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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, July 27, 2018 /CNW/ - AKITA Drilling Ltd.'s net loss for the three months ended June 30, 2018, was $2,959,000 (net loss of $0.16 per share basic & diluted) on revenue of $17,293,000 compared to a net loss of $4,491,000 (net loss of $0.25 per share basic & diluted) on revenue of $17,986,000 for the corresponding period of 2017. Funds flow from operations decreased to $1,638,000 in the second quarter of 2018 from $3,254,000 in the corresponding period of 2017.

AKITA incurred a net loss of $4,870,000 for the six months ended June 30, 2018 ($0.27 per share basic & diluted) on revenue of $44,382,000 compared to a net loss of $9,466,000 ($0.53 per share basic & diluted) on revenue of $37,179,000 in the comparative period in 2017. Funds flow from operations for the January to June period of 2018 was $6,157,000 compared to $5,078,000 for the same period in 2017.

The second quarter of 2018 was less active for AKITA than the corresponding period of 2017 due to several of the Company's customers delaying rig reactivations as natural gas prices continue to fall and take away capacity for Canadian oil remains uncertain. In the United States, AKITA added a third rig to its US fleet at the end of the quarter, as demand in the US for quality equipment and operations continues to increase. AKITA's strong first quarter improved the year to date results in 2018 for both net income and funds flow when compared to the first half of 2017.

On June 4, 2018, AKITA and Xtreme Drilling Corp ("Xtreme") agreed to enter into a plan of arrangement to combine their respective businesses to create a leading intermediate North American land drilling contractor. Under the plan of arrangement, Xtreme shareholders will receive 0.3732394 of a Class A Non-Voting share of AKITA or $2.65 in cash for each Xtreme share. An Xtreme shareholder may elect to receive AKITA Non-Voting Class A shares, cash or a combination of AKITA Non-Voting Class A shares and cash such that the aggregate consideration to be paid by AKITA will not exceed $45,000,000 and will not exceed 22,235,458 Class A Non-Voting shares. The combined company will effectively double the market capitalization of each company on its own as well as double the drilling assets on a net book value basis. Both AKITA and Xtreme view this combination as highly complementary, the companies are like-sized, operate in different geographical segments for different customers and have a strong focus on safety and customer satisfaction. The transaction has received unanimous board approval from both companies and is subject to shareholder approval, as well as customary TSX, Court and regulatory approvals and other closing conditions, and is expected to be completed in the third quarter of 2018.

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 crude oil and natural gas. The average West Texas Intermediate crude oil prices for the second quarter of 2018 increased 41% compared to the same period in 2017. However, the impact of higher oil prices was offset by two factors. The first is that average natural gas prices for the second quarter of 2018, per Alberta Energy Company ("AECO") spot prices, have decreased by 58% compared to the second quarter of 2017. The second is the uncertainty around the takeaway capacity of oil in the Canadian market which is causing Canadian producers to delay capital spending or shift spending to other opportunities. This delay in capital spending resulted in decreased activity for AKITA in Canada when comparing the second quarter of 2018 to the second quarter of 2017.

The impact of lower activity levels for AKITA in Canada was offset somewhat by increased day rates in Canada, as well as higher utilization in the United States ("US") for AKITA's US rigs.

Historically, the first quarter of the calendar year is the most active in the Canadian drilling industry.  Lower activity levels that result from spring break-up and associated road bans on public roads typically characterize the second quarter. In the second quarter of 2018, breakup conditions persisted longer than average which also had an impact on activity levels.   

Fleet and Rig Utilization  

AKITA had 28 drilling rigs at June 30, 2018, including five that operated under joint ventures (26.75 net to AKITA), the same as at June 30, 2017. During the second quarter of 2018, a third rig was moved to the US leaving 25 rigs in Canada.


Three Months Ended June 30

Six Months Ended June 30


2018

2017

Change

%
Change

2018

2017

Change

%
Change

Canada1









Operating days

548

931

(422)

(45%)

1,681

1,892

(211)

(11%)

Utilization rate

24%

37%

15

(41%)

37%

37%

0

0%

United States2









Operating days

136

-

136

-

177

-

177

-

Utilization rate

50%

-

50

-

39%

-

39

-

1

Canadian utilization was calculated based on 26 rigs for the first quarter of 2018 and 25 rigs for the second quarter of 2018. For 2017 utilization was based on 28 rigs.

2

United States utilization was calculated based on 2 rigs in the first quarter of 2018 and 3 rigs in the second quarter of 2018.

 

Utilization Rates in Canada

Three Months Ended

June 30

Six Months Ended

 June 30


AKITA

Industry(1)

AKITA

Industry(1)

2018

24%

17%

37%

29%

2017

37%

18%

37%

28%

(1)

Source: CAODC

 

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 because the majority of the Company's rig fleet are high-demand pad drilling rigs.

The decline in utilization in Canada for AKITA was mainly attributable to more rigs shutting down over break-up in the second quarter of 2018 compared to the same period in 2017. In the US, AKITA's third rig was moved late in the second quarter which negatively impacted utilization as the rig did not operate. Excluding the third rig that was moving, US utilization was 75%.

Revenue and Operating & Maintenance Expenses


Three Months Ended June 30

Six Months Ended June 30

$Millions

2018

2017

Change

% Change

2018

2017

Change

% Change

Total drilling revenue

17.3

18.0

(0.7)<

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