CALGARY,
Nov. 3, 2015 /CNW/ - While business
conditions have been challenging, AKITA has generated positive
funds flow in each quarter this year. Funds flow from
operations for the quarter ended September
30, 2015 was $8,225,000
compared to $10,942,000 in the
corresponding quarter in 2014 while funds flow from operations for
the January to September period in 2015 was $31,356,000 compared to $39,216,000 for the corresponding nine month
period in 2014.
AKITA Drilling Ltd.'s net loss for the three
months ended September 30, 2015 was
$7,581,000 (net loss of $0.42 per share) on revenue of $22,021,000, compared to net income of
$3,854,000 (net income of
$0.21 per share) on revenue of
$36,556,000 for the corresponding
period in 2014. The third quarter results for 2015 include an
asset impairment expense of $8,200,000 (after tax effect of $6,005,000 or $0.33
per share) with respect to certain of its conventional rigs in
addition to a net loss of $1,576,000
(net loss of $0.09 per share) as a
result of routine operations.
During the nine months ended September 30, 2015, the Company reported a net
loss of $4,983,000 (net loss of
$0.28 per share) compared to net
income of $16,085,000 (net income of
$0.90 per share – basic; $0.89 per share - diluted) in the comparative
year-to-date period in 2014. In addition to the asset
impairment expense of $8,200,000
recorded in the third quarter of 2015, the Company recorded a
deferred tax charge of $1,191,000 in
the second quarter of 2015 as a result of a corporate income tax
increase in Alberta.
Rig activity decreased during the third quarter
of 2015 to 839 operating days or 25.3% utilization compared to an
industry average of 23.8% and to 1,519 operating days or 45.0%
utilization during the third quarter of 2014. For the nine
months ended September 30, 2015, rig
activity decreased to 3,539 operating days or 34.8% utilization
compared to an industry average of 24.0% utilization and to 4,851
operating days year to date in 2014. These decreases were
attributable to weaker market conditions, particularly for
conventional rigs, although all rig classes were adversely affected
to some extent.
During the quarter, the Company received API Q2
certification from the American Petroleum Institute, the first
drilling contractor to receive this global certification. API
Q2 is an encompassing quality control and assurance standard that
ensures the Company conforms to rigorous standards throughout its
operations including such key functions as procurement, asset
monitoring and safety. Management anticipates that customers
who place value on a repeatable execution model will find this
achievement important in the awarding of contracts.
Oilfield market weakness is continuing and
appears likely to persist for the balance of the current year and
2016. AKITA is well positioned to withstand this downturn as
the Company employs a risk management style that contemplates and
addresses industry cycles prior to them becoming a reality.
The balance sheet is exceptionally strong with positive cash and
working capital, attractive rig assets, no short or long-term
borrowings and an unused $100 Million
credit facility. Management has undertaken a number of
actions to reduce the Company's capital and operating costs to
reflect the current conditions, while remaining poised for future
opportunities.
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 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 metric 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 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
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
$Millions
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Revenue per Interim
Financial Statements (1)
|
22.0
|
36.6
|
(14.6)
|
(40%)
|
91.3
|
119.3
|
(28.0)
|
(23%)
|
Proportionate Share
of Revenue from Joint Ventures (2)
|
6.3
|
13.8
|
(7.5)
|
(54%)
|
26.8
|
47.9
|
(21.1)
|
(44%)
|
Adjusted Revenue
(2)
|
28.3
|
50.4
|
(22.1)
|
(44%)
|
118.1
|
167.2
|
(49.1)
|
(29%)
|
|
|
|
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
$Millions
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Operating &
Maintenance Expenses per
Interim Financial Statements
(1)
|
14.2
|
25.1
|
(10.9)
|
(43%)
|
59.3
|
78.7
|
(19.4)
|
(25%)
|
Proportionate Share
of Operating & Maintenance
Expenses from Joint Ventures
(2)
|
4.0
|
9.4
|
(5.4)
|
(57%)
|
17.1
|
30.7
|
(13.6)
|
(44%)
|
Adjusted Operating
& Maintenance Expenses (2)
|
18.2
|
34.5
|
(16.3)
|
(47%)
|
76.4
|
109.4
|
(33.0)
|
(30%)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
$Millions
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Adjusted Revenue
(2)
|
28.3
|
50.4
|
(22.1)
|
(44%)
|
118.1
|
167.2
|
(49.1)
|
(29%)
|
Adjusted Operating
& Maintenance Expenses (2)
|
18.2
|
34.5
|
(16.3)
|
(47%)
|
76.4
|
109.4
|
(33.0)
|
(30%)
|
Adjusted Operating
Margin(1)(2)(3)
|
10.1
|
15.9
|
(5.8)
|
(36%)
|
41.7
|
57.8
|
(16.1)
|
(28%)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
Nine Months
Ended September 30
|
$Dollars
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Adjusted Revenue per
Operating Day (2)
|
34,371
|
33,139
|
1,232
|
4%
|
35,295
|
34,457
|
838
|
2%
|
Adjusted Operating
& Maintenance Expenses
per Operating Day
(2)
|
21,973
|
22,708
|
(735)
|
(3%)
|
22,833
|
22,542
|
291
|
1%
|
Adjusted Operating
Margin per Operating Day (2)(3)
|
12,398
|
10,431
|
1,967
|
19%
|
12,462
|
11,915
|
547
|
5%
|
(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.
|
Third Quarter Comparatives
During
the third quarter of 2015, adjusted revenue decreased to
$28,356,000 from $50,338,000 during the third quarter of 2014 as a
result of decreased rig activity. While all rig categories were
affected, the declines were most pronounced for AKITA's
conventional rigs.
Although adjusted revenue for the three month
period ended September 30, 2015
decreased, adjusted revenue per operating day increased to
$34,371 during the third quarter of
2015 from $33,139 in the comparative
quarter in 2014 due to an increased proportion of the Company's
revenue being generated by its pad drilling rigs versus
conventional rigs. Pad rigs, compared to conventional rigs,
typically generate higher revenue on a "per day" basis.
Adjusted operating and maintenance costs are tied
to revenue and amounted to $18,128,000 ($21,973 per operating day) during the third
quarter of 2015 compared to $34,494,000 ($22,708 per operating day) in the same period of
the prior year. The decreases in operating and maintenance
costs, both on a total and "per day" basis, resulted primarily from
reduced drilling activity and secondarily from cost reductions.
The adjusted operating margin for the Company
decreased to $10,228,000 in the third
quarter of 2015 from $15,844,000
during the corresponding quarter of 2014 primarily due to decreased
drilling activity. Although the overall operating margin decreased
during the third quarter of 2015 as compared to the corresponding
quarter in 2014, AKITA's adjusted operating margin per operating
day increased to $12,398 from
$10,431 in the comparative period in
2014 as a result of a change in rig mix that included a higher
proportion of pad rigs working.
Year-to-Date Comparatives
During
the first nine months of 2015, adjusted revenue decreased to
$118,063,000 from $167,153,000 during the comparative nine month
period of 2014 as a result of lower drilling activity. 83% of this
decline in activity is attributable to AKITA's conventional
rigs.
Although adjusted revenue for the year-to-date
period ended September 30, 2015
decreased, adjusted revenue per operating day increased to
$35,295 during the first nine months
of 2015 from $34,457 in the
comparative period in 2014 due to the same factors that affected
third quarter adjusted revenue per operating day.
Adjusted operating and maintenance costs are tied
to revenue and amounted to $76,377,000 ($22,833 per operating day) during the first nine
months of 2015 compared to $109,352,000 ($22,542 per operating day) in the same period of
the prior year.
The adjusted operating margin for the Company
decreased to $41,686,000
($12,462 per operating day) in the
first nine months of 2015 from $57,801,000 ($11,915 per operating day) during the
corresponding period of 2014. The reduction in overall
operating margin was related to weaker market conditions while the
higher proportion of pad drilling that occurred in the first nine
months of 2015 compared to the first nine months of 2014 resulted
in higher "per operating day" margins.
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
September 30, 2015, deferred revenue
related to these activities totalled $32,000 (September 30,
2014 - $364,000).
Depreciation and Amortization Expense
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
$Millions
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Depreciation
and Amortization
Expense
|
8.9
|
7.1
|
1.8
|
25%
|
26.3
|
22.2
|
4.1
|
18%
|
The depreciation and amortization expense
reported in the third quarter of 2015 of $8,922,000 was higher than for the corresponding
quarter in 2014 ($7,088,000). AKITA
depreciates its rig fleet on a unit of production basis and while
overall drilling days declined during the third quarter of 2015
compared to the corresponding quarter in 2014, the most active rigs
in the third quarter were also the rigs with the highest cost
bases.
Depreciation and amortization expense for the
first nine months of 2015 totalled $26,266,000 compared to $22,208,000 for the corresponding period in
2014. As with the depreciation and amortization expense for
the third quarter, the higher cost base for AKITA's active rigs
more than offset the lower rig activity levels. In the first nine
months of 2015, drilling rig depreciation accounted for 96% of
total depreciation and amortization expense (2014 - 96%).
While AKITA conducts many 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.
Asset Impairment Loss
International
Accounting Standards 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. While the Company did not determine any internal indicators
of impairment either at December 31,
2014 or subsequently, it did determine two potential
external indicators of impairment at December 31, 2014: a significant decline in the
price of crude oil; and the carrying amount of AKITA's net assets
exceeding the Company's market capitalization at that date. While
both of these indicators remained valid throughout the year, to
date, the price of crude oil declined further during the third
quarter of 2015, from its trading price earlier in the year,
resulting in further deterioration in the overall Canadian drilling
market, as demonstrated by unusually weak seasonal improvements in
rig utilization following the second quarter of the current year.
In addition, management determined that, as a result of this
additional weakening of crude oil prices, secondary opportunities
to capture value for AKITA's drilling fleet had also become more
limited.
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 impairment tests at September
30, 2015, management determined value in use for each of its
cash generating units ("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.
As a result of performing these impairment tests,
the Company recorded an overall impairment of $8,200,000 with respect to certain of AKITA's
conventional rigs. This amount represents the difference
between the respective CGU's recoverable amounts and their carrying
values. For assets within CGUs that were determined to be
impaired, 81% of the recoverable amounts were calculated based on
"value in use" with the remaining 19% calculated based on "fair
value less cost of disposal". The Company did not record any
impairment with respect to AKITA's pad rigs.
Selling and Administrative Expense
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
$Millions
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Selling &
Administrative Expense per
Interim Financial Statements
|
3.6
|
4.0
|
(0.4)
|
(10%)
|
12.0
|
14.1
|
(2.1)
|
(15%)
|
Proportionate Share of
Selling & Administrative
Expense from Joint Ventures
(1)
|
0.1
|
0.1
|
(0.0)
|
N/A
|
0.3
|
0.6
|
(0.3)
|
(50%)
|
Adjusted Selling &
Administrative Expense (1)
|
3.7
|
4.1
|
(0.4)
|
(10%)
|
12.3
|
14.7
|
(2.4)
|
(16%)
|
(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".
|
(2)
|
Balances may
differ from financial statements as a result of
rounding.
|
Adjusted selling and administrative expenses were
10.5% of adjusted revenue in the first nine months of 2015 compared
to 8.8% of adjusted revenue in the first nine months of 2014 since
adjusted revenue decreased more rapidly than adjusted selling and
administrative expenses. The single largest component was
salaries and benefits, which accounted for 59% of these expenses
(59% in 2014). The Company has been able to reduce overall
selling and administrative costs, particularly in the second and
third quarters, as a result of implementing various management
controls.
Equity Income from Joint Ventures
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
$Millions
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Proportionate Share
of Revenue from Joint Ventures (1)
|
6.3
|
13.8
|
(7.5)
|
(54%)
|
26.8
|
47.9
|
(21.1)
|
(44%)
|
Proportionate Share
of Operating & Maintenance
Expenses from Joint Ventures
(1)
|
4.0
|
9.4
|
(5.4)
|
(57%)
|
17.1
|
30.7
|
(13.6)
|
(44%)
|
Proportionate Share
of Selling & Administrative
Expense from Joint Ventures
(1)
|
0.1
|
0.1
|
(0.0)
|
N/A
|
0.3
|
0.6
|
(0.3)
|
(50%)
|
Equity Income from
Joint Ventures
|
2.2
|
4.3
|
(2.1)
|
(49%)
|
9.4
|
16.6
|
(7.2)
|
(43%)
|
|
|
|
|
|
|
|
|
|
(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.
Other Income
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
$Millions
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Total Other
Income
|
0.2
|
0.6
|
(0.4)
|
(67%)
|
0.1
|
0.6
|
(0.5)
|
(83%)
|
Interest income decreased to $100,000 in the first nine months of 2015 from
$142,000 in the corresponding period
primarily as a result of reduced interest rates. In addition,
between 2011 and 2014, the Company had 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 over time.
During the first nine months of 2015, the Company
incurred interest expense of $321,000
as a result of the Company's indebtedness in addition to the
related future cost of the Company's unfunded defined benefit
pension plan. During the corresponding nine month period in 2014,
AKITA incurred interest expense of $119,000 primarily for the future cost of the
Company's defined benefit pension plan. The Company completed the
repayment of its operating loan facility balance during the third
quarter of 2015.
During the first nine months of 2015, the Company
sold some ancillary assets for $995,000 that resulted in a loss of $61,000. During the corresponding period in
2014, the Company disposed of an older underutilized pad rig as
well as other non-core assets resulting in gains totalling
$499,000.
Approximately 69% of amounts recorded as "Net
Other Gains" during the first nine months of 2015 related to
foreign exchange that was associated with rig construction for
AKITA's new pad triple rig which was deployed during the second
quarter of 2015.
Income Tax Expense (Recoverable)
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
$Millions
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Current Tax Expense
(Recoverable)
|
(1.4)
|
0.9
|
(2.3)
|
(256%)
|
(1.0)
|
5.1
|
(6.1)
|
(120%)
|
Deferred Tax Expense
(Recoverable)
|
(1.4)
|
0.4
|
(1.8)
|
(450%)
|
1.0
|
0.3
|
0.7
|
233%
|
Income Tax Expense
(Recoverable)
|
(2.8)
|
1.3
|
(4.1)
|
(315%)
|
(0.0)
|
5.4
|
(5.4)
|
(100%)
|
Income tax recoverable decreased to $50,000 in the first nine months of 2015 compared
to income tax expense of $5,425,000
in the corresponding period in 2014 mainly due to recording a
pre-tax loss as a result of weaker operations and the effect of
recording an asset impairment loss. In addition to the effect of
the pre-tax loss, during the second quarter of 2015, the Company
recorded a one-time deferred tax expense of $1,191,000 related to the corporate income tax
increase implemented by the Government of Alberta. Recent capital additions have
affected the portion of income taxes that are deferred to future
dates.
Net Income (Loss), Funds Flow and Net Cash from Operating
Activities
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
$Millions
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Net Income
(Loss)
|
(7.6)
|
3.9
|
(11.5)
|
(295%)
|
(5.0)
|
16.1
|
(21.1)
|
(131%)
|
Funds Flow from
Operations (1)
|
8.2
|
10.9
|
(2.7)
|
(25%)
|
31.4
|
39.2
|
(7.8)
|
(20%)
|
(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 September 30, 2015, the Company reported a net
loss of $7,581,000 (net loss of
$0.42 per Class A Non-Voting and
Class B Common Share (basic and diluted)) compared to net income of
$3,854,000 or $0.21 per share (basic and diluted) in the
comparative quarter in 2014. The third quarter of 2015
included an asset impairment expense of $8,200,000 in addition to a net loss of
$1,576,000 as a result of routine
operations. The net loss reported in the third quarter of 2015
compared to the net income reported in the third quarter of 2014
was also attributable to reductions in drilling activity as well as
increased depreciation expense. Funds flow from operations
decreased to $8,225,000 during the
third quarter of 2015 from $10,942,000 in the corresponding quarter in 2014.
Funds flow was negatively affected by weaker drilling activity in
the third quarter of 2015 but was not affected by the asset
impairment expense, increased depreciation expense or deferred tax
expense as these are non-cash items.
During the nine months ended September 30, 2015, the Company reported a net
loss of $4,983,000 (net loss of
$0.28 per Class A Non-Voting and
Class B Common Share (basic and diluted)) compared to net income of
$16,085,000 or $0.90 per share (basic) ($0.89 - diluted) in the comparative year-to-date
period in 2014. Funds flow from operations decreased to
$31,356,000 during the nine months
ended September 30, 2015 from
$39,216,000 in the corresponding nine
months in 2014. The net loss reported on a nine month year-to-date
basis compared to the net income reported in 2014 was attributable
to reductions in drilling activity coupled with higher depreciation
expense, the asset impairment expense in the third quarter of 2015
and the Alberta corporate income
tax rate increase during the second quarter. Funds flow from
operations was negatively affected by weaker drilling activity and
lower day rates but was not affected by depreciation, asset
impairment expenses or income tax rate changes as these are all
non-cash items. As a result, net loss for the first nine months of
2015 decreased 131% compared to the corresponding period in 2014,
while the decline in funds flow when comparing the same periods was
20%.
Fleet and Rig Utilization
At
September 30, 2015, AKITA had 36
drilling rigs, including nine that operated under joint ventures,
(32.725 net to AKITA), the same number of rigs that were in the
Company's fleet one year earlier. During the twelve month period
ending September 30, 2015, the
Company commissioned three new pad rigs including one in the
current year and decommissioned an equal number of conventional
rigs.
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
|
2015
|
2014
|
Change
|
% Change
|
2015
|
2014
|
Change
|
% Change
|
Operating
Days
|
839
|
1,519
|
(680)
|
(45%)
|
3,539
|
4,851
|
(1,312)
|
(27%)
|
Utilization
Rate
|
25.3%
|
45.0%
|
(19.7)
|
(44%)
|
34.8%
|
47.7%
|
(12.9)
|
(27%)
|
Liquidity and Capital Resources
Cash
used for capital expenditures totalled $15,335,000 during the first nine months of 2015
(2014 - $71,285,000). Nearly two
thirds of current year capital expenditures relate to the
completion of a new pad rig that was deployed during the second
quarter. Other capital expenditures related to routine items.
At September 30,
2015, AKITA's Statement of Financial Position included
working capital (current assets minus current liabilities) of
$12,131,000 compared to working
capital of $11,061,000 at
September 30, 2014 and a working
capital deficiency of $5,028,000 at
December 31, 2014. 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
break-up and decline thereafter as a result of increased drilling
activity. During 2015, the drilling activity level did not undergo
a significant pick-up following spring break-up as overall market
conditions have been unusually weak. Non-cash working capital
amounted to $7,328,000 at
September 30, 2015 compared to a
non-cash working capital deficiency of $7,040,000 at December 31,
2014.
The Company did not have a normal course issuer
bid in place during the first nine months of 2015. During the first
nine months of 2014, the Company purchased 27,600 Class A
Non-Voting Shares at an average price of $15.49 pursuant to a normal course issuer
bid.
The Company chooses to maintain a conservative
Statement of Financial Position due to the cyclical 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
2019. The facility has been provided in order to finance general
corporate needs, capital expenditures and acquisitions. Management
has accessed this facility primarily to enable the Company to fund
new rig construction requirements related to drilling contracts
that it has been 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 had borrowings of $20,000,000
at December 31, 2014, all of which
were repaid during the first nine months of 2015. The Company
did not have any borrowings outstanding at September 30, 2015.
The Company had four rigs under multi-year
contracts at September 30, 2015. Of
these contracts, two are anticipated to expire 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 September 30, 2015, AKITA provided $7,183,000 in deposits with the bank for those
guarantees. These funds have been classified as "restricted
cash" on the Statement 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
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
September
30,
|
September
30,
|
December
31,
|
$
Thousands
|
|
2015
|
2014
|
2014
|
Assets
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
4,803
|
$
|
2,934
|
$
|
2,012
|
|
Accounts
receivable
|
|
13,813
|
32,250
|
39,981
|
|
Income taxes
recoverable
|
|
1,616
|
-
|
3,011
|
|
Prepaid expenses and
other
|
|
457
|
497
|
257
|
|
|
|
20,689
|
35,681
|
45,261
|
Non-current
Assets
|
|
|
|
|
Restricted
cash
|
|
7,183
|
9,381
|
9,381
|
Other long-term
assets
|
|
944
|
950
|
1,025
|
Investments in joint
ventures
|
|
3,465
|
6,978
|
6,214
|
Property, plant and
equipment
|
|
258,939
|
254,568
|
279,045
|
Total
Assets
|
|
$
|
291,220
|
$
|
307,558
|
$
|
340,926
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Operating loan
facility
|
|
$
|
-
|
$
|
-
|
$
|
20,000
|
|
Accounts payable and
accrued liabilities
|
|
6,865
|
21,856
|
28,589
|
|
Deferred
revenue
|
|
32
|
364
|
175
|
|
Dividends
payable
|
|
1,525
|
1,525
|
1,525
|
|
|
|
8,422
|
24,620
|
50,289
|
Non-current
Liabilities
|
|
|
|
|
Financial
instruments
|
|
140
|
261
|
226
|
Deferred income
taxes
|
|
28,039
|
23,076
|
27,053
|
Deferred share
units
|
|
265
|
108
|
91
|
Pension
liability
|
|
3,750
|
2,839
|
3,426
|
Total
Liabilities
|
|
40,616
|
50,904
|
81,085
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
Class A and Class B
shares
|
|
23,871
|
23,871
|
23,871
|
Contributed
surplus
|
|
3,878
|
3,470
|
3,557
|
Accumulated other
comprehensive income (loss)
|
|
(280)
|
88
|
(280)
|
Retained
earnings
|
|
223,135
|
229,225
|
232,693
|
Total
Equity
|
|
250,604
|
256,654
|
259,841
|
Total Liabilities
and Equity
|
|
$
|
291,220
|
$
|
307,558
|
$
|
340,926
|
AKITA Drilling
Ltd.
|
Interim
Consolidated Statements of Net Income (Loss) and
|
|
Comprehensive
Income (Loss)
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
Unaudited
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
$
Thousands
|
2015
|
2014
|
2015
|
2014
|
|
|
Revenue
|
$
|
22,021
|
$
|
36,556
|
$
|
91,272
|
$
|
119,263
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
Operating and
maintenance
|
14,158
|
25,141
|
59,260
|
78,676
|
|
Depreciation and
amortization
|
8,922
|
7,088
|
26,266
|
22,208
|
|
Asset impairment
loss
|
8,200
|
-
|
8,200
|
-
|
|
Selling and
administrative
|
3,601
|
4,043
|
12,038
|
14,097
|
Total costs and
expenses
|
34,881
|
36,272
|
105,764
|
114,981
|
|
|
|
|
|
|
Revenue less costs
and expenses
|
(12,860)
|
284
|
(14,492)
|
4,282
|
|
|
|
|
|
|
Equity income from
joint ventures
|
2,283
|
4,270
|
9,356
|
16,588
|
|
|
|
|
|
|
Other income
(losses)
|
|
|
|
|
|
Interest
income
|
32
|
43
|
100
|
142
|
|
Interest
expense
|
(36)
|
(42)
|
(321)
|
(119)
|
|
Gain (loss) on sale
of assets
|
50
|
381
|
(61)
|
499
|
|
Net other gains
(losses)
|
123
|
210
|
385
|
118
|
Total other income
(losses)
|
169
|
592
|
103
|
640
|
|
|
|
|
|
Income (loss)
before income taxes
|
(10,408)
|
5,146
|
(5,033)
|
21,510
|
|
|
|
|
|
Income
taxes
|
(2,827)
|
1,292
|
(50)
|
5,425
|
|
|
|
|
|
Net income (loss)
and comprehensive income
(loss) for the
period attributable to shareholders
|
$
|
(7,581)
|
$
|
3,854
|
$
|
(4,983)
|
$
|
16,085
|
|
|
|
|
|
|
|
|
|
|
Earnings per Class
A and Class B Share
|
|
|
|
|
|
Basic
|
$
|
(0.42)
|
$
|
0.21
|
$
|
(0.28)
|
$
|
0.90
|
|
|
Diluted
|
$
|
(0.42)
|
$
|
0.21
|
$
|
(0.28)
|
$
|
0.89
|
AKITA Drilling
Ltd.
|
|
|
|
|
|
Interim
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
Unaudited
|
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
$
Thousands
|
|
2015
|
2014
|
2015
|
2014
|
Operating
Activities
|
|
|
|
|
|
Net income (loss) and
comprehensive income (loss)
|
|
$
|
(7,581)
|
$
|
3,854
|
$
|
(4,983)
|
$
|
16,085
|
Non-cash items
included in net income (loss):
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
8,922
|
7,088
|
26,266
|
22,208
|
|
Asset impairment
loss
|
|
8,200
|
-
|
8,200
|
-
|
|
Deferred income
taxes
|
|
(1,429)
|
347
|
986
|
338
|
|
Expense for defined
benefit pension plan
|
|
114
|
97
|
344
|
291
|
|
Expense for stock
options and deferred share units
|
|
75
|
154
|
495
|
393
|
|
(Gain) loss on sale
of assets
|
|
(50)
|
(381)
|
61
|
(499)
|
|
Unrealized foreign
currency (gain) loss
|
|
-
|
(402)
|
73
|
245
|
|
Unrealized (gain)
loss on financial guarantee contracts
|
|
(26)
|
185
|
(86)
|
155
|
Funds flow from
operations
|
|
8,225
|
10,942
|
31,356
|
39,216
|
Change in non-cash
working capital:
|
|
|
|
|
|
|
Accounts
receivable
|
|
(928)
|
(5,740)
|
26,168
|
10,092
|
|
Prepaid expenses and
other
|
|
304
|
194
|
(200)
|
(132)
|
|
Income taxes
recoverable
|
|
1,278
|
-
|
1,395
|
-
|
|
Accounts payable and
accrued liabilities
|
|
(218)
|
3,720
|
(11,635)
|
5,515
|
|
Deferred
revenue
|
|
(47)
|
288
|
(143)
|
30
|
|
|
|
8,614
|
9,404
|
46,941
|
54,721
|
|
Equity income from
joint ventures
|
|
(2,283)
|
(4,270)
|
(9,356)
|
(16,588)
|
|
Pension benefits
paid
|
|
(6)
|
(3)
|
(20)
|
(8)
|
|
Interest
paid
|
|
-
|
(10)
|
(214)
|
(20)
|
|
Income taxes expense
(recovery) - current
|
|
(1,398)
|
945
|
(1,036)
|
5,087
|
|
Income taxes paid
(recovered)
|
|
1,398
|
(1,425)
|
1,036
|
(4,634)
|
Net cash from
operating activities
|
|
6,325
|
4,641
|
37,351
|
38,558
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
Capital
expenditures
|
|
(3,461)
|
(28,312)
|
(15,335)
|
(71,285)
|
Change in non-cash
working capital related to capital
|
|
(2,663)
|
3,796
|
(9,948)
|
(2,749)
|
Distributions from
investments in joint ventures
|
|
2,394
|
12,527
|
12,105
|
19,702
|
Change in cash
restricted for loan guarantees
|
|
1,299
|
-
|
2,198
|
(3,431)
|
Change in term
deposits
|
|
-
|
-
|
-
|
5,000
|
Proceeds on sale of
assets
|
|
209
|
6,818
|
995
|
8,059
|
Net cash used in
investing activities
|
|
(2,222)
|
(5,171)
|
(9,985)
|
(44,704)
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
Change in operating
loan facility
|
|
(2,500)
|
-
|
(20,000)
|
-
|
Dividends
paid
|
|
(1,525)
|
(1,526)
|
(4,575)
|
(4,491)
|
Repurchase of share
capital
|
|
-
|
-
|
-
|
(427)
|
Net cash used in
financing activities
|
|
(4,025)
|
(1,526)
|
(24,575)
|
(4,918)
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
78
|
(2,056)
|
2,791
|
(11,064)
|
Cash and cash
equivalents, beginning of period
|
|
4,725
|
4,990
|
2,012
|
13,998
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents, End of Period
|
|
$
|
4,803
|
$
|
2,934
|
$
|
4,803
|
$
|
2,934
|
SOURCE AKITA Drilling Ltd.