CALGARY, July 30, 2014 /CNW/ - AKITA Drilling Ltd.'s net
income for the three months ended June 30,
2014 was $2,082,000
($0.12 per share) on revenue of
$28,365,000 compared to $2,757,000 ($0.15
per share) on revenue of $28,170,000
for the corresponding period in 2013. Funds flow from
operations for the quarter ended June 30,
2014 was $10,609,000 compared
to $9,121,000 in the corresponding
quarter in 2013.
Net income for the six months ended June
30, 2014 was $12,231,000
($0.68 per share) on revenue of
$82,708,000. Comparative
figures for 2013 were net income of $15,252,000 ($0.85
per share) on revenue of $89,085,000. Funds flow from operations for
the January to June period in 2014 was $28,273,000 compared to $29,106,000 for the comparative period in
2013.
During 2013 and 2014, the Company entered into forward foreign
exchange contracts in order to mitigate foreign exchange exposure
for capital purchases made outside of Canada. In that regard,
AKITA recorded an unrealized foreign exchange loss of $945,000 during the second quarter of 2014 (YTD
2014 - $647,000) which was partially
offset by a realized foreign exchange gain of $376,000 during the second quarter of 2014 (YTD
2014 - $499,000). The Company
did not have similar foreign exchange exposures during the
comparative periods during 2013.
The increase in operating days in the second quarter of 2014
compared to the corresponding quarter in 2013 (i.e., 1,220 in 2014
compared to 1,017 in 2013) was attributable to additional pad rig
activity as well as having several conventional rigs working during
this period. Lower operating margins and higher depreciation
expense along with the foreign currency hedge loss noted above
resulted in lower net income in the second quarter of 2014 compared
to the corresponding quarter in 2013.
The Company is continuing with its major capital projects that
form the backbone of the largest capital program in AKITA's
history. In addition to two new build pad rigs under
construction, the Company is refitting a recently purchased pad
rig, upgrading an existing pad rig to increase its drilling
capabilities and is in the final stages of construction and
commissioning of its first slant pad rig. Management
anticipates that these additions and improvements to the fleet will
result in meaningful increases to the earnings and cash flow
potential for the Company.
While upcoming business conditions remain positive, the rate at
which a number of major projects develop are dependent upon
significant future events, especially as they relate to final
investment decisions for the development of anticipated liquified
natural gas (commonly referred to as "LNG") projects and increased
capacity to transport crude oil and bitumen. Although both of
these major opportunities dominate much of the Canadian energy
related press, other significant prospects continue to develop at a
reasonable rate. The Duvernay formation in Alberta is an additional significant play that
impacts AKITA. This play, which spans a large geographic
area, requires heavy double and triple sized conventional rigs for
much of the exploration phase and will ultimately require deeper
capacity pad rigs to complete the development phase. AKITA's
fleet is well positioned to meet all of the foregoing
requirements.
Selected information from AKITA Drilling Ltd.'s Management's
Discussion and Analysis from the Quarterly Report is 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 to assets and obligations for liabilities being conferred
upon the parties to the arrangement prior to concluding that
AKITA's joint ventures are appropriately 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 GAAP 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.
Operating margin, revenue per operating day, operating and
maintenance expense per operating day and operating margin per
operating day are not recognized measures under IFRS.
Management and certain investors may find 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 expense per
operating day demonstrates the 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 between conventional and
pad and singles, doubles and triples can also impact these
results. Readers should also be aware that AKITA includes
standby revenue, construction revenue and construction costs in its
determination of "per operating day" results.
Funds flow from operations is considered as 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. Management and certain investors may find funds flow
from operations to be a useful measurement tool 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
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Revenue per
Interim Financial
Statements(1)
|
28.4
|
28.2
|
0.2
|
1%
|
|
82.7
|
89.1
|
(6.4)
|
(7%)
|
Proportionate Share
of Revenue from
Joint
Ventures(2)
|
16.6
|
11.0
|
5.6
|
51%
|
|
34.1
|
24.3
|
9.8
|
40%
|
Adjusted
Revenue(2)
|
45.0
|
39.2
|
5.8
|
15%
|
|
116.8
|
113.4
|
3.4
|
3%
|
|
|
|
|
$
Millions
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Operating &
Maintenance Expenses per
Interim Financial
Statements(1)
|
18.7
|
18.6
|
0.1
|
1%
|
|
53.5
|
56.0
|
(2.5)
|
(4%)
|
Proportionate Share
of Operating &
Maintenance
Expenses from Joint
Ventures(2)
|
10.5
|
6.6
|
3.9
|
59%
|
|
21.3
|
14.3
|
7.0
|
49%
|
Adjusted Operating
& Maintenance Expenses(2)
|
29.2
|
25.2
|
4.0
|
16%
|
|
74.8
|
70.3
|
4.5
|
6%
|
|
|
|
|
$
Millions
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Adjusted
Revenue(2)
|
45.0
|
39.2
|
5.8
|
15%
|
|
116.8
|
113.4
|
3.4
|
3%
|
Adjusted Operating
& Maintenance Expenses(2)
|
29.2
|
25.2
|
4.0
|
16%
|
|
74.8
|
70.3
|
4.5
|
6%
|
Adjusted Operating
Margin(1)(2)(3)
|
15.8
|
14.0
|
1.8
|
13%
|
|
42.0
|
43.1
|
(1.1)
|
(3%)
|
|
|
|
|
$
Dollars
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Adjusted Revenue per
Operating Day(2)
|
36,843
|
38,520
|
(1,677)
|
(4%)
|
|
35,059
|
35,883
|
(824)
|
(2%)
|
Adjusted Operating
& Maintenance
Expenses per Operating
Day(2)
|
23,933
|
24,796
|
(863)
|
(3%)
|
|
22,466
|
22,271
|
195
|
1%
|
Adjusted Operating
Margin per
Operating
Day(2)(3)
|
12,910
|
13,724
|
(814)
|
(6%)
|
|
12,593
|
13,612
|
(1,019)
|
(7%)
|
(1)
|
Revenue, operating
& maintenance expenses and adjusted operating margin include
the Company's rig construction for third parties.
AKITA does not
disclose its operating margin on rig construction activity
separately for competitive reasons.
|
(2)
|
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".
|
(3)
|
Adjusted operating
margin is the difference between adjusted revenue and adjusted
operating & maintenance expenses.
|
Second Quarter Comparatives –Higher Activity Levels partially
Offset by Lower Day Rates
During the second quarter of 2014, adjusted revenue increased to
$44,948,000 from $39,175,000 during the second quarter of 2013 as
a result of increased rig activity for pad rigs and conventional
doubles.
Although adjusted revenue for the three month period ended
June 30, 2014 increased, adjusted
revenue per operating day decreased to $36,843 during the second quarter of 2014 from
$38,520 in the comparative quarter of
2013 due to an increased proportion of the Company's revenue being
generated by its conventional drilling rigs versus pad rigs as well
as due to lower day rates for certain of AKITA's pad rigs.
Pad rigs, compared to conventional drilling rigs, typically
generate higher revenue on a per day basis.
Adjusted operating and maintenance costs are tied to revenue and
amounted to $29,198,000 ($23,933 per operating day) during the second
quarter of 2014 compared to $25,218,000 ($24,796 per operating day) in the same period of
the prior year. While conventional rigs figured more
prominently in the drilling activities during the current quarter
compared to the second quarter of 2013, the actual mix of rigs
resulted in higher operating costs when taken on a "per operating
day" basis.
The adjusted operating margin for the Company increased to
$15,750,000 ($12,910 per operating day) in the second quarter
of 2014 from $13,957,000
($13,724 per operating day) during
the corresponding quarter of 2013. Increased drilling
activity was the major reason for the total adjusted operating
margin increasing in the second quarter of 2014 compared to the
corresponding period in 2013, while an increase in the proportion
of conventional rigs compared to pad rigs as well as day rate
reductions for specific pad rigs adversely affected the adjusted
operating margin per operating day when comparing the same
periods.
Year-to-Date Comparatives – Improvements in the Second
Quarter partially Offset Weakness encountered in First
Quarter
During the first six months of 2014, adjusted revenue increased
to $116,815,000 from $113,353,000 during the first six months of 2013
as a result of strengthening market conditions for pad rigs and
conventional double sized rigs, particularly in the second quarter
of the year.
Although adjusted revenue for the year-to-date period ended
June 30, 2014 increased, adjusted
revenue per operating day decreased to $35,059 during the first six months of 2014 from
$35,883 in the comparative six month
period of 2013 due to the same factors that affected second quarter
adjusted revenue per operating day.
Adjusted operating and maintenance costs are tied to revenue and
amounted to $74,858,000 ($22,466 per operating day) during the first six
months of 2014 compared to $70,354,000 ($22,271 per operating day) in the same period of
the prior year.
The adjusted operating margin for the Company decreased to
$41,957,000 in the first six months
of 2014 from $42,999,000 during the
corresponding period of 2013. This reduction occurred in the
first quarter of 2014 due to a reduction in standby revenue as well
as the change in rig mix (i.e. there was a higher percentage of
activity generated by conventional rigs during the first quarter of
2014 compared to the corresponding quarter in 2013). During
the second quarter, this decline in adjusted operating margin was
partially offset by stronger market conditions.
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, 2014,
deferred revenue related to these activities totalled $76,000 (June 30,
2013 - $371,000).
Depreciation and
Amortization Expense
|
$
Millions
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Depreciation
and
Amortization
Expense
|
7.3
|
5.5
|
1.8
|
33%
|
|
15.1
|
13.0
|
2.1
|
16%
|
The depreciation and amortization expense reported in the second
quarter of 2014 of $7,256,000 was
higher than the corresponding quarter of 2013 ($5,556,000) due to the increased cost base for
AKITA's fleet as well as due to higher rig activity. In
addition, during the second quarter, the most active rigs also had
the highest cost base. AKITA depreciates its rig assets using
a unit of production method.
Depreciation and amortization expense for the first six months
of 2014 totalled $15,119,000 compared
to $13,023,000 for the corresponding
period in 2013. As with the depreciation and amortization
expense for the second quarter, both the higher cost base for
AKITA's rigs as well as increased drilling activity were the major
factors in the depreciation increase. In the first six months
of 2014, drilling rig depreciation accounted for 96% of total
depreciation and amortization expense (2013 - 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 Expense
|
$
Millions
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Selling &
Administrative Expense
per
Interim Financial Statements
|
4.8
|
4.6
|
0.2
|
4%
|
|
10.0
|
9.4
|
0.6
|
6%
|
Proportionate Share
of Selling &
Administrative
Expense from Joint Ventures(1)
|
0.3
|
0.1
|
0.2
|
200%
|
|
0.5
|
0.3
|
0.2
|
67%
|
Adjusted Selling
& Administrative Expense(1)
|
5.1
|
4.7
|
0.4
|
8%
|
|
10.5
|
9.7
|
0.8
|
8%
|
(1)
|
Proportionate
share of selling and administrative expense from joint ventures and
adjusted selling and administrative expense 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 9.0% of
adjusted revenue in the first six months of 2014 compared to 8.6%
of adjusted revenue in the first six months of 2013. The
increased selling and administration costs were due to a
combination of personnel and non-personnel related costs including
recording bad debt expense of $175,000 as well as computer system
upgrades. The single largest component was salaries and
benefits, which accounted for 58% of these expenses (60% in
2013).
Equity Income from
Joint Ventures
|
$
Millions
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Proportionate Share
of Revenue from
Joint
Ventures(1)
|
16.6
|
11.0
|
5.6
|
51%
|
|
34.1
|
24.3
|
9.8
|
40%
|
Proportionate Share of Operating &
Maintenance Expenses
from Joint
Ventures(1)
|
10.5
|
6.6
|
3.9
|
59%
|
|
21.3
|
14.3
|
7.0
|
49%
|
Proportionate Share
of Selling & Administrative Expense
from Joint
Ventures(1)
|
0.3
|
0.1
|
0.2
|
200%
|
|
0.5
|
0.3
|
0.2
|
67%
|
Equity Income from
Joint Ventures per Interim Financial
Statements
|
5.8
|
4.3
|
1.5
|
35%
|
|
12.3
|
9.7
|
2.6
|
27%
|
(1)
|
Proportionate
share of revenue from joint ventures, proportionate share of
operating & maintenance expenses from joint ventures and
proportionate share of selling & administrative expense 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. 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.
$
Millions
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Interest
Income
|
0.0
|
0.0
|
0.0
|
N/A
|
|
0.1
|
0.1
|
0.0
|
N/A
|
Interest
Expense
|
0.0
|
0.0
|
0.0
|
N/A
|
|
(0.1)
|
0.0
|
(0.1)
|
N/A
|
Gain on Sale of Rigs
and Other Assets
|
0.1
|
0.0
|
0.1
|
N/A
|
|
0.1
|
0.0
|
0.1
|
N/A
|
Net Other Gains
(Losses)
|
(0.5)
|
0.0
|
(0.5)
|
N/A
|
|
(0.1)
|
0.0
|
(0.1)
|
N/A
|
Total Other
Income
|
(0.4)
|
0.0
|
(0.4)
|
N/A
|
|
0.0
|
0.1
|
(0.1)
|
N/A
|
The Company invests any cash balances in excess of its ongoing
operating requirements in bank guaranteed highly liquid
investments. Interest income decreased to $98,000 in the first six months of 2014 from
$163,000 in the corresponding period
as a result of reduced cash and short term deposit balances.
The Company has undertaken significant capital expenditures related
to the construction of new rigs and the conversion of conventional
rigs into pad rigs, thereby reducing AKITA's cash balances.
During the second quarter of 2014, the Company began to
access its operating loan facility.
During the second quarter of 2014, the Company disposed of
certain non-core assets resulting in a $117,000 gain. The Company did not have any
significant disposals during the first six months of 2013.
During 2013 and 2014, the Company entered into forward foreign
exchange contracts in order to mitigate foreign exchange exposure
for capital purchases made outside of Canada. In that regard,
AKITA recorded an unrealized foreign exchange loss of $945,000 during the second quarter of 2014 (YTD
2014 - $647,000), which was partially
offset by a realized foreign exchange gain of $376,000 during the second quarter of 2014 (YTD
2014 - $499,000). The Company
did not have similar foreign exchange exposures during the
comparative periods during 2013. In addition to foreign
exchange gains and losses, the Company had other gains and losses
of $27,000 in the second quarter of
2014 (YTD 2014 - $56,000). All
of the foregoing has been classified as "Net Other Losses" on the
Interim Consolidated Statements of Net Income and Comprehensive
Income.
$
Millions
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Current Tax
Expense
|
0.7
|
0.2
|
0.5
|
250%
|
|
4.1
|
4.6
|
(0.5)
|
(11%)
|
Deferred Tax
Expense
|
0.2
|
0.7
|
(0.5)
|
(71%)
|
|
(0.0)
|
0.5
|
(0.5)
|
N/A
|
Income Tax
Expense
|
0.9
|
0.9
|
(0.0)
|
N/A
|
|
4.1
|
5.1
|
(1.0)
|
(20%)
|
Income tax expense decreased to $4,133,000 in the first six months of 2014 from
$5,144,000 in the corresponding
period in 2013 due to lower pre-tax earnings. Recent capital
additions have affected the portion of income taxes that are
deferred to future dates.
Net Income, Funds
Flow and Net Cash From Operating Activities
|
$
Millions
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Net Income
|
2.1
|
2.8
|
(0.7)
|
(25%)
|
|
12.2
|
15.3
|
(3.1)
|
(20%)
|
Funds Flow From
Operations(1)
|
10.6
|
9.1
|
1.5
|
16%
|
|
28.3
|
29.1
|
(0.8)
|
(3%)
|
(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".
|
Net income attributable to shareholders decreased to
$2,082,000 or $0.12 per Class A Non-Voting and Class B Common
Share (basic and diluted) for the three month period ended
June 30, 2014 from $2,757,000 or $0.15
per share (basic and diluted) in the comparative quarter of
2013. Funds flow from operations increased to $10,609,000 in the second quarter of 2014 from
$9,121,000 in the corresponding
quarter in 2013. Lower net income that occurred in second
quarter of 2014 compared to the second quarter of 2013 was directly
attributable to increased depreciation expense as well as lower
operating margins per operating day versus the second quarter of
2013 and was partially offset by higher activity levels in the
current quarter. The increase in funds flow from operations
during the second quarter of 2014 compared to the corresponding
quarter of 2013 was directly attributable to higher activity levels
in the current year and was partially offset by lower operating
margins per operating day. Funds flow from operations is not
affected by depreciation expense as depreciation is a non-cash
item.
Net income decreased to $12,231,000 or $0.68 per Class A Non-Voting and Class B Common
Share (basic and diluted) for the first six months of 2014 from
$15,252,000 or $0.85 per share (basic and diluted) in the
corresponding period of 2013. Funds flow from operations
decreased to $28,273,000 in the first
six months of 2014 from $29,106,000
in the corresponding period in 2013. Over three quarters of
the decline in year-to-date net income compared to 2013 and the
entire decline in funds flow from operations occurred during the
first quarter of 2014. These reductions were directly
attributable to reductions in operating margins as well as
increased depreciation and selling and administrative expenses.
Fleet and Rig Utilization
At June 30, 2014 AKITA had 37
drilling rigs, including nine that operated under joint ventures,
(33.725 net to AKITA) compared to 38 rigs (34.875 net) in the
corresponding period of 2013. During the second quarter of
2014, the Company decommissioned one of its wholly owned triple
sized conventional rigs.
|
Three Months Ended
June 30
|
|
Six Months Ended
June 30
|
|
2014
|
2013
|
Change
|
%
Change
|
|
2014
|
2013
|
Change
|
%
Change
|
Operating
Days
|
1,220
|
1,017
|
203
|
20%
|
|
3,333
|
3,159
|
174
|
6%
|
Utilization
Rate
|
36.3%
|
29.0%
|
7.3
|
25%
|
|
49.1%
|
44.9%
|
4.2
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
The Company had one conventional rig included in the above fleet
statistics that was undergoing a conversion into a slant capable
rig at June 30, 2014. AKITA
also had two new pad rigs under construction and was refitting a
recently purchased pad rig at June
30, 2014. Upon completion of AKITA's current
construction program the Company will have 40 rigs in its
fleet.
Liquidity and Capital Resources
Cash used for capital expenditures totalled $42,973,000 in the first six months of 2014 (2013
- $15,137,000). The most
significant expenditure related to ongoing construction of a new
ultra-deep multi-year contracted pad rig which is anticipated to be
completed by the end of the third quarter of 2014. The
Company had three additional ongoing major projects during the
first six months of 2014. First, AKITA is converting a
conventional rig into a slant capable pad drilling rig. This
rig is in the final stages of construction and commissioning and
will be operating later in the third quarter of 2014. In
addition, the Company purchased a pad rig which is currently
undergoing selected refits to allow it to operate in Canada's cold weather climate.
Management anticipates that this rig will be operational by the
fourth quarter of 2014. In the first quarter of 2014, AKITA
announced construction of a new pad rig to meet anticipated demand
related to obtaining feedstock for proposed liquified natural gas
(commonly referred to as "LNG") projects. This rig is
anticipated to be operational in the first half of 2015.
At June 30, 2014, AKITA's
Statement of Financial Position included working capital (current
assets minus current liabilities) of $14,483,000 compared to working capital of
$38,337,000 at June 30, 2013 and working capital of $40,645,000 at December
31, 2013. Readers should also be aware of the seasonal
nature of AKITA's business and its impact 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 $9,493,000 at June 30,
2014 compared to $26,647,000
at December 31, 2013. During
2014, AKITA's significant capital program has resulted in lower
levels of working capital than during the comparative periods in
2013.
During the six month period ended June
30, 2014, the Company purchased 27,600 Class A Non-Voting
Shares at an average price of $15.49
pursuant to its normal course issuer bid. The Company did not
purchase any shares pursuant to a normal course issuer bid during
the first six months of 2013.
During 2013, the Company was awarded a contract to construct and
operate an ultra-deep capacity pad rig under a multi-year
contract. During the first quarter of 2014, the Company
commenced the construction of a second pad rig. AKITA sourced
approximately $26 Million for these
rigs from non-Canadian suppliers. In order to minimize the
risk of currency translation adjustments, the Company purchased
forward currency contracts totalling $18
Million, of which $7.5 Million
remain outstanding at June 30,
2014. These contracts expire between the third quarter of
2014 and the first quarter of 2015.
The Company had eight rigs under multi-year contracts at
June 30, 2014. Of these
contracts, three are anticipated to expire later this year, two in
2015, one in 2016, one in 2018 and one in 2019.
From time to time, the Company may provide guarantees for bank
loans to joint venture partners in respect of sales of joint
venture interests. At June 30,
2014, AKITA provided $9,381,000 in deposits as security with the bank
for those guarantees. These deposits have been recorded as
"Restricted Cash" on AKITA's Interim Consolidated 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 News Release are cautioned not to place undue reliance on
these statements as a number of important factors could cause
actual future results to differ materially from the plans,
objectives, estimates and intentions expressed in such
forward-looking statements.
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
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
June
30
|
June 30
|
December
31
|
$
Thousands
|
|
2014
|
2013
|
2013
|
Assets
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
4,990
|
$
27,618
|
$
13,998
|
|
Term
deposits
|
|
-
|
-
|
5,000
|
|
Accounts
receivable
|
|
26,510
|
24,939
|
42,342
|
|
Income taxes
recoverable
|
|
-
|
168
|
-
|
|
Prepaid expenses and
other
|
|
691
|
585
|
365
|
|
|
|
32,191
|
53,310
|
61,705
|
Non-current
Assets
|
|
|
|
|
Restricted
cash
|
|
9,381
|
3,000
|
5,950
|
Other long-term
assets
|
|
972
|
891
|
1,017
|
Investments in joint
ventures
|
|
15,235
|
9,327
|
10,092
|
Property, plant and
equipment
|
|
239,759
|
207,001
|
212,984
|
Total
Assets
|
|
$ 297,538
|
$
273,529
|
$
291,748
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$ 14,752
|
$
13,165
|
$
18,865
|
|
Deferred
revenue
|
|
76
|
371
|
334
|
|
Dividends
payable
|
|
1,525
|
1,437
|
1,439
|
|
Income taxes
payable
|
|
1,355
|
-
|
422
|
|
|
|
17,708
|
14,973
|
21,060
|
Non-current
Liabilities
|
|
|
|
|
Financial
instruments
|
|
76
|
-
|
106
|
Deferred income
taxes
|
|
22,729
|
19,435
|
22,738
|
Pension
liability
|
|
2,745
|
2,524
|
2,556
|
Deferred Share
Units
|
|
117
|
-
|
-
|
Total
Liabilities
|
|
43,375
|
36,932
|
46,460
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
Class A and Class B
shares
|
|
23,871
|
23,611
|
23,908
|
Contributed
surplus
|
|
3,307
|
3,159
|
3,185
|
Accumulated other
comprehensive income
|
|
88
|
(21)
|
88
|
Retained
earnings
|
|
226,897
|
209,848
|
218,107
|
Total
Equity
|
|
254,163
|
236,597
|
245,288
|
Total Liabilities
and Equity
|
|
$ 297,538
|
$
273,529
|
$
291,748
|
AKITA Drilling
Ltd.
|
|
|
|
|
|
Interim
Consolidated Statements of Net Income and Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
Unaudited
|
|
June
30
|
June
30
|
June
30
|
June
30
|
$
Thousands
|
|
2014
|
2013
|
2014
|
2013
|
|
|
|
|
|
|
|
Revenue
|
|
$ 28,365
|
$ 28,170
|
$ 82,708
|
$ 89,085
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
Operating and
maintenance
|
|
18,744
|
18,605
|
53,535
|
56,049
|
Depreciation and
amortization
|
|
7,256
|
5,556
|
15,119
|
13,023
|
Selling and
administrative
|
|
4,830
|
4,625
|
10,055
|
9,438
|
Total costs and
expenses
|
|
30,830
|
28,786
|
78,709
|
78,510
|
|
|
|
|
|
|
|
Revenue less costs
and expenses
|
|
(2,465)
|
(616)
|
3,999
|
10,575
|
|
|
|
|
|
|
|
Equity income from
joint ventures
|
|
5,837
|
4,286
|
12,318
|
9,714
|
|
|
|
|
|
|
|
Other income
(losses)
|
|
|
|
|
|
Interest
income
|
|
35
|
75
|
98
|
163
|
Interest
expense
|
|
(43)
|
(27)
|
(77)
|
(54)
|
Gain (loss) on sale
of assets
|
|
117
|
(8)
|
118
|
1
|
Net other
losses
|
|
(542)
|
(17)
|
(92)
|
(3)
|
Total other income
(losses)
|
|
(433)
|
23
|
47
|
107
|
|
|
|
|
|
|
|
Income before
income taxes
|
|
2,939
|
3,693
|
16,364
|
20,396
|
|
|
|
|
|
|
|
Income
taxes
|
|
857
|
936
|
4,133
|
5,144
|
|
|
|
|
|
|
|
Net income and
comprehensive income for the period attributable to
shareholders
|
|
2,082
|
2,757
|
12,231
|
15,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Class
A and Class B Share
|
|
|
|
|
|
|
Basic
|
|
$ 0.12
|
$
0.15
|
$
0.68
|
$
0.85
|
|
Diluted
|
|
$ 0.12
|
$
0.15
|
$
0.68
|
$
0.85
|
AKITA Drilling
Ltd.
|
|
|
|
|
|
Interim
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
Unaudited
|
|
June
30
|
June 30
|
June
30
|
June 30
|
$
Thousands
|
|
2014
|
2013
|
2014
|
2013
|
Operating
Activities
|
|
|
|
|
|
Net income and
comprehensive income
|
|
$ 2,082
|
$
2,757
|
$ 12,231
|
$ 15,252
|
Non-cash items
included in net income:
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
7,256
|
5,556
|
15,119
|
13,023
|
|
Deferred income
taxes
|
|
191
|
675
|
(9)
|
549
|
|
Expense for defined
benefit pension plan
|
|
96
|
92
|
194
|
184
|
|
Stock options and
deferred share units charged to expense
|
|
171
|
33
|
239
|
99
|
|
(Gain) loss on sale
of assets
|
|
(117)
|
8
|
(118)
|
(1)
|
|
Unrealized foreign
currency loss
|
|
945
|
-
|
647
|
-
|
|
Unrealized gain on
financial guarantee contracts
|
|
(15)
|
-
|
(30)
|
-
|
Funds flow from
operations
|
|
10,609
|
9,121
|
28,273
|
29,106
|
Change in non-cash
working capital:
|
|
|
|
|
|
|
Accounts
receivable
|
|
22,490
|
27,556
|
15,832
|
35,065
|
|
Prepaid expenses and
other
|
|
550
|
354
|
(326)
|
(426)
|
|
Income taxes
recoverable
|
|
-
|
(168)
|
-
|
4,319
|
|
Accounts payable and
accrued liabilities
|
|
1,799
|
(4,722)
|
1,795
|
(25,536)
|
|
Deferred
revenue
|
|
(93)
|
(111)
|
(258)
|
276
|
|
|
|
35,355
|
32,030
|
45,316
|
42,804
|
|
Equity income from
joint ventures
|
|
(5,837)
|
(4,286)
|
(12,318)
|
(9,714)
|
|
Change in long term
other liabilities
|
|
-
|
(36)
|
-
|
-
|
|
Pension benefits
paid
|
|
(1)
|
(4)
|
(5)
|
(8)
|
|
Interest
paid
|
|
(9)
|
(1)
|
(10)
|
(1)
|
|
Income taxes expense
- current
|
|
666
|
261
|
4,142
|
4,595
|
|
Income taxes
paid
|
|
(1,385)
|
(1,239)
|
(3,209)
|
(4,595)
|
Net cash from
operating activities
|
|
28,789
|
26,725
|
33,916
|
33,081
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
Capital
expenditures
|
|
(24,909)
|
(9,093)
|
(42,973)
|
(15,137)
|
Change in non-cash
working capital related to capital
|
|
(5,173)
|
631
|
(6,545)
|
(4,387)
|
Net distributions to
investment in joint ventures
|
|
4,356
|
2,074
|
7,175
|
5,212
|
Change in cash
restricted for loan guarantees
|
|
(3,431)
|
-
|
(3,431)
|
-
|
Change in term
deposits
|
|
-
|
-
|
5,000
|
-
|
Proceeds on sale of
assets
|
|
1,241
|
104
|
1,242
|
113
|
Net cash used in
investing activities
|
|
(27,916)
|
(6,284)
|
(39,532)
|
(14,199)
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
Dividends
paid
|
|
(1,526)
|
(1,253)
|
(2,965)
|
(2,692)
|
Proceeds received on
exercise of stock options
|
|
-
|
-
|
-
|
425
|
Repurchase of share
capital
|
|
-
|
-
|
(427)
|
-
|
Net cash used in
financing activities
|
|
(1,526)
|
(1,253)
|
(3,392)
|
(2,267)
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
(653)
|
19,188
|
(9,008)
|
16,615
|
Cash and cash
equivalents, beginning of period
|
|
5,643
|
8,430
|
13,998
|
11,003
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents, End of Period
|
|
$ 4,990
|
$ 27,618
|
$ 4,990
|
$ 27,618
|
SOURCE AKITA Drilling Ltd.