CALGARY, March 3, 2017 /CNW/ - AKITA Drilling Ltd.'s net
income for the year ended December 31,
2016 was $5,329,000 (net
income of $0.30 per share (basic and
diluted)) on revenue of $61,061,000
compared to a net loss of $33,965,000
or a $1.89 loss per share (basic and
diluted) on revenue of $112,488,000
in 2015. Results in 2016 included significant contract
cancelation revenue of $28,250,000
($20,609,000 after tax) while 2015
included an asset impairment expense of $41,968,000 (after tax effect of $30,748,000). The Company had a net loss from
routine operations of $15,280,000
(net loss of $0.84 per share) in 2016
compared to a net loss from routine operations of $3,217,000 (net loss of $0.18 per share) in 2015. Funds flow from
operations for the current year was $34,500,000 compared to $38,510,000 in 2015, while net cash from
operating activities for 2016 was $11,892,000 compared to $41,507,000 in 2015.
The Canadian drilling industry faced significant challenges in
2016. Average crude oil prices for the year declined 11% from 2015,
after declining 48% from 2014 to 2015. This significant decline
over the last two years has caused large reductions in the capital
budgets of oil companies and therefore, significantly fewer
opportunities for drilling companies. For AKITA, these market
conditions resulted in the Company generating the fewest operating
days in the Company's 24 year history. Furthermore, the Company's
results were impacted by a significant reduction in day rates
across the industry.
During 2016, AKITA had two primary focuses; the management of
discretionary spending and the retention of experienced field
hands. Despite record low utilization and operating margins, the
Company grew its cash balance through the year, ending the year
with $14 million in cash, up from
$9 million in 2015, and increased
working capital from $16 million in
2015 to $35 million at the end of
2016. The Company upgraded four rigs in 2016, increasing depth
capacities and move efficiencies on these rigs and also began
construction of a new AC heavy pad double rig in the fourth quarter
that is scheduled to be completed in July of 2017. The second focus
of the Company in 2016, crew retention, was important to the
Company in order to keep as many field employees working through
the downturn as financially possible. This commitment to our
employees has put AKITA in the enviable position of having enough
experienced people to crew its rigs as demand picks up in 2017, as
is expected to be the case.
AKITA maintains a commitment to safety that permeates all levels
of the organization. Since inception, AKITA's annual safety
performance has been among the best in the industry. AKITA's
2016 total reportable accident frequency (often referred to as
"TRIF") was the best in the Company's history, showing a 20%
improvement over the Company's previous record. To help
achieve this, field employees complete extensive safety training
and must meet current industry certification standards and
managers, employees and subcontractors are all required to
understand and accept their responsibility for maintaining a safe
working environment.
On November 22, 2016, the Canadian
Association of Oilwell Drilling Contractors ("CAODC") released its
2017 industry drilling forecast, estimating 23% average rig
utilization compared to 17% actual average rig utilization in 2016,
and 4,665 wells in 2017, up from 3,562 in 2016. The 2017
forecast was based upon commodity price assumptions of US
$53 per barrel for crude oil and CAD
$3.00 per mcf for natural gas. This
forecasted increase in the number of wells to be drilled in 2017 is
positive; however, it is still 14% below 2015 figures and 58% below
2014. The Company anticipates that 2017 will be another challenging
year, but is optimistic that this growth trend will continue based
on recent positive news surrounding pipelines and Canada's ability to move crude oil to
markets.
Selected information from AKITA Drilling Ltd.'s Management's
Discussion and Analysis for the Annual Report is as
follows:
Fleet and Utilization
The following table summarizes rig changes that occurred in
2016:
|
|
|
|
Gross
|
Net
|
Number of rigs at
December 31, 2015
|
31
|
28.225
|
Rebuild and redeploy
heavy singles
|
2
|
2.000
|
Purchase of partners'
ownership % in two joint venture
rigs
|
-
|
0.525
|
Decommissioning of
rigs
|
(5)
|
(4.000)
|
Number of rigs at
December 31, 2016
|
28
|
26.750
|
In 2016, the Company rebuilt and deployed two heavy single rigs
that were constructed with a combination of spare parts and new
components. These single rigs each have a 1,900 metre depth
capacity and feature integrated top drives. Also during 2016, five
rigs were decommissioned and moved into spare equipment. In the
fourth quarter of 2016, the Company began construction of a new AC
double pad rig.
During 2016, three of the Company's joint venture partners
entered into an agreement with AKITA whereby they agreed to sell
their ownership interest in two rigs to AKITA in exchange for
settlement of outstanding payable balances on those and other joint
venture operations. As a result of these sales to AKITA, the
Company became the 100% owner of two former joint venture rigs.
Weak market conditions were the contributing factors that
necessitated this divestiture by the joint venture partners. AKITA
remains committed to the health of its joint ventures and the
success of its joint venture partners. As a result of AKITA
purchasing the partners' interest in these two rigs, the remaining
four joint venture rigs with these partners are well positioned for
future success and are financially stable.
Utilization rates are a key statistic for the drilling industry
since they measure revenue volume and influence pricing.
During 2016, AKITA achieved 1,583 operating days, which is the
lowest in the Company's history and which corresponds to a
utilization rate of 14%, compared to 2015 utilization of 31%, and
3% below the 2016 industry average of 17%.
The drilling industry is seasonal, with activity typically
building in the fall and peaking during the winter months, at which
time areas with muskeg conditions freeze sufficiently to allow the
movement of rigs and other heavy equipment. The peak drilling
season ends with "spring break-up", at which time drilling
operations are curtailed due to seasonal road bans (temporary
prohibitions on road use) and restricted access to agricultural
land.
In addition to traditional seasonal impacts, the business of
AKITA may be affected at various times in two important ways as a
result of warmer than normal temperatures. First, increases
in overall temperatures would have the effect of shortening the
winter drilling season. A secondary impact on AKITA of warmer
than normal temperatures is related to a reduced demand for natural
gas for heating. To the extent that warmer weather impacts
the demand for natural gas including the resultant lower natural
gas prices for many of AKITA's customers, those customers might
reduce natural gas drilling programs, which in turn might reduce
the demand for AKITA's services.
A significant shift in drilling has occurred in recent years
with respect to the type of equipment preferred by AKITA's
customers. Specifically, there has been a shift away from
conventional rigs, requiring trucks to relocate from well to well,
towards the use of pad rigs with self-moving systems which allow
the rig to move itself within a set of well locations, usually
referred to as a "pad". Moreover, pad rigs typically drill
wells in "batches", whereby a series of surface holes are drilled,
followed by one or more series of intermediate holes and a final
series of main holes. This style of drilling, as opposed to
drilling each well from start to finish prior to moving, provides
significant efficiency gains when used in appropriate
applications. Pad rigs are also less impacted by seasonal
fluctuations as they can work throughout spring break-up provided
they are in place before travel bans commence in the spring.
From time to time, the Company enters into drilling contracts
for extended terms. At December 31,
2016, AKITA had two rigs with multi-year contracts, one of
which expires in 2017 and the other in 2018.
AKITA's competitive position is affected by the overall size of
the Canadian drilling fleet and the level of customer demand.
At December 31, 2016, there were 668
drilling rigs registered with the CAODC (December 31, 2015 – 765). AKITA's drilling
fleet of 28 rigs represented 4.2% of the total Canadian drilling
fleet at December 31, 2016
(December 31, 2015 – 4.1%).
Revenue and Operating & Maintenance Expenses
$Millions
|
2016
|
2015
|
Change
|
%
Change
|
Revenue per Financial
Statements
|
61.1
|
112.5
|
(51.4)
|
(46%)
|
Contract Cancellation
Revenue
|
(28.3)
|
-
|
(28.3)
|
N/A
|
Proportionate Share
of Revenue from Joint Ventures(1)
|
17.0
|
32.5
|
(15.5)
|
(48%)
|
Adjusted Revenue
(1)
|
49.8
|
145.0
|
(95.2)
|
(66%)
|
|
|
|
|
|
$Millions
|
2016
|
2015
|
Change
|
%
Change
|
Operating &
Maintenance Expenses per Financial Statements
|
24.2
|
74.0
|
(49.8)
|
(67%)
|
Proportionate Share
of Operating & Maintenance Expenses from Joint
Ventures(1)
|
10.7
|
20.8
|
(10.1)
|
(49%)
|
Adjusted Operating
& Maintenance Expenses (1)
|
34.9
|
94.8
|
(59.9)
|
(63%)
|
|
|
|
|
|
$Millions
|
2016
|
2015
|
Change
|
%
Change
|
Adjusted
Revenue(1)
|
49.8
|
145.0
|
(95.2)
|
(66%)
|
Adjusted Operating
& Maintenance Expenses (1)
|
34.9
|
94.8
|
(59.9)
|
(63%)
|
Adjusted Operating
Margin (1) (2)
|
14.9
|
50.2
|
(35.3)
|
(70%)
|
|
|
|
|
|
$Dollars
|
2016
|
2015
|
Change
|
%
Change
|
Adjusted Revenue per
Operating Day (1)
|
31,447
|
36,102
|
(4,655)
|
(13%)
|
Adjusted Operating
& Maintenance Expenses per Operating Day
(1)
|
22,015
|
23,620
|
(1,605)
|
(7%)
|
Adjusted Operating
Margin per Operating Day (1) (2)
|
9,432
|
12,482
|
(3,050)
|
(24%)
|
|
(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-GAAP financial
measures. See commentary in "Basis of Analysis in this
MD&A, Non-GAAP and Additional GAAP Items" on page
10.
|
|
(2)
|
Adjusted operating
margin is the difference between adjusted revenue and adjusted
operating & maintenance expenses.
|
Adjusted revenue of $49,781,000 in
2016 was 66% lower than the 2015 adjusted revenue of $144,951,000, primarily as a result of decreased
rig activity coupled with reduced day rates. During 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. The Company's pad triple rigs saw the
largest decrease in operating days which were heavily affected by
the suspension of oil sands operations due to both low crude oil
prices and the Fort McMurray
wildfires. Adjusted revenue was also lower on a per operating day
basis, decreasing to $31,477 per
operating day in 2016 from $36,102
per operating day in 2015, as a result of increased competition for
limited opportunities in 2016.
Adjusted operating and maintenance costs are tied to activity
levels and amounted to $34,850,000 or
$22,015 per operating day during 2016
compared to $94,834,000 or
$23,620 per operating day for the
prior year. The reduction in operating and maintenance costs,
when considered on a totals basis, is directly related to the lower
level of activity in 2016 compared to 2015. The decrease on a
per day basis is a result of cost cutting measures that were
started in 2015 and affected the full year in 2016.
The Company's adjusted operating margin for 2016 was
$14,931,000 ($9,432 per operating day), compared to
$50,117,000 ($12,482 per operating day) in 2015. Lower
drilling activity was the key factor behind the reduction in
operating margin from 2015 to 2016. On a per day basis, reduced day
rates in 2016 drove the operating margin per day lower than in
2015.
AKITA provided drilling services to 29 different customers in
2016 (2015 - 27 different customers), including three customers
that each provided more than 10% of AKITA's adjusted revenue for
the year (2015 – three customers).
Depreciation and Amortization Expense
$Millions
|
2016
|
2015
|
Change
|
%
Change
|
Depreciation and
Amortization Expense
|
24.0
|
36.7
|
(12.7)
|
(35%)
|
Drilling rigs are generally depreciated using the unit of
production method. Depreciation is typically calculated for
each rig's major components resulting in an average useful life of
3,600 operating days per rig, subject to annual minimum imputed
activity levels. In certain instances where rigs are inactive
for extended periods, however, the Company's depreciation rate is
accelerated. Major rig upgrades are depreciated over the
remaining useful life of the related component or to the date of
the next major upgrade, whichever is sooner. Major rig
inspection and overhaul expenditures are depreciated on a
straight-line basis over three years.
The decrease in depreciation and amortization expense to
$23,959,000 during 2016 from
$36,748,000 during 2015 was
attributable to fewer operating days in 2016. On a per day basis,
depreciation increased from $9,153
per day in 2015 to $15,135 per day in
2016 as a result of more inactive rigs incurring depreciation
relating to minimum imputed activity levels in 2016. Drilling rig
depreciation accounted for 96% of total depreciation and
amortization expense in 2016 (2015 – 97%).
Selling and Administrative Expenses
$Millions
|
2016
|
2015
|
Change
|
%
Change
|
Selling and
Administrative Expenses per Financial Statements
|
12.5
|
15.1
|
(2.6)
|
(17%)
|
Proportionate Share
of Selling and Administrative Expenses from Joint Ventures
(1)
|
0.2
|
0.4
|
(0.2)
|
(50%)
|
Adjusted Selling and
Administrative Expenses (1)
|
12.7
|
15.5
|
(2.8)
|
(18%)
|
(1)
|
Proportionate
share of selling and administrative expense from joint ventures and
adjusted selling and administrative expense are non-GAAP financial
measures. See commentary in "Basis of Analysis in this
MD&A, Non-GAAP and Additional GAAP Items" on page
10.
|
Adjusted selling and administrative expenses decreased to
$12,702,000 in 2016 from $15,524,000 in 2015. The reduction in
adjusted selling and administrative expenses (as well as selling
and administrative expenses per the financial statements) is a
direct result of cost cutting measures implemented by the Company
impacting the full year of 2016 compared to 2015 when the cost
cutting initiatives were started but did not impact the full year.
Adjusted selling and administrative expenses equated to 25.5% of
adjusted revenue in 2016, compared to 10.7% of adjusted revenue in
2015, as a result of decreased adjusted revenue and the fixed
nature of selling and administrative expenses.
The single largest component of adjusted selling and
administrative expenses was salaries and benefits which accounted
for 55% of these expenses in 2016 (2015 – 57%).
Asset Impairment
$Millions
|
2016
|
2015
|
Change
|
%
Change
|
Asset Impairment
Loss
|
-
|
42.0
|
(42.0)
|
(100%)
|
International Accounting Standard 36, "Impairment of Assets",
requires an entity to consider both internal and external factors
when assessing whether there are indications of asset impairment at
each reporting period. At December 31,
2016, there were no internal indicators of impairment and an
external indicator of impairment, namely the price of crude oil,
still exists. Despite the positive trend in oil prices in the
second half of 2016, crude oil prices remained low when compared to
2014. At December 31, 2016,
significant market uncertainty still exists as to the extent and
duration of the recovery of oil prices. This uncertainty impacts
the earnings potential of the Company's cash generating units
("CGUs"), therefore an asset impairment test was performed at
December 31, 2016.
The accuracy of asset impairment testing is affected by
estimates and judgments in respect of the inputs and parameters
that are used to determine recoverable amounts. In performing its
asset impairment test at December 31,
2016, management determined value in use for each of its
CGUs using estimated discounted cash flows ("DCFs"), which included
estimates of future cash flows, expectations regarding cash flow
variability, a determination of the discount rate and consideration
of the recoverable amount and salvage value of each CGU. IFRS
considers this approach to constitute a Level 3 hierarchy in its
determination of value.
Upon completion of its asset impairment testing, the Company
concluded that there was no impairment, nor reversal of previous
impairment, required at December 31,
2016.
Equity Income from Joint Ventures
$Millions
|
2016
|
2015
|
Change
|
%
Change
|
Proportionate Share
of Revenue from Joint Ventures (1)
|
17.0
|
32.5
|
(15.5)
|
(48%)
|
Proportionate Share
of Operating & Maintenance Expenses from Joint Ventures
(1)
|
10.7
|
20.8
|
(10.1)
|
(49%)
|
Proportionate Share
of Selling and Administrative Expenses from Joint Ventures
(1)
|
0.2
|
0.4
|
(0.2)
|
(50%)
|
Equity Income from
Joint Ventures
|
6.1
|
11.3
|
(5.2)
|
(46%)
|
(1)
|
Proportionate
share of revenue from joint ventures, proportionate share of
operating & maintenance expenses from joint ventures and
proportionate share of selling and administrative expenses from
joint ventures are Non-GAAP financial measures. See
commentary in "Basis of Analysis in this MD&A, Non-GAAP and
Additional GAAP Items" on page 10.
|
The Company provides the same drilling services and utilizes the
same management, financial and reporting controls for its joint
venture activities as it does for its wholly-owned
operations. The analyses of these activities are incorporated
throughout the relevant sections of this MD&A. Joint
venture activities are often located in some of the most
prospective regions in Canada. Two thirds of AKITA's joint
ventures utilize pad drilling rigs.
Other Income (Loss)
$Millions
|
2016
|
2015
|
Change
|
%
Change
|
Total Other Income
(Loss)
|
1.0
|
(0.4)
|
1.4
|
(350%)
|
Interest income increased to $965,000 in 2016 from $130,000 in 2015 due primarily to interest
accrued ($764,000) on the receivable
portions of the contract cancellation revenue referenced earlier.
The remainder relates to interest earned on cash balances.
During 2016, the Company recorded interest expense of
$163,000 (2015 – $356,000) related to the future cost of the
Company's unfunded defined benefit pension plan. Interest expense
in 2015 also included interest on the Company's indebtedness which
was fully repaid in 2015.
During 2016, the Company disposed of non-core assets resulting
in a gain of $90,000. AKITA
disposed of several non-core assets in 2015, resulting in a
$657,000 loss.
In 2016, amounts reported as "Net Other Gains" of $148,000 included miscellaneous income. In 2015,
"Net Other Gains" of $462,000
included $267,000 of foreign exchange
amounts related to forward exchange contracts settled in 2015 and
miscellaneous income of $195,000.
Income Tax Expense (Recovery)
$Millions, Except
Income Tax Rate (%)
|
2016
|
2015
|
Change
|
%
Change
|
Current Tax
Recovery
|
(2.3)
|
(2.7)
|
0.4
|
15%
|
Deferred Tax Expense
(Recovery)
|
4.5
|
(7.9)
|
12.4
|
157%
|
Total Income Tax
Expense (Recovery)
|
2.2
|
(10.6)
|
12.8
|
121%
|
Effective Income Tax
Rate
|
29.2%
|
23.7%
|
|
|
AKITA had an income tax expense of $2,206,000 in 2016 compared to a tax recovery of
$10,579,000 in 2015. The change in
current tax recovery resulted from a slightly lower loss for tax
purposes in the year when comparing 2016 to 2015. The increase in
deferred tax is due to an asset impairment expense recorded in 2015
that created a significant deferred tax recovery in 2015.
Net Income (Loss), Funds Flow and Net Cash from Operating
Activities
$Millions
|
2016
|
2015
|
Change
|
%
Change
|
Net Income
(Loss)
|
5.3
|
(34.0)
|
39.3
|
116%
|
Funds Flow from
Operations(1)
|
34.5
|
38.5
|
(4.0)
|
(10%)
|
(1)
|
Funds flow from
operations is an additional GAAP measure under IFRS. See
commentary in "Basis of Analysis in this MD&A, Non-GAAP and
Additional GAAP Items" on page 10.
|
During 2016, the Company recorded net income of $5,329,000 (net earnings of $0.30 per Class A Non-Voting and Class B Common
Share (basic and diluted)) compared to a net loss of $33,965,000 (net loss of $1.89 per Class A Non-Voting and Class B Common
Share (basic and diluted)) in 2015. Funds flow from
operations decreased to $34,500,000
in 2016 from $38,510,000 in
2015.
During the first quarter of 2016, the Company recorded contract
cancellation revenue of $28,250,000
($20,609,000 net of tax) related to
the cancellation of a multi-year contract. This contract
cancellation revenue had a significant impact on the Company's
financial performance, resulting in net income of $5,329,000. Excluding the contract cancellation
revenue, the Company generated a net loss from routine operations
of $15,280,000 compared to a net loss
from routine operations of $3,217,000
in 2015 (net loss $33,965,000 plus
$30,748,000 (tax effected asset
impairment expense)). Weak market conditions were the primary
factor for the significant decrease in results from routine
operations. Funds flow from operations was affected by the contract
cancellation revenue and weaker market conditions in 2016. Funds
flow from operations was not affected by the asset impairment
expense in 2015 as this is a non-cash item.
Liquidity and Capital Resources
At December 31, 2016, AKITA had
$34,907,000 in working capital
including $14,250,000 in cash and no
bank indebtedness, compared to a working capital of $16,002,000, including $9,369,000 in cash at December 31, 2015. In 2016, AKITA generated
$11,892,000 cash from operating
activities. Cash was also generated from joint venture
distributions ($6,753,000), from
reductions in cash balances restricted for loan guarantees
($3,009,000) and from proceeds on
sales of assets ($202,000).
During the same period, cash was used for capital expenditures
($10,775,000)(1) and
payment of dividends ($6,100,000)(1).
(1) Readers should be
aware that the use of cash in any given period for capital
expenditures or payment of dividends does not necessarily coincide
with the accounting treatment when reported on an accrual
basis.
|
The Company chooses to maintain a conservative Statement of
Financial Position due to the yclical nature of the industry.
In addition to its cash balances, the Company has an operating loan
facility with its principal banker totalling $100,000,000 that is available until 2020.
The interest rate on the facility varies based upon the actual
amounts borrowed and ranges from 0.45% to 1.45% over prime interest
rates or 1.45% to 2.45% over guaranteed notes, depending on the
preference of the Company. The Company did not have any
borrowings from this facility at December
31, 2016 or December 31,
2015.
As part of the loan facility agreement, the Company must adhere
to the following financial covenants:
- Funded debt to EBITDA shall not be greater than 3.00 to 1;
- EBITDA to interest expense shall not be less than 3.00 to 1;
and
- Tangible assets to funded debt shall not be less than 2.25 to
1.
Readers should be aware that each of funded debt, EBITDA,
interest expense and tangible assets have specifically set out
definitions in the loan facility agreement and are not necessarily
defined by or consistent with either GAAP or determinations by
other users for other purposes.
From time to time, the Company makes major purchases from
non-Canadian suppliers in connection with its capital
expenditures. AKITA purchases forward currency contracts in
order to minimize the risk of currency translation adjustments
associated with these purchases. At December 31, 2016 and 2015, the Company did not
have any forward currency contracts.
The Company did not have an outstanding normal course issuer bid
during 2016 or 2015.
The following table provides a summary of contractual
obligations for the Company:
Contractual
Obligations
|
Total
|
Less than
1 year
|
1 - 3
years
|
4 - 5
years
|
After 5
years
|
($Thousands)
|
Operating Leases
(1)
|
2,545
|
837
|
1,708
|
Nil
|
Nil
|
Purchase
Obligations
|
650
|
325
|
325
|
Nil
|
Nil
|
Capital Expenditure
Commitments
|
827
|
827
|
Nil
|
Nil
|
Nil
|
Long Term Pension
Obligations
|
4,303
|
Note
|
Note
|
Note
|
Note
|
Total Contractual
Obligations
|
8,325
|
1,989
|
2,033
|
Nil
|
Nil
|
|
(1) In 2016, the
annual cost for this lease is $773,000. The lease expires on
December 31, 2019.
|
|
|
|
Note: Timing of
pension payments is dependent upon retirement dates for respective
employees. The cost for year one ranges from $90,000 to $191,000,
for year two from $90,000 to $242,000 and from year 3 and beyond,
$90,000 to $315,000.
|
Property, Plant and Equipment
Capital expenditures totalled $13,193,000 in 2016 ($17,960,000 in 2015). Capital spending in 2016
was as follows; $4,723,000 for
certifications and overhauls, $1,776,000 for drill pipe and drill collars,
$3,206,000 for rig equipment and
upgrades and $3,361,000 in loans and
payables assumed by the Company upon the acquisition of three joint
venture partners' percentage ownership of two joint venture rigs.
The balance of capital expenditures was for other equipment. The
costs incurred during 2015 for capital was $9,727,000 for completion of a rig construction
project, $3,878,000 for
certifications and overhauls, $2,544,000 in rig equipment for existing rigs,
$1,490,000 for drill pipe and drill
collars and $321,000 on other
equipment.
During 2016, the Company sold ancillary assets for $202,000 that resulted in a gain of $90,000. During 2015, AKITA sold ancillary
assets for $1,093,000 for a loss of
$657,000.
Basis of Analysis in this MD&A, Non-GAAP and Additional
GAAP Items
The Company reports its joint venture activities in the
financial statements in accordance with 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 Joint 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 Joint 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.
Funds flow from operations is considered an additional GAAP item
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, equity income from joint ventures, and income tax amounts
paid or recovered 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.
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 industry and risk management
discussions.
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 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; 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.
Selected Financial Information for the Company is as
follows:
|
|
AKITA Drilling
Ltd.
|
|
Consolidated
Statements of Financial Position
|
|
|
|
|
December
31
|
December
31
|
$
Thousands
|
2016
|
2015
|
Assets
|
|
|
Current
Assets
|
|
|
|
Cash and cash
equivalents
|
$
|
14,250
|
$
|
9,369
|
|
Accounts
receivable
|
28,220
|
14,310
|
|
Income taxes
recoverable
|
2,356
|
3,279
|
|
Prepaid expenses and
other
|
74
|
75
|
|
44,900
|
27,033
|
Non-current
Assets
|
|
|
|
Restricted
cash
|
2,969
|
5,978
|
|
Other long-term
assets
|
894
|
917
|
|
Investments in joint
ventures
|
3,252
|
3,941
|
|
Property, plant and
equipment
|
205,892
|
216,647
|
Total
Assets
|
$
|
257,907
|
$
|
254,516
|
|
|
|
|
Liabilities
|
|
|
Current
Liabilities
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
8,468
|
$
|
9,506
|
|
Dividends
payable
|
1,525
|
1,525
|
|
9,993
|
11,031
|
Non-current
Liabilities
|
|
|
|
Financial
instruments
|
41
|
117
|
|
Deferred income
taxes
|
23,702
|
19,203
|
|
Deferred share
units
|
222
|
171
|
|
Pension
liability
|
4,303
|
3,794
|
Total
Liabilities
|
38,261
|
34,316
|
|
|
Shareholders'
Equity
|
|
|
|
Class A and Class B
shares
|
23,871
|
23,871
|
|
Contributed
surplus
|
4,285
|
3,946
|
|
Accumulated other
comprehensive loss
|
(366)
|
(244)
|
|
Retained
earnings
|
191,856
|
192,627
|
Total
Equity
|
219,646
|
220,200
|
Total Liabilities
and Equity
|
$
|
257,907
|
$
|
254,516
|
|
|
|
|
|
AKITA Drilling
Ltd.
|
|
|
Consolidated
Statements of Net Income (Loss) and Comprehensive Income
(Loss)
|
|
|
|
|
Year Ended
December 31
|
$ Thousands except
per share amounts
|
2016
|
2015
|
|
|
|
Revenue
|
$
|
61,061
|
$
|
112,488
|
|
|
|
Costs and
expenses
|
|
|
|
Operating and
maintenance
|
24,169
|
74,031
|
|
Depreciation and
amortization
|
23,959
|
36,748
|
|
Asset impairment
loss
|
-
|
41,968
|
|
Selling and
administrative
|
12,502
|
15,128
|
Total costs and
expenses
|
60,630
|
167,875
|
|
|
|
Revenue less costs
and expenses
|
431
|
(55,387)
|
|
|
|
Equity income from
joint ventures
|
6,064
|
11,264
|
|
|
|
Other income
(loss)
|
|
|
|
Interest
income
|
965
|
130
|
|
Interest
expense
|
(163)
|
(356)
|
|
Gain (loss) on sale
of assets
|
90
|
(657)
|
|
Net other
gains
|
148
|
462
|
Total other income
(loss)
|
1,040
|
(421)
|
|
|
|
Income (loss)
before income taxes
|
7,535
|
(44,544)
|
|
|
|
Income tax expense
(recovery)
|
2,206
|
(10,579)
|
|
|
|
Net income (loss)
for the year attributable to
shareholders
|
5,329
|
(33,965)
|
|
|
|
|
Other
comprehensive income (loss)
|
(122)
|
36
|
|
|
|
Comprehensive
income (loss) for the year attributable to
shareholders
|
$
|
5,207
|
$
|
(33,929)
|
|
|
|
|
|
|
Net Income (Loss)
per Class A and Class B Share
|
|
|
|
Basic
|
$
|
0.30
|
$
|
(1.89)
|
|
Diluted
|
$
|
0.30
|
$
|
(1.89)
|
|
|
|
|
|
|
|
|
AKITA Drilling
Ltd.
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31
|
$
Thousands
|
|
2016
|
2015
|
|
|
|
|
|
Operating
Activities
|
|
|
|
Net income
(loss)
|
|
$
|
5,329
|
$
|
(33,965)
|
Non-cash items
included in net income:
|
|
|
|
|
Depreciation and
amortization
|
|
23,959
|
36,748
|
|
Asset impairment
loss
|
|
-
|
41,968
|
|
Deferred income tax
expense (recovery)
|
|
4,543
|
(7,863)
|
|
Defined benefit
pension plan expense
|
|
432
|
492
|
|
Stock options and
deferred share units expense
|
|
402
|
509
|
|
(Gain) loss on sale
of assets
|
|
(90)
|
657
|
|
Unrealized foreign
currency loss
|
|
-
|
73
|
|
Unrealized gain loss
on financial guarantee contracts
|
|
(75)
|
(109)
|
Funds flow from
operations
|
|
34,500
|
38,510
|
Change in non-cash
working capital
|
|
(17,405)
|
14,859
|
Equity income from
joint ventures
|
|
(6,064)
|
(11,264)
|
Post employment
benefits
|
|
(60)
|
(115)
|
Interest
paid
|
|
(2)
|
(215)
|
Income tax recovery -
current
|
|
(2,337)
|
(2,717)
|
Income taxes
recoverable
|
|
3,260
|
2,449
|
Net cash from
operating activities
|
|
11,892
|
41,507
|
|
|
|
|
|
Investing
Activities
|
|
|
|
Capital
expenditures
|
|
(13,193)
|
(17,960)
|
Change in non-cash
working capital
|
|
2,418
|
(8,122)
|
Distributions from
investments in joint ventures
|
|
6,753
|
13,537
|
Change in cash
restricted for loan guarantees
|
|
3,009
|
3,403
|
Proceeds on sale of
assets
|
|
202
|
1,093
|
Net cash used in
investing activities
|
|
(811)
|
(8,049)
|
|
|
|
|
|
Financing
Activities
|
|
|
|
Change in operating
loan facility
|
|
-
|
(20,000)
|
Dividends
paid
|
|
(6,100)
|
(6,101)
|
Loan commitment fee
paid
|
|
(100)
|
-
|
Net cash used in
financing activities
|
|
(6,200)
|
(26,101)
|
|
|
|
|
|
Increase in cash
and cash equivalents
|
|
4,881
|
7,357
|
Cash and cash
equivalents, beginning of year
|
|
9,369
|
2,012
|
|
|
|
|
|
Cash and cash
equivalents, End of Year
|
|
$
|
14,250
|
$
|
9,369
|
|
|
|
|
|
SOURCE AKITA Drilling Ltd.