CALGARY, April 30, 2013 /CNW/ - AKITA Drilling Ltd.'s net earnings for the three months ended March 31, 2013 were $12,495,000 ($0.70 per share) on revenue of $60,761,000 compared to $13,904,000 ($0.77 per share) on revenue of $68,177,000 for the corresponding period in 2012. Funds flow from operations for the quarter ended March 31, 2013 was $19,985,000 compared to $20,366,000 in the corresponding quarter in 2012. Commencing with this quarterly report, the Company is reporting its financial results pursuant to a new accounting standard under International Financial Reporting Standards ("IFRS"), IFRS 11, whereby assets, liabilities, revenues and expenses of joint ventures are required to be reported on an equity accounting basis. This adoption, which had no effect on net income, has resulted in a reduction of revenue amounts that would have been reported if the Company were allowed to continue to report using the proportionate consolidation basis.
During the three months ended March 31, 2013, weaker market conditions for conventional doubles and triples affected financial results through lower drilling activity. The impact of lower conventional activity was partially mitigated by higher margins when considered on a "per operating day" basis and as a result of increased pad drilling.
The Company continues to maintain a strong financial position highlighted by its working capital of $41,892,000 coupled with an unused loan facility for $75,000,000. AKITA's strong financial position gives it the flexibility to meet changing customer needs and take advantage of investment opportunities as they arise.
Future prospects for AKITA Drilling Ltd. remain generally positive. Most of the Company's 16 pad rigs are expected to drill through the break-up period and beyond. The remaining pad rigs and most of the conventional rigs in the Company's fleet should re-commence drilling operations once road bans are removed. Nevertheless, management anticipates lower demand for shallow rigs that are located in gas prone regions until the winter drilling season. In addition to the anticipated demand for AKITA's existing rigs, the Company is bidding on the construction of several new custom rigs to meet specialized long-term customer needs.
Selected information from AKITA Drilling Ltd.'s Management's Discussion and Analysis for the Quarterly Report is as follows:
Basis of Analysis in this MD&A, Non-Standard and Additional GAAP Items
Effective January 1, 2013, the Company adopted a new accounting standard under International Financial Reporting Standards ("IFRS"), IFRS 11 "Joint Arrangements", in relation to reporting its joint venture activities. 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.
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
| $Million | ||||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Revenue per Interim Financial Statements(1) | 60.8 | 68.2 | (7.4) | (11%) | ||||||||||||
| Proportionate Share of Revenue from Joint Ventures(2) | 13.2 | 10.9 | 2.3 | 21% | ||||||||||||
| Adjusted Revenue(2) | 74.0 | 79.1 | (5.1) | (6%) |
| $Million | ||||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Operating & Maintenance Expenses per Interim Financial Statements(1) | 37.4 | 42.7 | (5.3) | (12%) | ||||||||||||
| Proportionate Share of Operating & Maintenance Expenses from Joint Ventures(2) | 7.7 | 6.8 | 0.9 | 13% | ||||||||||||
| Adjusted Operating & Maintenance Expenses (2) | 45.1 | 49.5 | (4.4) | (9%) |
| $Million | ||||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Adjusted Revenue(2) | 74.0 | 79.1 | (5.1) | (6%) | ||||||||||||
| Adjusted Operating & Maintenance Expenses(2) | 45.1 | 49.5 | (4.4) | (9%) | ||||||||||||
| Adjusted Operating Margin(2)(3) | 28.9 | 29.6 | (0.7) | (2%) |
| $Dollars | |||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | |||||||||||
| Adjusted Revenue per Operating Day(2) | 34,558 | 31,523 | 3,036 | 10% | |||||||||||
| Adjusted Operating & Maintenance Expenses per Operating Day(2) | 21,071 | 19,731 | 1,340 | 7% | |||||||||||
| Adjusted Operating Margin per Operating Day(2)(3) | 13,487 | 11,791 | 1,695 | 14% |
| (1) | Revenue, operating & maintenance expenses and adjusted operating margin
include the Company's rig construction for third parties. AKITA does not disclose its operating margin on rig construction activity separately for competitive reasons. |
| (2) | 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". |
| (3) | Adjusted operating margin is the difference between adjusted revenue and
adjusted operating & maintenance expenses. |
During the first quarter of 2013, adjusted revenue decreased to $74,024,000 from $79,059,000 during the first quarter of 2012 as a result of weakening market conditions for conventional double and triple sized rigs, and was partially offset by an increase in AKITA's pad drilling activity as well as an increase in the overall size of the Company's rig fleet.
Although adjusted revenue for the quarter decreased, adjusted revenue per operating day increased to $34,558 during the first quarter of 2013 from $31,523 in the first quarter of 2012 due to an increasing proportion of the Company's revenue being generated by its pad drilling rigs. These rigs, compared to conventional drilling rigs, typically generate higher revenues on a per day basis.
Adjusted operating and maintenance costs are tied to revenue and amounted to $45,135,000 ($21,071 per operating day) during the first quarter of 2013 compared to $49,486,000 ($19,731 per operating day) in the same period of the prior year.
The operating margin for the Company decreased to $28,889,000 in the first quarter of 2013 from $29,573,000 during the corresponding quarter of 2012. This reduction amounted to a 2% decline compared to a 6% reduction in adjusted revenue. The lower decline in operating margin compared to adjusted revenue was the result of a higher proportion of AKITA's drilling activities having been derived from pad rigs during the current quarter compared to the corresponding period in 2012. Pad rigs typically achieve higher activity levels, revenues per day, operating costs per day and operating margins per day than conventional rigs.
From time to time, the Company requires customers to make pre-payments prior to the provision of drilling services. At March 31, 2013, these prepayments totalled $482,000 (March 31, 2012 - $Nil).
Depreciation Expense
| $Million | ||||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Depreciation Expense | 7.5 | 7.3 | 0.2 | 3% |
The depreciation expense increase to $7,467,000 during the first quarter of 2013 from $7,266,000 in the corresponding period in 2012 was largely attributable to an increase in the average cost base for AKITA's rigs which more than offset the decline in drilling activity. In the first quarter of 2013, drilling rig depreciation accounted for 97% of total depreciation expense (Q1, 2012 - 97%).
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.
Selling and Administrative Expense
| $Million | ||||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Selling & Administrative Expense per Interim Financial Statements | 4.7 | 4.8 | (0.1) | (2%) | ||||||||||||
| Proportionate Share of Selling & Administrative Expense from Joint Ventures(1) | 0.1 | 0.2 | (0.1) | (50%) | ||||||||||||
| Adjusted Selling & Administrative Expense(1) | 4.8 | 5.0 | (0.2) | (4%) |
| (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". |
Adjusted selling and administrative expenses were 6.5% of adjusted revenue in the first quarter of 2013 compared to 6.3% of adjusted revenue in the first quarter of 2012, largely as a result of decreased adjusted revenue in 2013. The single largest component was salaries and benefits, which accounted for 58% of these expenses (60% in Q1, 2012).
Other Income
| $Million | ||||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Interest Income | 0.1 | 0.1 | (0.0) | N/A | ||||||||||||
| Gain on sale of joint venture rigs and other assets | 0.0 | 1.2 | (1.2) | N/A | ||||||||||||
| Total Other Income | 0.1 | 1.3 | (1.2) | (92%) |
The Company invests any cash balances in excess of its ongoing operating requirements in bank guaranteed highly liquid investments. Interest income decreased to $88,000 in the first three months of 2013 from $103,000 in the corresponding period as a result of reduced cash and short term deposit balances. The Company has 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.
During the first quarter of 2012, the Company disposed of its interests in its remaining two arctic drilling camps and other non-core assets resulting in a $1,156,000 gain. The Company did not have any significant disposals during the first three months of 2013.
Equity Income from Joint Ventures
| $Million | ||||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Proportionate Share of Revenue from Joint Ventures(1) | 13.2 | 10.9 | 2.3 | 21% | ||||||||||||
| Proportionate Share of Operating & Maintenance Expenses from Joint Ventures(1) | 7.7 | 6.8 | 0.9 | 13% | ||||||||||||
| Proportionate Share of Selling & Administrative Expense from Joint Ventures(1) | 0.1 | 0.2 | (0.1) | (50%) | ||||||||||||
| Equity Income from Joint Ventures | 5.4 | 3.9 | 1.5 | 38% |
| (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.
Income Tax Expense
| $Million | ||||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Current Tax Expense | 4.3 | 4.5 | (0.2) | (4%) | ||||||||||||
| Deferred Tax Expense | (0.1) | 0.2 | (0.3) | (150%) | ||||||||||||
| Total Income Tax Expense | 4.2 | 4.7 | (0.5) | (11%) |
Total income tax expense decreased to $4,208,000 in the first quarter of 2013 from $4,720,000 in the corresponding period in 2012 due to lower pre-tax earnings. Recent capital additions have affected the portion of income taxes that are deferred to future dates.
Net Income, Funds Flow and Net Cash From Operating Activities
| $Million | ||||||||||||||||
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Net Income | 12.5 | 13.9 | (1.4) | (10%) | ||||||||||||
| Funds Flow From Operations(1) | 20.0 | 20.4 | (0.4) | (2%) |
| (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". |
Net income attributable to shareholders decreased to $12,495,000 or $0.70 per Class A Non-Voting and Class B Common Share (basic and diluted) for the first quarter of 2013 from $13,904,000 or $0.77 per share (basic and diluted) in the first quarter of 2012. Funds flow from operations decreased to $19,985,000 in the first quarter of 2013 from $20,366,000 in the corresponding quarter in 2012. Lower net income and funds flow from operations that occurred in 2013 were directly attributable to lower activity levels and were partially offset by higher operating margins per operating day versus the first quarter of 2012.
Fleet and Rig Utilization
AKITA had 39 drilling rigs, including nine that operated under joint ventures, (35.875 net to AKITA) at the end of the first quarter of 2013 compared to 38 rigs (35.075 net) in the corresponding period of 2012.
| Three Months Ended March 31 | 2013 | 2012 | Change | % Change | ||||||||||||
| Operating Days | 2,142 | 2,508 | (366) | (15%) | ||||||||||||
| Utilization Rate | 61.0% | 72.5% | (11.5%) | (16%) |
Liquidity and Capital Resources
Cash used for capital expenditures totalled $6,044,000 in the first quarter of 2013 (2012 - $12,688,000). The most significant expenditure related to ongoing construction of a new pad rig. This rig is expected to begin operating later this year under a multi-year contract. Additional capital related to routine capital expenditures.
At March 31, 2013, AKITA's balance sheet included working capital (current assets minus current liabilities) of $41,892,000 compared to working capital of $44,717,000 at March 31, 2012 and working capital of $31,214,000 at December 31, 2012. The seasonal nature of AKITA's business typically results in higher non-cash working capital balances at the end of the first quarter than at year-end due to the high seasonal activity levels encountered in the first quarter. Non-cash working capital amounted to $33,462,000 at March 31, 2013 compared to $20,211,000 at December 31, 2012.
The Company had eleven rigs under multi-year contracts at March 31, 2013. Of these contracts, five are anticipated to expire in 2013, four in 2014, one in 2016 and one in 2018.
During 2011, the Company guaranteed bank loans made to joint venture partners totalling $2,700,000 for a period of four years. The Company has provided an assignment of monies on deposit totalling $3,000,000 with respect to these loans. These funds have been classified as "restricted cash" on the Statement of Financial Position. The Company's security from its partners for these guarantees includes interests in specific rig assets.
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 News Release 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 | March 31 | March 31 | December 31 | January 1 | ||||||||||||||
| $ Thousands | 2013 | 2012 | 2012 | 2012 | ||||||||||||||
| Assets | ||||||||||||||||||
| Current Assets | ||||||||||||||||||
| Cash and cash equivalents | $ | 8,430 | $ | 6,727 | $ | 11,003 | $ | 14,553 | ||||||||||
| Term deposits | - | 7,500 | - | 9,500 | ||||||||||||||
| Accounts receivable | 52,495 | 57,097 | 60,004 | 45,427 | ||||||||||||||
| Income taxes recoverable | - | - | 4,487 | - | ||||||||||||||
| Prepaid expenses and other | 939 | 1,010 | 159 | 413 | ||||||||||||||
| 61,864 | 72,334 | 75,653 | 69,893 | |||||||||||||||
| Non-current Assets | ||||||||||||||||||
| Restricted cash | 3,000 | 3,000 | 3,000 | 3,000 | ||||||||||||||
| Other long term assets | 311 | 190 | 320 | 200 | ||||||||||||||
| Investment property | 594 | 619 | 601 | 626 | ||||||||||||||
| Investment in joint ventures | 7,115 | 7,118 | 4,825 | 5,672 | ||||||||||||||
| Property, plant and equipment | 203,562 | 172,251 | 204,969 | 166,812 | ||||||||||||||
| Total Assets | $ | 276,446 | $ | 255,512 | $ | 289,368 | $ | 246,203 | ||||||||||
| Liabilities | ||||||||||||||||||
| Current Liabilities | ||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 17,073 | $ | 24,018 | $ | 43,089 | $ | 26,623 | ||||||||||
| Deferred revenue | 482 | - | 95 | 146 | ||||||||||||||
| Dividends payable | 1,439 | 1,261 | 1,255 | 1,262 | ||||||||||||||
| Income taxes payable | 978 | 2,338 | - | 3,269 | ||||||||||||||
| 19,972 | 27,617 | 44,439 | 31,300 | |||||||||||||||
| Non-current Liabilities | ||||||||||||||||||
| Deferred revenue | 36 | - | - | - | ||||||||||||||
| Deferred income taxes | 18,760 | 12,331 | 18,886 | 12,151 | ||||||||||||||
| Pension liability | 2,436 | 2,080 | 2,348 | 1,982 | ||||||||||||||
| Total Liabilities | 41,204 | 42,028 | 65,673 | 45,433 | ||||||||||||||
| Shareholders' Equity | ||||||||||||||||||
| Class A and Class B shares | 23,611 | 23,308 | 23,186 | 23,308 | ||||||||||||||
| Contributed surplus | 3,126 | 2,829 | 3,060 | 2,758 | ||||||||||||||
| Accumulated other comprehensive income | (21) | - | (21) | - | ||||||||||||||
| Retained earnings | 208,526 | 187,347 | 197,470 | 174,704 | ||||||||||||||
| Total Equity | 235,242 | 213,484 | 223,695 | 200,770 | ||||||||||||||
| Total Liabilities and Equity | $ | 276,446 | $ | 255,512 | $ | 289,368 | $ | 246,203 | ||||||||||
| AKITA Drilling Ltd. | ||||||||
| Interim Consolidated Statements of Net Income and Comprehensive Income | ||||||||
| Unaudited | Three Months Ended March 31 | |||||||
| $ Thousands except per share amounts | 2013 | 2012 | ||||||
| Revenue | $ | 60,761 | $ | 68,177 | ||||
| Costs and expenses | ||||||||
| Operating and maintenance | 37,444 | 42,726 | ||||||
| Depreciation and amortization | 7,467 | 7,266 | ||||||
| Selling and administrative | 4,659 | 4,809 | ||||||
| Total costs and expenses | 49,570 | 54,801 | ||||||
| Revenue less costs and expenses | 11,191 | 13,376 | ||||||
| Equity income from joint ventures | 5,428 | 3,978 | ||||||
| Other income (losses) | ||||||||
| Interest income | 88 | 103 | ||||||
| Interest expense | (27) | (1) | ||||||
| Gain on sale of joint venture interests in rigs and other assets | 9 | 1,156 | ||||||
| Net other gains | 14 | 12 | ||||||
| Total other income | 84 | 1,270 | ||||||
| Income before income taxes | 16,703 | 18,624 | ||||||
| Income taxes | 4,208 | 4,720 | ||||||
| Net income and comprehensive income for the period | ||||||||
| attributable to shareholders | $ | 12,495 | $ | 13,904 | ||||
| Earnings per Class A and Class B Share | ||||||||
| Basic | $ | 0.70 | $ | 0.77 | ||||
| Diluted | $ | 0.70 | $ | 0.77 | ||||
| AKITA Drilling Ltd. | ||||||||||
| Interim Consolidated Statements of Cash Flows | ||||||||||
| Unaudited | Three Months Ended March 31 | |||||||||
| $ Thousands | 2013 | 2012 | ||||||||
| Operating Activities | ||||||||||
| Net income and comprehensive income | $ | 12,495 | $ | 13,904 | ||||||
| Non-cash items included in net income and comprehensive income: | ||||||||||
| Depreciation and amortization | 7,467 | 7,266 | ||||||||
| Deferred income taxes | (126) | 180 | ||||||||
| Expense for defined benefit pension plan | 92 | 102 | ||||||||
| Stock options charged to expense | 66 | 71 | ||||||||
| Gain on sale of joint venture interests in rigs and other assets | (9) | (1,157) | ||||||||
| Funds flow from operations | 19,985 | 20,366 | ||||||||
| Change in non-cash working capital: | ||||||||||
| Accounts receivable | 7,509 | (11,708) | ||||||||
| Prepaid expenses and other | (780) | (597) | ||||||||
| Income tax recoverable | 4,487 | - | ||||||||
| Accounts payable and accrued liabilities | (20,814) | 2,141 | ||||||||
| Deferred revenue | 387 | (146) | ||||||||
| (9,211) | (10,310) | |||||||||
| 10,774 | 10,056 | |||||||||
| Equity income from joint ventures | (5,428) | (3,978) | ||||||||
| Change in long term deferred revenue | 36 | - | ||||||||
| Pension benefits paid | (4) | (4) | ||||||||
| Interest paid | - | (1) | ||||||||
| Income tax expense - current | 4,333 | 4,540 | ||||||||
| Income tax paid | (3,355) | (5,471) | ||||||||
| Net cash from operating activities | 6,356 | 5,142 | ||||||||
| Investing Activities | ||||||||||
| Capital expenditures | (6,044) | (12,688) | ||||||||
| Change in non-cash working capital related to capital | (5,018) | (4,708) | ||||||||
| Net distributions to joint ventures | 3,138 | 2,532 | ||||||||
| Change in term deposits | - | 2,000 | ||||||||
| Proceeds on sale of joint venture interests in rigs and other assets | 9 | 1,157 | ||||||||
| Net cash used in investing activities | (7,915) | (11,707) | ||||||||
| Financing Activities | ||||||||||
| Dividends paid | (1,439) | (1,261) | ||||||||
| Proceeds received on exercise of stock options | 425 | - | ||||||||
| Net cash used in financing activities | (1,014) | (1,261) | ||||||||
| Decrease in cash and cash equivalents | (2,573) | (7,826) | ||||||||
| Cash and cash equivalents, beginning of period | 11,003 | 14,553 | ||||||||
| Cash and Cash Equivalents, End of Period | $ | 8,430 | $ | 6,727 | ||||||
SOURCE: AKITA Drilling Ltd.
Murray Roth
Vice President, Finance and Chief Financial Officer
(403) 292-7950