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AKITA Drilling Ltd. Announces Year-to-Date Earnings and Cash Flow

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AKITA Drilling Ltd. Announces Year-to-Date Earnings and Cash Flow

Canada NewsWire

CALGARY, April 27, 2018 /CNW/ - AKITA Drilling Ltd.'s net loss for the three months ended March 31, 2018 was $1,912,000 (net loss of $0.11 per share basic and diluted) on revenue of $27,089,000, compared to a net loss of $4,975,000 (net loss of $0.28 per share basic and diluted) on revenue of $19,193,000  for the corresponding period in 2017.  Funds flow from operations for the quarter ended March 31, 2018 was $4,519,000 compared to $1,824,000 in the corresponding quarter of 2017.

AKITA had improved results in the first quarter of 2018, with drilling activity across the Western Canadian Sedimentary Basin continuing to increase when compared to the same period in 2017, resulting in improved results for the Company. The increased activity was due to higher crude oil prices, with West Texas Intermediate (WTI) remaining above $50 USD since October of last year. The Company's heavy oil rigs were very active in the quarter generating over half of the Company's revenue for the first quarter of 2018.  Although day rates have begun to increase they have been slow to recover from the downturn. There is still insufficient demand in the Canadian market to create significant upward pricing pressure.  During the quarter AKITA moved a second rig to the United States, which began drilling in March. The Company has been successful in relocating and contracting idle rigs from Canada to the US Permian Basin at minimal capital cost. 

Selected information from AKITA Drilling Ltd.'s Management Discussion and Analysis from the Quarterly Report as follows:

Introduction and General Overview

Activity levels in the contract drilling industry are highly correlated to the market prices of both crude oil and natural gas. Average West Texas Intermediate (WTI) crude oil prices increased 22% when comparing the first quarter of 2018 to the first quarter of 2017, while Alberta Energy Company (AECO) natural gas spot prices decreased 22% over the same time period. This shift in commodity prices has increased the demand for the Company's rigs drilling for oil while at the same time reducing demand for the Company's rigs drilling for dry gas.  As AKITA is typically more active in heavy oil drilling, the increase in demand due to crude oil prices increased the Company's utilization for the first quarter of 2018 compared to the first quarter of 2017.

Readers of this MD&A should be aware that historically, the first quarter of the calendar year is the most active in the drilling industry, as operators take advantage of frozen ground, which makes the movement of heavy equipment easier.   Lower activity levels that result from spring break-up and associated travel bans on public roads characterize the second quarter.

Fleet and Rig Utilization

AKITA had 28 drilling rigs at March 31, 2018, including five that operated under joint ventures (26.750 net to AKITA), the same as at March 31, 2017. During the first quarter of 2018, a second rig was moved to the United States. The Company currently has 26 rigs in Canada and two in the United States.

Three Months Ended March 31

2018

2017

Change

% Change

Operating days

1,174

961

213

22%

Utilization rate

47%

38%

9

24%

 

Generally, AKITA meets or exceeds industry average rig utilization rates as a result of positive customer relations, meaningful joint ventures with Aboriginal and First Nations partners, employee expertise, safety performance, drilling performance and that the majority of the Company's rig fleet are high-demand pad drilling rigs. 

The following table compares first quarter utilization for AKITA to the industry for 2018 and 2017:

Utilization Rates Expressed in Percentages

AKITA

Industry(1)

2018 January to March

47%

41%

2017 January to March

38%

39%


(1)  Source:  CAODC

 

The improvement in utilization in the first quarter of 2018 compared to the first quarter of 2017 was driven by AKITA's fleet of pad triple drilling rigs obtaining more operating days in 2018, while other rig categories obtained similar results as in the prior year.

Revenue and Operating & Maintenance Expenses

$Millions





Three Months Ended March 31

2018

2017

Change

% Change

Contract drilling revenue

27.1

19.2

7.9

41%

Operating & maintenance expenses

20.4

17.7

2.7

15%






$Dollars





Three Months Ended March 31

2018

2017

Change

% Change

AKITA and joint ventures' revenue per operating day(1)

29,363

26,367

2,996

11%

AKITA and joint ventures' operating & maintenance expenses per operating day(1)

21,848

22,625

(778)

(3%)

AKITA and joint ventures' operating margin per operating day(1)

7,515

3,742

3,773

101%



(1)

AKITA and joint ventures' revenue per operating day, AKITA and joint ventures' operating & maintenance expenses per operating day and AKITA and joint ventures' operating margin per operating day are non-GAAP financial measures.  See commentary in "Basis of Analysis in this MD&A, Non-GAAP and Additional GAAP Items".

 

During the first quarter of 2018, revenue increased to $27,089,000 from $19,193,000 in the first quarter of 2017, due to increases in both utilization as well as revenue per day. Revenue per operating day increased to $29,363 (for AKITA including joint ventures) year-to-date in 2018 from $26,367 for the same period in 2017. The increase in revenue per operating day was a result of a slight strengthening of rates in the Canadian industry as well as the mix of rigs AKITA operated in the quarter. Pad triple drilling rigs, which generally demand higher day rates than other conventional drilling rigs, achieved more operating days in the first quarter of 2018 compared to the same period of 2017. 

Operating and maintenance expenses are directly related to operating days and amounted to $20,389,000 ($21,848 per operating day for AKITA including joint ventures) during the first quarter of 2018, compared to $17,735,000 ($22,625 per operating day for AKITA including joint ventures) during the same period of the prior year.  The increase in operating and maintenance expenses is due to more operating days in the first quarter of 2018 compared to the first quarter of 2017. High rig start-up costs incurred in the first quarter of 2017 were the main factor behind the per day decrease in operating and maintenance expense in the first three months of 2018. 

Depreciation and Amortization Expense

$Millions





Three Months Ended March 31

2018

2017

Change

% Change

Depreciation and amortization expense

5.9

6.7

(0.8)

(12%)

 

Depreciation and amortization expense decreased to $5,927,000 during the first quarter of 2018 from $6,736,000 during the corresponding period in 2017, primarily due to the asset write down and impairment loss recorded in the fourth quarter of 2017 which reduced the Company's depreciable property by $29,123,000. Also affecting depreciation in 2018 is a change in the Company's method of calculating depreciation. On January 1, 2018, AKITA changed its depreciation method to a straight-line calculation from a unit of production basis. The rationale for this change was to have rig depreciation more closely match the new lifecycle of rigs. Historically, rigs would last until they wore out. However, technology is a large part of modern drilling rigs and today drilling rigs' useful lives are reduced as new technologies are invented for modern drilling programs. As result, the passage of time plays a more significant part than operating days in determining a drilling rig's life. The straight-line depreciation method matches the new lifecycle more accurately than the unit of production depreciation method.   In the first quarter of 2018, drilling rig depreciation accounted for 97% of total depreciation expense (Q1 2017 - 97%). 

While AKITA conducts some 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 by the joint ventures themselves.  As the joint ventures do not hold any property, plant, or equipment assets directly, the Company's depreciation expense includes depreciation on assets involved in both wholly-owned and joint venture activities.

Selling and Administrative Expenses

$Millions




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