CALGARY, Oct. 27, 2016 /CNW/ - AKITA Drilling Ltd.'s
net loss for the three months ended September 30, 2016 was $4,668,000 (net loss of $0.26 per share basic and diluted) on revenue of
$6,616,000, compared to a net loss of
$7,581,000 (net loss of $0.42 per share basic and diluted) on revenue of
$22,021,000 for the corresponding
period in 2015. The third quarter of 2015 included an asset
impairment expense of $8,200,000.
Funds flow from operations for the quarter ended September 30, 2016 was $2,197,000 compared to $8,225,000 in the corresponding quarter in
2015.
Net income for the nine months ended September 30, 2016 was $9,443,000 ($0.53
per share basic and diluted) on revenue of $52,253,000 and included a contract cancellation
fee. Comparative figures for the corresponding nine month
period in 2015 were a net loss of $4,983,000 (net loss of $0.28 per share basic and diluted) and revenue of
$91,272,000. Funds flow from
operations for the January to September period in 2016 was
$30,268,000 compared to $31,356,000 for the comparative period in
2015.
Prices for crude oil have strengthened in the third quarter of
2016 with West Texas Intermediate "WTI" closing the month of
September at $48.26 USD, up 30% over
the start of the year and up 6% over the same period in 2015. This
is an encouraging trend, however prices remain below what is needed
to create a meaningful recovery in the industry. Natural gas prices
have also strengthened over the quarter but not to the same extent
as crude oil prices and are still well below 2015 prices. Oil and
gas producers continue to be very cautious with capital spending,
creating few opportunities in the western Canadian drilling
industry. The lack of drilling opportunities in the industry has
created an over-supply of drilling rigs in the western Canadian
market, resulting in severe pressure on day rates and fewer active
rigs, averaging 109 active rigs in the third quarter of 2016 versus
an average of 183 active rigs in the third quarter of 2015. The
pressure on day rates combined with fewer operating days (373 in
the third quarter of 2016 compared to 839 during the same period of
2015) were the contributing factors to AKITA's loss in the
quarter.
Management's focus continues to be on maintaining AKITA's
financial strength through prudent capital management and cost
controls. Management is not anticipating a meaningful economic
recovery in the near term but believes AKITA is well positioned to
capitalize on opportunities as they arise and will continue to
maintain and grow our high performance drilling rigs for our
customers.
Basis of Analysis in this MD&A and Non-GAAP Financial
Measures
The Company reports its joint venture activities in the
financial statements in accordance with International Financial
Reporting Standards ("IFRS"), IFRS 11 "Joint Arrangements".
In determining the classification of its joint arrangements, AKITA
considers whether the joint arrangements are structured through
separate vehicles, if the legal form of the separate vehicles
confers upon the parties direct rights to assets and obligations
for liabilities relating to the arrangements, whether the
contractual terms between the parties confer upon them rights to
assets and obligations for liabilities relating to the arrangements
as well as if other facts and circumstances lead to rights for
assets and obligations for liabilities being conferred upon the
parties to the arrangement prior to concluding that AKITA's joint
ventures are properly classified as joint ventures rather than
joint operations. Under IFRS 11, AKITA is required to report
its joint venture assets, liabilities and financial activities
using the equity method of accounting. However, for purposes
of analysis in this MD&A, the proportionate share of assets,
liabilities and financial activities is included as non-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.
During the nine months ended September
30, 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.
Funds flow from operations is considered a non-GAAP financial
measure under IFRS. AKITA's method of determining funds flow
from operations may differ from methods used by other companies and
includes cash flow from operating activities before working capital
changes as well as equity income from joint ventures adjusted for
income tax amounts paid during the period. Management and
certain investors may find funds flow from operations to be a
useful measurement to evaluate the Company's operating results at
year-end and within each year, since the seasonal nature of the
business affects the comparability of non-cash working capital
changes both between and within periods.
Revenue and Operating & Maintenance Expenses
|
|
|
|
$
Millions
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Revenue per Interim
Financial Statements
|
6.6
|
22.0
|
(15.4)
|
(70%)
|
|
52.2
|
91.3
|
(39.1)
|
(43%)
|
Proportionate Share
of Revenue from
|
|
|
|
|
|
|
|
|
|
Joint
Ventures(1)
|
4.5
|
6.3
|
(1.8)
|
(29%)
|
|
11.5
|
28.8
|
(17.3)
|
(60%)
|
Contract Cancellation
Revenue
|
-
|
-
|
-
|
-
|
|
(28.3)
|
-
|
(28.3)
|
N/A
|
Adjusted
Revenue(1)
|
11.1
|
28.3
|
(17.2)
|
(61%)
|
|
35.4
|
118.1
|
(82.7)
|
(70%)
|
|
|
|
|
|
|
|
|
|
|
$
Millions
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Operating &
Maintenance Expenses per
|
|
|
|
|
|
|
|
|
|
Interim Financial
Statements
|
5.7
|
14.2
|
(8.5)
|
(60%)
|
|
16.4
|
59.3
|
(42.9)
|
(72%)
|
Proportionate Share
of Operating &
|
|
|
|
|
|
|
|
|
|
Maintenance Expenses
from
|
|
|
|
|
|
|
|
|
|
Joint
Ventures(1)
|
3.1
|
4.0
|
(0.9)
|
(23%)
|
|
7.2
|
17.1
|
(9.9)
|
(58%)
|
Adjusted Operating
& Maintenance
|
|
|
|
|
|
|
|
|
|
Expenses(1)(3)
|
8.8
|
18.2
|
(9.4)
|
(52%)
|
|
23.6
|
76.4
|
(52.8)
|
(69%)
|
|
|
|
|
|
|
|
|
|
|
$
Millions
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Adjusted
Revenue(1)
|
11.1
|
28.3
|
(17.2)
|
(61%)
|
|
35.4
|
118.1
|
(82.7)
|
(70%)
|
Adjusted Operating
& Maintenance
|
|
|
|
|
|
|
|
|
|
Expenses(1)
|
8.8
|
18.2
|
(9.4)
|
(52%)
|
|
23.6
|
76.4
|
(52.8)
|
(69%)
|
Adjusted Operating
Margin(1)(2)(3)
|
2.3
|
10.1
|
(7.8)
|
(77%)
|
|
11.8
|
41.7
|
(29.9)
|
(72%)
|
|
|
|
|
|
|
|
|
|
|
$
Dollars
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Adjusted Revenue per
Operating Day(1)
|
29,804
|
33,797
|
(3,993)
|
(12%)
|
|
32,503
|
35,148
|
(2,646)
|
(8%)
|
Adjusted Operating
& Maintenance
|
|
|
|
|
|
|
|
|
|
Expenses per Operating
Day(1)
|
23,670
|
21,607
|
2,064
|
10%
|
|
21,528
|
22,738
|
(1,210)
|
(5%)
|
Adjusted Operating
Margin per
|
|
|
|
|
|
|
|
|
|
Operating
Day(1)(2)
|
6,134
|
12,191
|
(6,057)
|
(50%)
|
|
10,974
|
12,410
|
(1,436)
|
(12%)
|
(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 and Non-GAAP Financial Measures".
|
(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 2016, adjusted revenue decreased to $11,117,000 ($29,804 per day) compared to $28,356,000 ($33,797 per day) during the third quarter of 2015
as a result of weak market conditions which affected all rig
categories. Excess rig capacity throughout the industry has led to
increased competition combined with continued downward pressure on
day rates resulting in the decrease on a per day basis.
Adjusted operating and maintenance costs are tied to operating
days and amounted to $8,829,000
($23,670 per operating day) during
the third quarter of 2016 compared to $18,128,000 ($21,607 per operating day) in the same period of
the prior year. The decrease in operating and maintenance
costs, on a total basis, resulted primarily from reduced drilling
activity. The increase on a "per day" basis, resulted from costs
incurred to prepare idle rigs for the upcoming winter drilling
programs with no corresponding operating days. The effect of this
seasonal activity was less in 2015, as it was diluted by more rigs
operating during the quarter.
The adjusted operating margin for the Company decreased to
$2,288,000 in the third quarter of
2016 from $10,228,000 during the
corresponding quarter of 2015. The decreased adjusted
operating margin is a direct result of decreased drilling activity
as AKITA's operating days declined 56% in the third quarter of 2016
compared to the same period in 2015. On a per day basis, adjusted
operating margin decreased to $6,134
in the third quarter of 2016 from $12,191 in the comparative period of 2015. This
decrease is a combination of the reduced day rates and increased
costs for non-operating rigs noted above.
Year-to-Date Comparatives
During the first nine
months of 2016, adjusted revenue decreased to $35,493,000 from $118,063,000 during the first nine months of 2015
as a result of lower drilling activity. Adjusted revenue per
operating day decreased to $32,503
during the first nine months of 2016 from $35,148 in the comparative nine month period of
2015. This decrease is due to increased competition in the drilling
industry as rigs compete for fewer jobs driving day rates
lower.
While adjusted revenue for the nine months ended September 30, 2016 declined by 70% compared to
the corresponding period in 2015, revenue per the interim financial
statements decreased by only 43%. Offsetting the reduction in
adjusted revenue was contract cancellation revenue of $28,250,000 (2015 - nil) related to a multi-year
contract that was cancelled in January of 2016 for one of AKITA's
pad triple rigs. Payment of the contract cancellation fee was
divided into three payments, the first which was received during
the first quarter of 2016. The remaining amounts are included in
current and long-term receivables on the Company's Statement of
Financial Position.
Adjusted operating and maintenance expenses are tied to
operating days and amounted to $23,509,000 ($21,528 per operating day) during the first nine
months of 2016 compared to $76,377,000 ($22,738 per operating day) in the same
period of the prior year. The decrease on a per day basis is
a result of both a change in rig mix over 2015 and ongoing cost
controls.
The adjusted operating margin for the Company decreased to
$11,984,000 in the first nine months
of 2016 from $41,686,000 during the
corresponding period of 2015. On a per day basis, adjusted
operating margin decreased to $10,974
for the nine months ended September 30,
2016 from $12,410 in the
corresponding period of 2015. This decrease in adjusted operating
margin is a result of lower day rates resulting from higher
competition within the industry.
Depreciation and Amortization
Expense
|
|
|
|
|
$
Millions
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Depreciation and
Amortization Expense
|
|
5.9
|
8.9
|
(3.0)
|
(34%)
|
|
17.6
|
26.3
|
(8.7)
|
(33%)
|
Depreciation and amortization expense was 34% lower in the third
quarter of 2016 compared to the corresponding quarter of 2015. As
AKITA depreciates its rig fleet on a unit of production basis, the
decrease in the depreciation and amortization expense is directly
related to the 56% decrease in the number of operating days when
comparing the third quarter of 2016 to the corresponding period of
2015. On a per day basis, depreciation in the third quarter of 2016
($15,796 per day) was higher than the
third quarter of 2015 ($10,634 per
day), as rigs are subject to certain minimum annual depreciation
(in addition to the unit of production basis for
depreciation).
Depreciation and amortization expense for the first nine months
of 2016 totalled $17,551,000 compared
to $26,266,000 for the corresponding
period in 2015. As with the depreciation and amortization
expense for the third quarter, lower rig activity levels were the
driver behind the lower depreciation and amortization expense in
2016 to date. In the first nine months of 2016, drilling rig
depreciation accounted for 96% of total depreciation and
amortization expense (2015 - 96%).
While AKITA conducts several of its drilling operations via
joint ventures, the drilling rigs used to conduct those activities
are owned jointly by AKITA and its joint venture partners, and not
the joint ventures themselves. Therefore, the joint ventures
do not hold any property, plant, or equipment assets
directly. Consequently, the depreciation balance reported
above includes depreciation on assets involved in both wholly-owned
and joint ventured activities.
Selling and Administrative Expenses
|
|
|
|
|
$
Millions
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Selling &
Administrative Expenses
|
|
2.9
|
3.6
|
(0.7)
|
(19%)
|
|
9.9
|
12.0
|
(2.1)
|
(18%)
|
per Interim Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses were 28% of adjusted revenue
in the first nine months of 2016 compared to 10% of adjusted
revenue in the first nine months of 2015. The increase in selling
and administrative expenses when compared to adjusted revenue is a
result of the fixed nature of the majority of the Company's selling
and administrative expenses. The single largest component of
selling and administrative expenses was salaries and benefits,
which accounted for 57% of these expenses (59% in 2015).
Equity Income from Joint Ventures
|
|
|
|
|
$
Millions
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Proportionate Share
of Revenue
|
|
4.5
|
6.3
|
(1.8)
|
(29%)
|
|
11.5
|
26.8
|
(15.3)
|
(57%)
|
from Joint
Ventures(1)
|
|
|
|
|
|
|
|
|
|
|
Proportionate Share
of Operating
|
|
3.1
|
4.0
|
(0.9)
|
(23%)
|
|
7.2
|
17.1
|
(9.9)
|
(58%)
|
& Maintenance
Expenses from
|
|
|
|
|
|
|
|
|
|
|
Joint
Ventures(1)
|
|
|
|
|
|
|
|
|
|
|
Proportionate Share
of Selling &
|
|
0.1
|
0.1
|
0.0
|
0%
|
|
0.1
|
0.3
|
(0.2)
|
(67%)
|
Administrative
Expenses from
|
|
|
|
|
|
|
|
|
|
|
Joint
Ventures(1)
|
|
|
|
|
|
|
|
|
|
|
Equity Income from
Joint Ventures
|
|
1.3
|
2.2
|
(0.9)
|
(41%)
|
|
4.2
|
9.4
|
(5.2)
|
(56%)
|
per Interim Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Proportionate
share of revenue from joint ventures, proportionate share of
operating & maintenance expenses from joint
ventures and proportionate share of selling & administrative
expenses from joint ventures are non-GAAP financial
measures.
See commentary in "Basis of Analysis in this MD&A and Non-GAAP
Financial Measures".
|
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.
Other Income (Loss)
|
|
|
|
|
$
Millions
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Total Other Income
(Loss)
|
|
0.2
|
0.2
|
0.0
|
0%
|
|
0.6
|
0.1
|
0.5
|
500%
|
Interest income increased to $741,000 in the first nine months of 2016 from
$100,000 in the corresponding period
in 2015, primarily due to accrued interest ($584,000) on receivable balances related to the
contract cancellation discussed previously. The balance of interest
income consists of interest on cash and term deposit balances.
During the first nine months of 2016, the Company incurred
interest expense of $121,000 related
to the future cost of the Company's defined benefit pension
plan. During the corresponding nine month period in 2015,
AKITA incurred interest expense of $321,000 primarily as a result of the Company's
indebtedness as well as the future cost of the defined benefit
pension plan.
During the first nine months of 2016, the Company sold some
ancillary assets for $139,000 that
resulted in a gain of $36,000.
During the first nine months of 2015, the Company disposed of
certain non-core assets for $1,023,000 resulting in a loss of $61,000.
"Net other gains (losses)" of ($85,000) for the nine months ended September 30, 2016 relate primarily to the
discount of the long-term receivable associated with the contract
cancellation fee. Approximately 69% of amounts recorded as "Net
other gains (losses)" during the first nine months of 2015 related
to foreign exchange associated with rig construction.
Income Tax Expense
|
|
|
|
|
$
Millions
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Current Tax Expense
(Recovery)
|
|
(2.4)
|
(1.4)
|
(1.0)
|
(71%)
|
|
1.0
|
(1.0)
|
2.0
|
200%
|
Deferred Tax Expense
(Recovery)
|
|
0.8
|
(1.4)
|
2.2
|
157%
|
|
2.7
|
1.0
|
1.7
|
170%
|
Income Tax Expense
(Recovery)
|
|
(1.6)
|
(2.8)
|
1.2
|
43%
|
|
3.7
|
(0.0)
|
3.7
|
NA
|
Income tax expense increased to $3,784,000 in the first nine months of 2016 from
a recovery of $50,000 in the
corresponding period in 2015 mainly due to higher pre-tax earnings
resulting from the contract cancellation fee. Deferred taxes for
the nine months ended September 30,
2016, were higher than the corresponding period in 2015 as
the Company recorded an asset impairment expense in the third
quarter of 2015 resulting in lower future tax obligations.
Net Income (Loss), Funds Flow and Net Cash From Operating
Activities
|
|
|
|
|
$
Millions
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Net Income
(Loss)
|
|
(4.7)
|
(7.6)
|
2.9
|
38%
|
|
9.4
|
(5.0)
|
14.4
|
288%
|
Funds Flow from
Operations(1)
|
|
2.2
|
8.2
|
(6.0)
|
(73%)
|
|
30.2
|
31.4
|
(1.2)
|
(4%)
|
(1)
|
Funds flow from
operations is an additional GAAP measure under IFRS. See
commentary in "Basis of Analysis in this
MD&A and Non-GAAP Financial Measures".
|
During the three months ended September
30, 2016, the Company reported a net loss of $4,668,000 or $0.26
per Class A Non-Voting and Class B Common Share (basic and diluted)
compared to a net loss of $7,581,000
or $0.42 per share (basic and
diluted) in the comparative quarter of 2015. The reduction in the
net loss in 2016 when compared to the same period in 2015 was due
to the asset impairment of $8,200,000
recorded in the third quarter of 2015 with no impairment recorded
in the third quarter of 2016.
Funds flow from operations decreased to $2,197,000 during the third quarter of 2016 from
$8,225,000 in the corresponding
quarter in 2015. Funds flow from operations was negatively
affected by weaker drilling activity in the third quarter of
2016.
Net income increased to $9,443,000
or $0.53 per Class A Non-Voting and
Class B Common Shares (basic and diluted) for the first nine months
of 2016 from a loss of $4,983,000 or
$0.28 per share (basic and diluted)
in the corresponding period of 2015. Funds flow from
operations decreased to $30,268,000
during the first nine months of 2016 from $31,356,000 in the corresponding period in
2015. The increase in net income for the nine month period
ended September 30, 2016 was directly
attributable to the contract cancellation fee recorded in the first
quarter of 2016 combined with the asset impairment recorded in the
third quarter of 2015.
Funds flow decreased as a result of a 67% decrease in operating
days from the first nine months of 2016 compared to the
corresponding period in 2015. The reduction in operating days was
offset by the contract cancellation revenue.
The following table reconciles funds flow and cash flow from
operations:
|
|
|
|
$
Millions
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
2016
|
2015
|
Change
|
%
Change
|
|
2016
|
2015
|
Change
|
%
Change
|
Funds Flow from
Operations(1)
|
2.2
|
8.2
|
(6.0)
|
(73%)
|
|
30.2
|
31.4
|
(1.2)
|
(4%)
|
Change in Non-Cash
Working Capital
|
(3.7)
|
0.4
|
(4.1)
|
(1025%)
|
|
(4.6)
|
15.6
|
(20.2)
|
(130%)
|
Equity Income from
Joint Ventures
|
(1.3)
|
(2.3)
|
1.0
|
44%
|
|
(4.2)
|
(9.4)
|
5.2
|
55%
|
Change in Long-Term
Receivable
|
(0.1)
|
0.0
|
(0.1)
|
N/A
|
|
(9.5)
|
0.0
|
(9.5)
|
N/A
|
Interest
Paid
|
0.0
|
0.0
|
(0.0)
|
N/A
|
|
0.0
|
(0.2)
|
0.2
|
100%
|
Current Income Tax
Expense (Recovery)
|
(2.5)
|
(1.3)
|
(1.2)
|
(92%)
|
|
1.0
|
(1.0)
|
2.0
|
200%
|
Income Tax
Recovered
|
3.2
|
1.3
|
1.9
|
146%
|
|
0.0
|
1.0
|
(1.0)
|
(100%)
|
Net Cash from
Operating Activities
|
(2.2)
|
6.3
|
(8.5)
|
(135%)
|
|
12.9
|
37.4
|
(24.5)
|
(66%)
|
(1)
|
Funds flow from
operations is an additional GAAP measure under IFRS. See
commentary in "Basis of Analysis in this MD&A
and Non-GAAP Financial Measures".
|
Liquidity and Capital Resources
Cash used for capital expenditures totalled $2,637,000 in the first nine months of 2016 (2015
- $15,335,000). All of the year
to date capital spending relates to routine items while nearly
three quarters of the 2015 capital expenditures related to the
completion of a triple pad rig.
At September 30, 2016, AKITA's
Statement of Financial Position included working capital (current
assets minus current liabilities) of $30,038,000 compared to working capital of
$12,267,000 at September 30, 2015, and working capital of
$16,002,000 at December 31, 2015. Readers should 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 early in the second quarter and decline
thereafter as a result of spring break-up and reduced drilling
activities. Non-cash working capital amounted to $11,621,000 at September
30, 2016, compared to a non-cash working capital of
$6,633,000 at December 31, 2015. Working capital at
September 30, 2016 improved compared
to September 30, 2015, as a result of
cost controls over capital and operating expenses as well as the
first payment and receivable associated with the contract
cancellation fee.
The Company chooses to maintain a conservative Statement of
Financial Position due to the cyclical nature of the
industry. In addition to its cash and term deposit balances,
the Company has an operating loan facility with its principal
banker totalling $100,000,000 that is
available until 2020. Although the facility has been provided
in order to finance general corporate needs, capital expenditures
and acquisitions, management intends to access this facility
primarily to enable the Company to explore expansion opportunities
or to fund new rig construction requirements related to drilling
contracts that it might be awarded. The interest rate on the
facility varies based upon the actual amounts borrowed, and ranges
from 0.45% to 1.45% over prime interest rates or 1.45% to 2.45%
over guaranteed notes, depending on the preference of the
Company. The Company did not have any borrowings from this
facility at September 30, 2016 or
2015.
The Company's objectives when managing capital are:
- to safeguard the Company's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders; and
- to augment existing resources in order to meet growth
opportunities.
The Company manages its capital structure and makes adjustments
in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to
maintain or adjust the capital structure, the Company may adjust
the amount of dividends paid to shareholders, repurchase or issue
new shares, sell assets or take on long-term debt. Since
1999, dividend rates have increased eight times with no
decreases. The last dividend increase was declared on
March 5, 2014.
During the 10 year period since 2006, AKITA has repurchased
592,708 Class A Non-Voting shares through normal course issuer bids
and has issued 122,200 Class A Non-Voting shares upon exercise of
stock options.
The Company had two rigs under multi-year contracts at
September 30, 2016. Of these
contracts, one is anticipated to expire in 2017 and one in
2018.
From time to time, the Company may provide guarantees for bank
loans to joint venture partners in respect of sales of rig
interests to joint venture partners. At September 30, 2016, AKITA provided $4,262,000 in deposits with its bank for those
purposes (September 30, 2015 -
$7,183,000 and December 31, 2015 - $5,978,000). AKITA's security from its
partners for these guarantees includes interests in specific rig
assets. These balances have been classified as restricted
cash on the Interim Statements of Financial Position.
Forward-Looking Statements
From time to time AKITA makes forward-looking statements.
These statements include but are not limited to comments with
respect to AKITA's objectives and strategies, financial condition,
results of operations, the outlook for the industry and risk
management.
By their nature, these forward-looking statements involve
numerous assumptions, inherent risks and uncertainties, both
general and specific, and the risk that the predictions and other
forward-looking statements will not be realized. Readers of
this MD&A are cautioned not to place undue reliance on these
statements as a number of important factors could cause actual
future results to differ materially from the plans, objectives,
estimates and intentions expressed in such forward-looking
statements.
Forward-looking statements may be influenced by factors such as
the level of exploration and development activity carried on by
AKITA's customers; world crude oil prices and North American
natural gas prices; weather; access to capital markets and
government policies. We caution that the foregoing list of
factors is not exhaustive and that investors and others should
carefully consider the foregoing factors as well as other
uncertainties and events prior to making a decision to invest in
AKITA. Except as required by law, the Company does not
undertake to update any forward-looking statements, whether written
or oral, that may be made from time to time by it or on its
behalf.
Selected financial information for the Company is as
follows:
|
|
|
|
|
|
|
|
AKITA Drilling
Ltd.
|
|
|
|
|
|
|
|
Interim Statements
of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
September
30,
|
September
30,
|
December
31,
|
$
Thousands
|
|
|
2016
|
|
2015
|
|
2015
|
Assets
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
18,417
|
$
|
4,803
|
$
|
9,369
|
|
Accounts
receivable
|
|
|
17,571
|
|
13,813
|
|
14,310
|
|
Income taxes
recoverable
|
|
|
-
|
|
1,616
|
|
3,279
|
|
Prepaid expenses and
other
|
|
|
295
|
|
457
|
|
75
|
|
|
|
|
36,283
|
|
20,689
|
|
27,033
|
Non-current
Assets
|
|
|
|
|
|
|
|
Long-term
receivable
|
|
|
9,528
|
|
-
|
|
-
|
Restricted
cash
|
|
|
4,262
|
|
7,183
|
|
5,978
|
Other long-term
assets
|
|
|
925
|
|
944
|
|
917
|
Investments in joint
ventures
|
|
|
5,108
|
|
3,465
|
|
3,941
|
Property, plant and
equipment
|
|
|
201,728
|
|
258,939
|
|
216,647
|
Total
Assets
|
|
$
|
257,834
|
$
|
291,220
|
$
|
254,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
3,684
|
$
|
6,865
|
$
|
9,506
|
|
Dividends
payable
|
|
|
1,525
|
|
1,525
|
|
1,525
|
|
Income taxes
payable
|
|
|
1,036
|
|
-
|
|
-
|
|
|
|
|
6,245
|
|
8,422
|
|
11,031
|
Non-current
Liabilities
|
|
|
|
|
|
|
|
Financial
instruments
|
|
|
60
|
|
140
|
|
117
|
Deferred income
taxes
|
|
|
21,933
|
|
28,039
|
|
19,203
|
Deferred share
units
|
|
|
200
|
|
265
|
|
171
|
Pension
liability
|
|
|
4,051
|
|
3,750
|
|
3,794
|
Total
Liabilities
|
|
|
32,489
|
|
40,616
|
|
34,316
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
Class A and Class B
shares
|
|
|
23,871
|
|
23,871
|
|
23,871
|
Contributed
surplus
|
|
|
4,223
|
|
3,878
|
|
3,946
|
Accumulated other
comprehensive loss
|
|
|
(244)
|
|
(280)
|
|
(244)
|
Retained
earnings
|
|
|
197,495
|
|
223,135
|
|
192,627
|
Total
Equity
|
|
|
225,345
|
|
250,604
|
|
220,200
|
Total Liabilities
and Equity
|
|
$
|
257,834
|
$
|
291,220
|
$
|
254,516
|
|
|
|
|
|
|
|
|
|
|
AKITA Drilling
Ltd.
|
Interim 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
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
6,616
|
$
|
22,021
|
$
|
52,253
|
$
|
91,272
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
|
Operating and
maintenance
|
|
|
5,738
|
|
14,158
|
|
16,356
|
|
59,260
|
|
Depreciation and
amortization
|
|
|
5,892
|
|
8,922
|
|
17,551
|
|
26,266
|
|
Asset impairment
loss
|
|
|
-
|
|
8,200
|
|
-
|
|
8,200
|
|
Selling and
administrative
|
|
|
2,878
|
|
3,601
|
|
9,878
|
|
12,038
|
Total costs and
expenses
|
|
|
14,508
|
|
34,881
|
|
43,785
|
|
105,764
|
|
|
|
|
|
|
|
|
|
|
|
Revenue less costs
and expenses
|
|
|
(7,892)
|
|
(12,860)
|
|
8,468
|
|
(14,492)
|
|
|
|
|
|
|
|
|
|
|
|
Equity income from
joint ventures
|
|
|
1,344
|
|
2,283
|
|
4,188
|
|
9,356
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(loss)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
248
|
|
32
|
|
741
|
|
100
|
|
Interest
expense
|
|
|
(40)
|
|
(36)
|
|
(121)
|
|
(321)
|
|
Gain (loss) on sale
of assets
|
|
|
5
|
|
50
|
|
36
|
|
(61)
|
|
Net other gains
(losses)
|
|
|
25
|
|
123
|
|
(85)
|
|
385
|
Total other
income
|
|
|
238
|
|
169
|
|
571
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes
|
|
|
(6,310)
|
|
(10,408)
|
|
13,227
|
|
(5,033)
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(1,642)
|
|
(2,827)
|
|
3,784
|
|
(50)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
and comprehensive income
(loss) for the period attributable to
shareholders
|
|
$
|
(4,668)
|
$
|
(7,581)
|
$
|
9,443
|
$
|
(4,983)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss)
per Class A and Class B Share
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.26)
|
$
|
(0.42)
|
$
|
0.53
|
$
|
(0.28)
|
|
|
Diluted
|
|
$
|
(0.26)
|
$
|
(0.42)
|
$
|
0.53
|
$
|
(0.28)
|
|
|
|
|
|
|
|
|
|
|
AKITA Drilling
Ltd.
|
|
|
|
|
|
|
|
|
|
Interim Statements
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
Unaudited
|
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
$
Thousands
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
Net income (loss) and
comprehensive income (loss)
|
|
$
|
(4,668)
|
$
|
(7,581)
|
$
|
9,443
|
$
|
(4,983)
|
Non-cash items
included in net income (loss):
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
5,892
|
|
8,922
|
|
17,551
|
|
26,266
|
|
Asset impairment
loss
|
|
|
-
|
|
8,200
|
|
-
|
|
8,200
|
|
Deferred income tax
expense (recovery)
|
|
|
834
|
|
(1,429)
|
|
2,730
|
|
986
|
|
Defined benefit
pension plan expense
|
|
|
108
|
|
114
|
|
324
|
|
344
|
|
Stock options and
deferred share units expense
|
|
|
54
|
|
75
|
|
313
|
|
495
|
|
(Gain) loss on sale
of assets
|
|
|
(6)
|
|
(50)
|
|
(36)
|
|
61
|
|
Unrealized foreign
currency loss
|
|
|
-
|
|
-
|
|
-
|
|
73
|
|
Unrealized gain on
financial guarantee contracts
|
|
|
(17)
|
|
(26)
|
|
(57)
|
|
(86)
|
Funds flow from
operations
|
|
|
2,197
|
|
8,225
|
|
30,268
|
|
31,356
|
Change in non-cash
working capital
|
|
|
(3,691)
|
|
389
|
|
(4,646)
|
|
15,585
|
Equity income from
joint ventures
|
|
|
(1,344)
|
|
(2,283)
|
|
(4,188)
|
|
(9,356)
|
Change in long-term
receivables
|
|
|
(86)
|
|
-
|
|
(9,528)
|
|
-
|
Pension benefits
paid
|
|
|
(22)
|
|
(6)
|
|
(37)
|
|
(20)
|
Interest
paid
|
|
|
-
|
|
-
|
|
(1)
|
|
(214)
|
Income tax expense
(recovery) - current
|
|
|
(2,476)
|
|
(1,398)
|
|
1,054
|
|
(1,036)
|
Income taxes (paid)
recoverable
|
|
|
3,264
|
|
1,398
|
|
(18)
|
|
1,036
|
Net cash from
(used in) operating activities
|
|
|
(2,158)
|
|
6,325
|
|
12,904
|
|
37,351
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1,107)
|
|
(3,461)
|
|
(2,637)
|
|
(15,335)
|
Change in non-cash
working capital related to capital
|
|
|
86
|
|
(2,663)
|
|
(1,414)
|
|
(9,948)
|
Distributions from
investments in joint ventures
|
|
|
10
|
|
2,394
|
|
3,021
|
|
12,105
|
Change in cash
restricted for loan guarantees
|
|
|
530
|
|
1,299
|
|
1,716
|
|
2,198
|
Proceeds on sale of
assets
|
|
|
8
|
|
209
|
|
133
|
|
995
|
Net cash from
(used in) investing activities
|
|
|
(473)
|
|
(2,222)
|
|
819
|
|
(9,985)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
Change in operating
loan facility
|
|
|
-
|
|
(2,500)
|
|
-
|
|
(20,000)
|
Dividends
paid
|
|
|
(1,525)
|
|
(1,525)
|
|
(4,575)
|
|
(4,575)
|
Loan commitment
fee
|
|
|
-
|
|
-
|
|
(100)
|
|
-
|
Net cash used in
financing activities
|
|
|
(1,525)
|
|
(4,025)
|
|
(4,675)
|
|
(24,575)
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(4,156)
|
|
78
|
|
9,048
|
|
2,791
|
Cash and cash
equivalents, beginning of period
|
|
|
22,573
|
|
4,725
|
|
9,369
|
|
2,012
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, End of Period
|
|
$
|
18,417
|
$
|
4,803
|
$
|
18,417
|
$
|
4,803
|
SOURCE AKITA Drilling Ltd.