18,740,000 ($21,175 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 while on a "per day" basis, resulted from cost reductions
implemented over the previous year.
The adjusted operating margin for the Company
decreased to $2,581,000 in the second
quarter of 2016 from $11,465,000
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 86% in the second
quarter of 2016 compared to the same period in 2015. On a per day
basis, adjusted operating margin increased to $21,331 in the second quarter of 2016 from
$12,955 in the comparative period of
2015, primarily as a result of the rig mix operating.
Year-to-Date Comparatives
During the first six months of 2016, adjusted
revenue decreased to $24,376,000 from
$89,707,000 during the first six
months of 2015 as a result of lower drilling activity. Adjusted
revenue per operating day decreased to $33,903 during the first six months of 2016 from
$35,598 in the comparative six month
period of 2015. This decrease is due to increased competition in
the drilling industry as rigs compete for fewer jobs which has
driven day rates lower.
While overall adjusted revenue for the six months
ended June 30, 2016 declined by 73%
compared to the corresponding period in 2015, unadjusted revenue
per the interim financial statements decreased by only 34%.
Offsetting the reduction in adjusted revenue was contract
cancellation revenue of $28,250,000
(2015 - nil) relating 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,
including 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 costs are tied
to operating days and amounted to $14,680,000 ($20,417 per operating day) during the first six
months of 2016 compared to $58,249,000 ($23,115 per operating day) in the same
period of the prior year. The decrease on a per day basis is
a result of both rig mix and cost controls.
The adjusted operating margin for the Company
decreased to $9,696,000 in the first
six months of 2016 from $31,458,000
during the corresponding period of 2015. On a per day basis,
adjusted operating margin increased to $13,485 for the six months ended June 30, 2016 from $12,483 in the corresponding period of 2015. This
increase in margin per day is due to lower costs per day resulting
from a change in the rig mix as well as cost controls as noted
above.
Other Comments
From time to time, the Company requires customers
to make pre-payments prior to the provision of drilling
services. In addition, from time to time, the Company records
cost recoveries related to capital enhancements for specific
customer related projects. At June 30,
2016, there was no deferred revenue related to these
activities (June 30, 2015 -
$79,000).
Depreciation and Amortization Expense
|
|
|
|
$
Millions
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Depreciation and
Amortization
Expense
|
5.4
|
8.3
|
(2.9)
|
(35%)
|
|
11.7
|
17.3
|
5.6
|
(32%)
|
Depreciation and amortization expense was 35%
lower in the second 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 87% decrease in the number of
operating days when comparing the second quarter of 2016 to the
corresponding period of 2015. On a per day basis depreciation in
the second quarter of 2016 ($44,496
per day) was significantly higher than the second quarter of 2015
($9,351 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 six months of 2016 totalled $11,659,000 compared to $17,344,000 for the corresponding period in
2015. As with the depreciation and amortization expense for
the second quarter, lower rig activity levels were the driver
behind the lower depreciation and amortization expense in 2016 to
date. In the first six months of 2016, drilling rig
depreciation accounted for 95% 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 June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Selling &
Administrative Expenses per Interim
Financial
Statements
|
3.0
|
3.7
|
(0.7)
|
(19%)
|
|
7.0
|
8.4
|
(1.4)
|
(17%)
|
Proportionate Share of
Selling & Administrative
Expenses from Joint
Ventures(1)
|
0.0
|
0.1
|
(0.1)
|
(100%)
|
|
0.1
|
0.3
|
(0.2)
|
(67%)
|
Adjusted Selling &
Administrative
Expenses(1)
|
3.0
|
3.8
|
(0.8)
|
(21%)
|
|
7.1
|
8.7
|
(1.6)
|
(18%)
|
(1)
|
Proportionate share of
selling and administrative expenses from joint ventures and
adjusted selling and administrative expenses are non-standard
accounting measures. See commentary in "Basis of Analysis in
this MD&A, Non-Standard and Additional GAAP
Items".
|
Adjusted selling and administrative expenses were
29% of adjusted revenue in the first six months of 2016 compared to
10% of adjusted revenue in the first six 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 costs. The single largest
component of selling and administrative expenses was salaries and
benefits, which accounted for 57% of these expenses (58% in
2015).
Equity Income from Joint Ventures
|
|
|
|
$
Millions
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Proportionate Share of
Revenue from Joint
Ventures(1)
|
1.3
|
7.7
|
(6.4)
|
(83%)
|
|
7.0
|
20.5
|
(13.5)
|
(66%)
|
Proportionate Share of
Operating & Maintenance
Expenses from Joint
Ventures(1)
|
0.9
|
4.9
|
(4.0)
|
(82%)
|
|
4.1
|
13.1
|
(9.0)
|
(69%)
|
Proportionate Share of
Selling & Administrative
Expenses from Joint
Ventures(1)
|
0.0
|
0.1
|
(0.1)
|
(100%)
|
|
0.1
|
0.3
|
(0.2)
|
(67%)
|
Equity Income from Joint
Ventures per Interim Financial
Statements
|
0.4
|
2.7
|
(2.3)
|
(86%)
|
|
2.8
|
7.1
|
(4.3)
|
(61%)
|
(1)
|
Proportionate share of
revenue from joint ventures, proportionate share of operating &
maintenance expenses from joint ventures and proportionate share of
selling & administrative expenses from joint ventures are
non-standard accounting measures. See commentary in "Basis of
Analysis in this MD&A, Non-Standard and Additional GAAP
Items".
|
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. Two thirds of AKITA's joint ventures utilize pad
drilling rigs.
Other Income (Loss)
|
|
|
|
$
Millions
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Total Other Income
(Loss)
|
0.3
|
0.1
|
0.2
|
200%
|
|
0.3
|
(0.1)
|
0.4
|
400%
|
Interest income increased to $493,000 in the first six months of 2016 from
$68,000 in the corresponding period
in 2015 primarily due to accrued interest ($394,000) on receivable balances related to the
contract cancellation discussed previously, the balance of interest
income is interest on cash and term deposit balances.
During the first six months of 2016, the Company
incurred interest expense of $80,000
related to the future cost of the Company's defined benefit pension
plan. During the corresponding six month period in 2015,
AKITA incurred interest expense of $285,000 primarily as a result of the Company's
indebtedness as well as the future cost of the defined benefit
pension plan.
During the first six months of 2016, the Company
sold some ancillary assets for $125,000 that resulted in a gain of $30,000. During the first six months of
2015, the Company disposed of certain non-core assets for
$786,000 resulting in an $111,000 loss.
"Net other gains (losses)" of $110,000 for the six months ended June 30, 2016 relate primarily to the discount of
the long-term receivable associated with the contract cancellation
fee. Approximately 95% of amounts recorded as "Net other gains
(losses)" during the first six months of 2015 related to foreign
exchange that was associated with rig construction for AKITA's
newest triple pad rig.
Income Tax Expense
|
|
|
|
$
Millions
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Current Tax Expense
(Recovery)
|
(2.6)
|
(1.0)
|
(1.6)
|
(160%)
|
|
3.5
|
0.4
|
3.1
|
775%
|
Deferred Tax
Expense
|
1.1
|
2.1
|
(1.0)
|
(48%)
|
|
1.9
|
2.4
|
(0.5)
|
(21%)
|
Income Tax Expense
(Recovery)
|
(1.5)
|
1.1
|
(2.6)
|
(236%)
|
|
5.4
|
2.8
|
2.6
|
93%
|
Income tax expense increased to $5,426,000 in the first six months of 2016 from
$2,777,000 in the corresponding
period in 2015 mainly due to higher pre-tax earnings resulting from
the contract cancellation fee. Deferred taxes for the six
months ended June 30, 2016 were lower
than the same period in 2015 as the effect of the 2015 Alberta
corporate income tax increase affected the second quarter of 2015,
thereby increasing the Company's future tax liabilities.
Net Income (Loss), Funds Flow and Net Cash From Operating
Activities
|
|
|
|
$
Millions
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Net Income
(Loss)
|
(4.1)
|
(1.6)
|
(2.5)
|
(176%)
|
|
14.1
|
2.6
|
11.5
|
442%
|
Funds Flow from
Operations(1)
|
2.7
|
9.1
|
(6.4)
|
(70%)
|
|
28.1
|
23.1
|
5.0
|
22%
|
(1)
|
Funds flow from
operations is an additional GAAP measure under IFRS. See
commentary in "Basis of Analysis in this MD&A, Non-Standard and
Additional GAAP
Items".
|
During the three months ended June 30, 2016, the Company reported a net loss of
$4,062,000 or $0.23 per Class A Non-Voting and Class B Common
Share (basic and diluted) compared to a net loss of $1,620,000 or $0.09
per share (basic and diluted) in the comparative quarter of 2015.
Two primary factors that contributed to the increased loss in 2016
were the 86% reduction in operating days during the second quarter
of 2016 compared to the same period in 2015 and the increase in
depreciation resulting from minimum depreciation days for
non-operating rigs.
Funds flow from operations decreased to
$2,688,000 during the second quarter
of 2016 from $9,072,000 in the
corresponding quarter in 2015. Funds flow from operations was
negatively affected by weaker drilling activity in the second
quarter of 2016 but was not affected by depreciation expense as
this is a non-cash item.
Net income increased to $14,111,000 or $0.79 per Class A Non-Voting and Class B Common
Shares (basic and diluted) for the first six months of 2016 from
$2,598,000 or $0.14 per share (basic and diluted) in the
corresponding period of 2015. Funds flow from operations
increased to $28,071,000 during the
first six months of 2016 from $23,131,000 in the corresponding period in
2015. The increase in both net income and funds flow for the
six month period ended June 30, 2016
was directly attributable to the contract cancellation fee recorded
in the first quarter of 2016. The larger increase in net income
than in funds flow in the first six months of 2016 compared to 2015
is a result of higher depreciation and future taxes in 2015 which
are non-cash items that do not affect funds flow.
The following table reconciles funds flow and cash flow from
operations:
|
|
|
|
$
Millions
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Funds Flow from
Operations(1)
|
2.7
|
9.1
|
(6.4)
|
(70%)
|
|
28.1
|
23.1
|
5.0
|
22%
|
Change in Non-Cash Working
Capital
|
2.7
|
18.6
|
(15.9)
|
(85%)
|
|
(1.0)
|
15.2
|
(16.2)
|
(107%)
|
Equity Income from Joint
Ventures
|
(0.4)
|
(2.7)
|
2.3
|
85%
|
|
(2.8)
|
(7.1)
|
4.3
|
61%
|
Change in Long-Term
Receivable
|
(0.1)
|
0.0
|
(0.1)
|
N/A
|
|
(9.4)
|
0.0
|
(9.4)
|
N/A
|
Interest
Paid
|
0.0
|
0.0
|
(0.0)
|
N/A
|
|
0.0
|
0.2
|
(0.2)
|
100%
|
Current Income Tax Expense
(Recovery)
|
(2.7)
|
(1.0)
|
(1.7)
|
(170%)
|
|
3.5
|
0.4
|
3.1
|
775%
|
Income Tax Paid
(Recovered)
|
0.0
|
1.0
|
(1.0)
|
100%
|
|
(3.3)
|
(0.4)
|
(2.9)
|
(725%)
|
Net Cash from Operating
Activities
|
2.2
|
25.0
|
(22.8)
|
(91%)
|
|
15.1
|
31.4
|
(16.3)
|
(52%)
|
(1)
|
Funds flow from
operations is an additional GAAP measure under IFRS. See
commentary in "Basis of Analysis in this MD&A, Non-Standard and
Additional GAAP
Items".
|
Fleet and Rig Utilization
At June 30, 2016
AKITA had 31 drilling rigs, including nine that operated under
joint ventures (28.225 net to AKITA), compared to 36 rigs (32.725
net) in the corresponding period of 2015 (5 rigs
decommissioned). There were no changes to AKITA's rig fleet
during the first 6 months of 2016.
|
|
|
|
|
Three Months Ended June
30
|
|
Six Months Ended June
30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Operating
Days
|
121
|
885
|
(764)
|
(86%)
|
|
719
|
2,520
|
(1,801)
|
(71%)
|
Utilization
Rate
|
4.3%
|
27.7%
|
(23.4)
|
(84%)
|
|
12.8%
|
39.7%
|
(26.9)
|
(68%)
|
Liquidity and Capital Resources
Cash used for capital expenditures totalled
$1,530,000 in the first six months of
2016 (2015 - $11,874,000). All
of the capital spending in 2016 relates to routine items while
nearly three quarters of the 2015 capital expenditures related to
the completion of a triple pad rig.
At June 30, 2016,
AKITA's Statement of Financial Position included working capital
(current assets minus current liabilities) of $31,373,000 compared to working capital of
$7,414,000 at June 30, 2015 and working capital of $16,002,000 at December
31, 2015. Readers should also 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 during the second quarter as a result of spring
break-up. Non-cash working capital amounted to $8,800,000 at June 30,
2016 compared to a non-cash working capital of $6,637,000 at December
31, 2015. Working capital at June 30, 2016 improved compared to June 30, 2015 as a result of cost controls over
capital and operating expenses as well as the first payment and
receivables 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 June 30, 2016
(2015-$2,500,000).
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 711,408 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 June 30, 2016. Of
these contracts, one is due 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
June 30, 2016, AKITA provided
$4,792,000 in deposits with its bank
for those purposes (June 30, 2015 -
$8,482,000 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
|
June
30,
|
June
30,
|
December
31,
|
$
Thousands
|
2016
|
2015
|
2015
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
|
Cash and cash
equivalents
|
$
|
22,573
|
$
|
4,725
|
$
|
9,369
|
|
Accounts
receivable
|
12,269
|
12,885
|
14,310
|
|
Income taxes
recoverable
|
-
|
2,894
|
3,279
|
|
Prepaid expenses and
other
|
491
|
761
|
75
|
|
35,333
|
21,265
|
27,033
|
Non-current
Assets
|
|
|
|
Long-term
receivable
|
9,442
|
-
|
-
|
Restricted
cash
|
4,792
|
8,482
|
5,978
|
Other long-term
assets
|
957
|
971
|
917
|
Investments in joint
ventures
|
3,774
|
3,576
|
3,941
|
Property, plant and
equipment
|
206,483
|
272,732
|
216,647
|
Total
Assets
|
$
|
260,781
|
$
|
307,026
|
$
|
254,516
|
|
|
|
|
Liabilities
|
|
|
|
Current
Liabilities
|
|
|
|
|
Operating loan
facility
|
$
|
-
|
$
|
2,500
|
$
|
-
|
|
Accounts payable and
accrued
liabilities
|
2,187
|
9,747
|
9,506
|
|
Deferred
revenue
|
-
|
79
|
-
|
|
Dividends
payable
|
1,525
|
1,525
|
1,525
|
|
Income taxes
payable
|
248
|
-
|
-
|
|
3,960
|
13,851
|
11,031
|
Non-current
Liabilities
|
|
|
|
Financial
instruments
|
77
|
166
|
117
|
Deferred income
taxes
|
21,099
|
29,468
|
19,203
|
Deferred share
units
|
216
|
280
|
171
|
Pension
liability
|
3,965
|
3,642
|
3,794
|
Total
Liabilities
|
29,317
|
47,407
|
34,316
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
Class A and Class B
shares
|
23,871
|
23,871
|
23,871
|
Contributed
surplus
|
4,149
|
3,787
|
3,946
|
Accumulated other
comprehensive
loss
|
(244)
|
(280)
|
(244)
|
Retained
earnings
|
203,688
|
232,241
|
192,627
|
Total
Equity
|
231,464
|
259,619
|
220,200
|
Total Liabilities and
Equity
|
$
|
260,781
|
$
|
307,026
|
$
|
254,516
|
|
AKITA Drilling
Ltd.
|
Interim Statements of
Net Income (Loss) and Comprehensive Income
(Loss)
|
|
|
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
Unaudited
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
$
Thousands
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
Revenue
|
$
|
3,646
|
$
|
22,536
|
$
|
45,636
|
$
|
69,251
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
Operating and
maintenance
|
1,464
|
13,858
|
10,618
|
45,102
|
|
Depreciation and
amortization
|
5,384
|
8,276
|
11,659
|
17,344
|
|
Selling and
administrative
|
3,037
|
3,726
|
6,999
|
8,437
|
Total costs and
expenses
|
9,885
|
25,860
|
29,276
|
70,883
|
|
|
|
|
|
Revenue less costs and
expenses
|
(6,239)
|
(3,324)
|
16,360
|
(1,632)
|
|
|
|
|
|
Equity income from joint
ventures
|
389
|
2,694
|
2,844
|
7,073
|
|
|
|
|
|
Other income
(loss)
|
|
|
|
|
|
Interest
income
|
245
|
37
|
493
|
68
|
|
Interest
expense
|
(40)
|
(79)
|
(80)
|
(285)
|
|
Gain (loss) on sale of
assets
|
57
|
79
|
30
|
(111)
|
|
Net other gains
(losses)
|
57
|
33
|
(110)
|
262
|
Total other income
(loss)
|
319
|
70
|
333
|
(66)
|
|
|
|
|
|
Income (loss) before
income
taxes
|
(5,531)
|
(560)
|
19,537
|
5,375
|
|
|
|
|
|
Income taxes
(recovery)
|
(1,469)
|
1,060
|
5,426
|
2,777
|
|
|
|
|
|
Net income (loss) and
comprehensive income
(loss) for the period attributable to
shareholders
|
(4,062)
|
(1,620)
|
14,111
|
2,598
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
Class A and Class B
Share
|
|
|
|
|
|
|
Basic
|
$
|
(0.23)
|
$
|
(0.09)
|
$
|
0.79
|
$
|
0.14
|
|
|
Diluted
|
$
|
(0.23)
|
$
|
(0.09)
|
$
|
0.79
|
$
|
0.14
|
|
AKITA Drilling
Ltd.
|
Interim Statements of Cash
Flows
|
|
|
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
Unaudited
|
June
30,
|
June
30,
|
June
30,
|
June
30,
|
$
Thousands
|
2016
|
2015
|
2016
|
2015
|
Operating
Activities
|
|
|
|
|
Net income (loss) and comprehensive income
(loss)
|
$
|
(4,062)
|
$
|
(1,620)
|
$
|
14,111
|
$
|
2,598
|
Non-cash items included in net income
(loss):
|
|
|
|
|
|
Depreciation and
amortization
|
5,384
|
8,276
|
11,659
|
17,344
|
|
Deferred income tax
expense
|
1,148
|
2,059
|
1,896
|
2,415
|
|
Expense for defined benefit pension
plan
|
107
|
114
|
216
|
230
|
|
Expense for stock options and deferred share
units
|
187
|
351
|
259
|
420
|
|
(Gain) loss on sale of
assets
|
(57)
|
(79)
|
(30)
|
111
|
|
Unrealized foreign currency
loss
|
-
|
-
|
-
|
73
|
|
Unrealized gain on financial guarantee
contracts
|
(19)
|
(29)
|
(40)
|
(60)
|
Funds flow from
operations
|
2,688
|
9,072
|
28,071
|
23,131
|
Change in non-cash working
capital:
|
2,664
|
18,683
|
(955)
|
15,196
|
Equity income from joint
ventures
|
(389)
|
(2,694)
|
(2,844)
|
(7,073)
|
Change in long-term
receivable
|
(119)
|
-
|
(9,442)
|
-
|
Pension benefits
paid
|
(7)
|
(6)
|
(15)
|
(14)
|
Interest
paid
|
(1)
|
(44)
|
(1)
|
(214)
|
Income tax expense (recovery) -
current
|
(2,617)
|
(999)
|
3,530
|
362
|
Income taxes paid
(recovered)
|
-
|
999
|
(3,282)
|
(362)
|
Net cash from operating
activities
|
2,219
|
25,011
|
15,062
|
31,026
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
Capital
expenditures
|
(1,157)
|
(6,857)
|
(1,530)
|
(11,874)
|
Change in non-cash working capital related to
capital
|
(147)
|
(18)
|
(1,500)
|
(7,285)
|
Net distributions from investments in joint
ventures
|
559
|
3,094
|
3,011
|
9,711
|
Change in cash restricted for loan
guarantees
|
525
|
899
|
1,186
|
899
|
Change in term
deposits
|
16,000
|
-
|
-
|
-
|
Proceeds on sale of
assets
|
65
|
81
|
125
|
786
|
Net cash used in investing
activities
|
15,845
|
(2,801)
|
1,292
|
(7,763)
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
Change in operating loan
facility
|
-
|
(17,314)
|
-
|
(17,500)
|
Dividends
paid
|
(1,525)
|
(1,525)
|
(3,050)
|
(3,050)
|
Loan commitment
fee
|
-
|
-
|
(100)
|
-
|
Net cash used in financing
activities
|
(1,525)
|
(18,839)
|
(3,150)
|
(20,550)
|
|
|
|
|
|
Increase in
cash
|
16,539
|
3,371
|
13,204
|
2,713
|
Cash and cash equivalents, beginning of
period
|
6,034
|
1,354
|
9,369
|
2,012
|
|
|
|
|
|
Cash and cash equivalents, End of
Period
|
$
|
22,573
|
$
|
4,725
|
$
|
22,573
|
$
|
4,725
|
SOURCE AKITA Drilling Ltd.