AKT.A Akita Drilling Ltd

CALGARY, AB, Aug. 2, 2022 /CNW/ - AKITA Drilling Ltd. (TSX: AKT.A)

AKITA Drilling Ltd. ("AKITA" or the "Company") announces results for the six months ended June 30, 2022.

Results for the second quarter of 2022 improved over the second quarter of 2021 as the demand for drilling services in both Canada and the US continued to strengthen, resulting in a 130% increase in the Company's revenue for the second quarter of 2022 compared to the same period in 2021. The Company's net loss decreased to $4,252,000 from $6,108,000 and adjusted funds flow from operations increased to $4,718,000 in the second quarter of 2022 from $1,056,000 in the same period of 2021. Activity in the Company's Canadian division increased 258% with 569 operating days in the second quarter of 2022, compared to 159 operating days in the second quarter of 2021. Activity also improved in the Company's US Division which achieved 993 operating days in the second quarter of 2022, compared to 615 operating days in the second quarter of the year prior (up 61% year over year). In the second quarter of 2022, the Company spent $3,633,000 on capital, primarily on routine capital, compared to $3,138,000 in the same period of 2021. Debt remained unchanged at $95,000,000 over the first and second quarters of 2022.

With activity levels continuing to rise, the Company has secured meaningful day rate increases as current contracts are renewed throughout the remainder of the year. These rate increases will be most impactful in the third and fourth quarters of 2022 and are expected to significantly improved results.

Linda Southern-Heathcott, AKITA's Executive Chair and Chief Executive Officer stated: "As expected, the second quarter of 2022 showed the start of the impact of rate increases on the Company's results. We expect that additional rate increases will positively impact results in the second half of the year and anticipate stronger results for the balance of the year."

CONSOLIDATED FINANCIAL HIGHLIGHTS

Canadian Drilling Division

During the second quarter of 2022, AKITA achieved 569 operating days in Canada, which corresponds to a utilization rate of 31%, compared to 9% (159 days) in the second quarter of 2021, a 258% increase in operating days quarter over quarter. Industry average in the second quarter of 2022 was 24% and 15% in the second quarter of 2021. 

Adjusted revenue in Canada increased to $15,855,000 in the second quarter of 2022 from $3,378,000 in the second quarter of 2021. Adjusted revenue per operating day increased to $27,865 in the second quarter of 2022 from $21,245 in the same period of 2021 due to higher day rates. The Company's oil sands rigs, a market segment that has rebounded in 2022, were the key driver for the increased activity and revenue in the quarter.

Higher revenue in the quarter was offset by higher adjusted operating and maintenance expenses which increased to $11,948,000 in the first quarter of 2022 from $2,139,000 in the same period of 2021. This increase is primarily attributable to higher activity as operating costs are directly tied to activity levels but also due to the increase in adjusted operating and maintenance expenses per day which rose to $20,998 in the three months ended June 30, 2022 from $13,453 in the same period of 2021. The increase in the per day operating cost in 2022 is due to the Company no longer receiving the Canadian Emergency Wage Subsidy ("CEWS"), compared to 2021 when the Company received $1,477,000 of CEWS in the second quarter of 2021, which effectively reduced adjusted operating and maintenance expense by $9,289 per day.

 United States Drilling Division

With the demand for drilling services increasing in the US gradually throughout 2021 and into 2022, operating days increased in AKITA's US division by 61%, to 993 (68% utilization) in the second quarter of 2022 from 615 (40% utilization) in the same period of 2021. 

The results in the US were similar to Canada in that revenue increased significantly due to higher activity, however, operating margin decreased to 21% due to inflationary cost increases.  Adjusted revenue in the US increased by 89% to $28,488,000 in the second quarter of 2022 from $15,106,000 in the second quarter of 2021. This increase is due mainly to higher activity levels but also an increase in revenue per day which rose 17% quarter over quarter. While moderate day rate increases were seen in the first and second quarter of 2022 on select rigs, it is anticipated that the majority of the Company's rigs will see rate increases that will impact results in the second half of the year. Revenue in the US accounted for 64% of the Company's adjusted revenue in the second quarter of 2022 (2021 - 82%).

Operating and maintenance costs are correlated to activity levels and increased to $22,594,000 in the second quarter of 2022 from $11,495,000 in the second quarter of 2021. This increase, which was mainly from higher activity levels, but also from increased labour and supply costs in all areas, increased adjusted operating and maintenance costs per day to $22,753 in the second quarter of 2022 from $18,691 in the same period of 2021.

FURTHER INFORMATION

This news release shall be used as preparation for reading the full disclosure documents. AKITA's unaudited interim condensed consolidated financial statements and management's discussion and analysis for the quarter ended June 30, 2022 will be available on the AKITA website (www.akita-drilling.com) or via SEDAR (www.sedar.com) or can be requested in print from the Company.

Non-GAAP and Supplementary Financial Measures

Non-GAAP Financial Measures
Adjusted Revenue and Adjusted Operating and Maintenance Expenses in Canada

Adjusted revenue and adjusted operating and maintenance expenses in AKITA's Canadian operating segment include revenue and expenses from AKITA's wholly-owned drilling rigs as well as its share of joint venture revenue and expenses. Excluded from the adjusted revenue and adjusted operating and maintenance expenses in AKITA's Canadian operating segment are flow through charges that are billed to operators and repaid to the Company. The volume and timing of the flow through charges can artificially impact the operational per day analysis and as a result management and certain investors may find the comparability between periods is improved when these flow through charges are excluded from adjusted revenue per day and adjusted operating and maintenance expense per day. The flow through charges do not have any impact on the Company's net earnings as the amounts offset each other.

Adjusted Revenue and Operating and Maintenance Expenses in United States

Excluded from adjusted revenue and adjusted operating and maintenance expenses in AKITA's US operating segment are flow through charges that are billed to operators and repaid to the Company. The volume and timing of the flow through charges can artificially impact the operational per day analysis and as a result management and certain investors may find the comparability between periods is improved when these flow through charges are excluded from adjusted revenue per day and adjusted operating and maintenance expense per day. The flow through charges do not have any impact on the Company's net earnings as the amounts offset each other.

Adjusted Funds Flow from Operations

Adjusted funds flow from operations is not a recognized GAAP measure under IFRS and readers should note that AKITA's method of determining adjusted funds flow from operations may differ from methods used by other companies, and includes cash flow from operating activities before working capital changes, equity income from joint ventures, and income tax amounts paid or recovered during the period.  Nonetheless, management and certain investors may find adjusted funds flow from operations to be a useful measurement to evaluate the Company's operating results at year-end and within each year, since the seasonal nature of the business affects the comparability of non-cash working capital changes both between and within periods.

Non-GAAP Ratios

"Adjusted funds flow from operations per share" is calculated on the same basis as net loss per class A and class B share basic and diluted, utilizing the basic and diluted weighted average number of class A and class B shares outstanding during the periods presented.

"Adjusted revenue per operating day" may be useful to analysts, investors, other interested parties and management as a measure of pricing strength and is calculated by dividing adjusted revenue by the number of operating days for the period.

"Adjusted operating and maintenance expenses per operating day" may be useful to analysts, investors, other interested parties and management as it demonstrates a degree of cost control and provides a proxy for specific inflation rates incurred by the Company

FORWARD-LOOKING INFORMATION:

Certain statements contained in this news release may constitute forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "will", "intend", "should", and similar expressions. In particular, forward-looking information in this news release includes, but is not limited to, references to the outlook for the drilling industry (including activity levels and day rates), the Company's relationships and customers and vendors, and the renewal of drilling contracts.

Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information.

Although the Company believes that the expectations reflected in the forward-looking information are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and no assurance can be given that these expectations will prove to be correct. By their nature, these forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and therefore carry the risk that the predictions and other forward-looking statements will not be realized.  Readers of this news release are cautioned not to place undue reliance on these statements as a number of important factors could cause actual future results to differ materially from the plans, objectives, estimates and intentions expressed in such forward-looking statements.

The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of, among other things, prevailing economic conditions (including as may be affected by the COVID-19 pandemic); the level of exploration and development activity carried on by AKITA's customers, world crude oil prices and North American natural gas prices; global liquefied natural gas (LNG) demand, weather, access to capital markets; and government policies.  We caution that the foregoing list of factors is not exhaustive and that while relying on forward-looking statements to make decisions with respect to AKITA, investors and others should carefully consider the foregoing factors, as well as other uncertainties and events, prior to making a decision to invest in AKITA.  Except where required by law, the Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by it or on its behalf.

SOURCE AKITA Drilling Ltd.