AKT.B Akita Drilling Ltd

CALGARY, AB, March 20, 2023 /CNW/ - AKITA Drilling Ltd. (TSX: AKT.A)

AKITA Drilling Ltd. ("AKITA" or the "Company") announces net earnings of $4,288,000 in 2022 compared to a net loss in 2021 of $20,990,000, marking a significant turning point for the Company. This meaningful improvement in the Company's results is primarily due to strong results in the Company's US division. While the Company was more active in both Canada (2,518 operating days in 2022 compared to 1,594 operating days in 2021) and the US (4,088 operating days in 2022 compared to 2,871 operating days in 2021) the primary driver for the improved results was the 165% increase in the Company's adjusted operating margin in the United States in 2022, most of which was generated in the second half of the year. Funds flow from operations increased to $34,813,000 in 2022, the highest annual funds flow from operations since 2015. The Company's net earnings and funds flow from operations were both weighted heavily to the fourth quarter which generated 46% of the funds flow from operations for the entire year. Capital spending for the year was 10% higher in 2022 than in 2021, with 36% of the 2022 capital being spent in the first quarter of the year. This weighting of capital spend early in the year, when significantly improved results were not yet realized, increased the Company's total debt to $95 million in the first quarter of 2022, with the balance of the Company's capital program for the year funded through cash flow.

Linda Southern-Heathcott, AKITA's Executive Chair and Chief Executive Officer stated: "The momentum that began in 2021 continued into 2022 and allowed the Company to strengthen its balance sheet, building working capital to $31.1 million at the end of 2022 compared to $6.5 million at the end of 2021, and to achieve positive net earnings for the first time since 2016. We are very pleased with the Company's improving profitability and look forward to 2023. I would like to express a special thanks to AKITA's employees for their hard work and sacrifices through the challenging last few years. It is their hard work and dedication that got us to this point"

CONSOLIDATED FINANCIAL HIGHLIGHTS

United States Operations

The Company's US operating segment had a strong year with meaningful day rate increases throughout the year and improved activity compared to the prior year. Adjusted operating margin increased 165% to $35,631,000 in 2022 from $13,427,000 in 2021. Of the total operating margin in the year, 70% was generated in the second half of year as day rate increases began to improve results. Activity built in 2021 in the US operating segment and remained constant through 2022, averaging 1,000 operating days per quarter. The key driver for improved results was higher day rates. Revenue per day improved from $26,089 in the first quarter of 2022 to $37,721 in the fourth quarter. Revenue in the US accounted for 63% of the Company's total 2022 adjusted revenue, consistent with 62% in 2021. Adjusted operating margin in the US was 64% of the total for the Company in 2022, up from 60% in 2021.

Adjusted operating and maintenance costs increased to $95,167,000 in 2022 from $57,997,000 in 2021 due to increased activity as well as an increase in adjusted operating and maintenance expense per day which increased 15% to $23,280 in 2022 from $20,201 in 2021. Operating and maintenance expense in the fourth quarter of 2022 was positively impacted by the receipt of a $2.0 million Employee Retention Credit ("ERC") from the IRS. The ERC is a COVID-19 related credit, granted to employers that retained a certain number of employees while experiencing significant decreases in revenue during the pandemic. This amount reduced the total operating costs in the quarter.

Canadian Operations

Results in Canada improved considerably in 2022, with adjusted operating margin increasing 118% to $19,803,000 in the year from $9,068,000 in 2021. This increase was driven by two factors, increased activity and improved day rates. During 2022, AKITA achieved 2,518 operating days in Canada, which corresponds to an annual utilization rate of 34%, compared to a 2022 industry average of 35% and a 2021 utilization rate for the Company of 22% (1,594 days). The increase in AKITA's operating days in 2022 compared to 2021 was a general increase spread out amongst the Canadian fleet. In 2022 activity for the Company followed the typical seasonal trend with the first quarter being the most active.

Day rates were the other contributing factor to the increased operating margin in Canada. Adjusted revenue per operating day increased 21% to $30,753 in 2022 from $25,515 in 2021. Rates have increased not only year-over-year but also quarter-over-quarter, with average day rates ending the year at $35,197 for the fourth quarter of 2022 compared to $29,173 in the first quarter of 2022. Included in the Canadian operating results is AKITA's share of revenue and costs from its joint ventures, as AKITA provides the same drilling services through its joint venture drilling rigs as it does for its wholly-owned rigs.

Adjusted operating and maintenance expenses are tied to activity levels and increased 82% to $57,634,000 in 2022 from $31,603,000 in 2021, which is not in-line with the 58% increase in operating days as the per day amount also increased. On a per day basis, adjusted operating and maintenance costs increased to $22,889 in 2022 from $19,826 in 2021. The 2021 operating and maintenance expense, was reduced by the Canadian Emergency Wage Subsidy ("CEWS") of $3,450,000 in 2021 (2022 – nil).

FURTHER INFORMATION

This news release shall be used as preparation for reading the full disclosure documents. AKITA's audited consolidated financial statements and management's discussion and analysis for the year ended December 31, 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 Operating and Maintenance Expenses

Revenue and 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 revenue and expenses in AKITA's Canadian and 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 revenue per day and operating and maintenance expenses 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.

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.

The Company's actual results could differ materially from those anticipated in this forward-looking information as a result of regulatory decisions, competitive factors in the industries in which the Company operates, prevailing economic conditions, and other factors, many of which are beyond the control of the Company.

The Company believes that the expectations reflected in the forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking information should not be unduly relied upon.

Any forward-looking information contained in this news release represents the Company's expectations as of the date hereof, and is subject to change after such date. The Company disclaims any intention or obligation to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required by applicable securities legislation.

SOURCE AKITA Drilling Ltd.