AKITA Drilling Ltd. Announces Year-to-Date Earnings and Cash Flow
CALGARY, Nov. 5, 2018 – AKITA Drilling Ltd.’s net loss for the three months ended September 30, 2018 was $5,459,000 (net loss of $0.24 per share basic and diluted) on revenue of $22,465,000 compared to a net loss of $3,811,000 (net loss of $0.21 per share basic and diluted) on revenue of $14,908,000 for the corresponding period of 2017. Funds flow from operations decreased to a loss of $638,000 in the third quarter of 2018 from $1,472,000 in the corresponding period of 2017.
AKITA incurred a net loss of $10,329,000 for the nine months ended September 30, 2018 ($0.53 per share basic and diluted) on revenue of $66,847,000 compared to net loss of $13,277,000 ($0.74 per share basic and diluted) on revenue of $52,807,000 in the comparative period in 2017. Funds flow from operations for the January to September period of 2018 was $5,519,000 compared to $6,549,000 for the same period in 2017.
On September 11, 2018, AKITA’s completed the acquisition of United States based Xtreme Drilling Corp. (“Xtreme”), and the strategy to integrate the two companies into one premium pure play drilling company with balanced operations in Canada and the United States was initiated. While significant progress in the corporate integration has already been achieved, the integration process remains ongoing as Management strives to unlock additional cost saving synergies and to implement further operating efficiencies. As of September 30, 2018, AKITA commands a total fleet of 40 rigs, comprised of a 17 rig United States fleet and a 23 rig Western Canadian fleet.
In Canada, AKITA achieved 483 operating days or 25% utilization over Q3 2018, a significant drop from 810 operating days or 32% utilization over the same period in 2017. Notwithstanding a significant improvement in West Texas Intermediate oil pricing (“WTI”), up to an average of $70.23 USD/bbl for September 2018 as compared to $49.82 USD/bbl for September 2017, demand for drilling rigs in Canada was severely curtailed with natural gas prices for Q3 of 2018 compared to Q3 of 2017 and by the material differential in pricing between WTI and Western Canadian Select oil (the “Differential”). The Differential averaged $29.86 USD/bbl for September 2018 compared to $9.89 USD/bbl for September 2017. Utilization levels remained flat when compared to the third quarter of 2017 and day rates remained largely unchanged, resulting in a continuation of a low margin environment affecting both funds flow from operations and net earnings.
Although sustained low margins in the Canadian drilling industry resulted in a further reduction of 35 rigs in the Western Canadian rig fleet, resulting in a total fleet size of 602 rigs compared to 637 rigs in the year prior, the existing fleet is still more than capable of meeting current industry drilling demands. Accordingly, higher utilization rates are needed across Western Canada to influence day rate pricing in a meaningful way.
In the United States, the drilling industry is stronger and more active than in Western Canada. As at September 30, 2018, AKITA was operating 15 rigs out of its 17 rig United States fleet, equal to an 88% utilization level. AKITA will evaluate further opportunities to add to the four rigs deployed to the United States Permian market from Canada in 2018 should suitable opportunities allow. In addition, AKITA has rebranded the Xtreme fleet of high specification late model AC triples to the AKITA name, which has a long history of operating top quality drilling services, and further integrated the United States fleet.
Selected information from AKITA Drilling Ltd.’s Management Discussion and Analysis from the Quarterly Report as follows:
Introduction and General Overview
During the third quarter of 2018, the Company closed on the acquisition of Xtreme Drilling Corp.(“Xtreme”). Xtreme is a United States based drilling company with 13 high specification triple drilling rigs operating in several US basins. With the acquisition of Xtreme, AKITA’s United States fleet now includes 17 drilling rigs giving the Company a well-balanced fleet between Canada (23 drilling rigs) and the United States. The closing date of the Xtreme acquisition was September 11, 2018, and results in this MD&A include 19 days of Xtreme’s operations. The focus of this MD&A is on AKITA’s financial results for the three and nine months ended September 30, 2018.
Activity levels in the contract drilling industry are highly correlated to the market prices of crude oil and natural gas. Average West Texas Intermediate (“WTI”) crude oil prices for the third quarter of 2018 were 45% higher than in the same period of 2017 and 32% higher on a year-to-date basis when comparing the nine months ended September 30, 2018, to the corresponding period in 2017. Increasing crude oil prices have not impacted activity in the Canadian industry.
Limited access to markets for Canadian oil is the cause of the essentially stagnant activity in the Canadian market. Canadian oil is deeply discounted compared to WTI prices which is causing Canadian producers to delay capital spending in Canada or shift capital spending to other international markets if available.
AKITA had 40 drilling rigs at September 30, 2018, including five that operated under joint ventures (38.75 net to AKITA), compared to 28 rigs as at September 30, 2017. During the third quarter of 2018, a fourth rig was moved from Canada to the United States leaving 23 rigs in Canada. Also during the quarter, AKITA acquired Xtreme, adding 13 drilling rigs to AKITA’s United States fleet bringing the total up to 17.
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