AKITA Drilling Ltd. releases year-end results
CALGARY, March 7, 2018 – AKITA Drilling Ltd.’s net loss for the year ended December 31, 2017 was $39,177,000 (net loss of $2.18 per share (basic and diluted)) on revenue of $71,198,000 compared to net income of $5,329,000 or $0.30 earnings per share (basic and diluted) on revenue of $61,061,000 in 2016. Included in the 2017 net loss is an asset decommissioning and impairment expense of $29,123,000 (after tax effect of $15,320,000 or $0.85 per share). 2016 results included significant contract cancellation revenue of $28,250,000 ($20,609,000 after tax). Net loss from routine operations in 2017 totalled $23,857,000 (2016 – $15,280,000). Funds flow from operations for the current year was $6,607,000 compared to $34,500,000 ($13,891,000 net of contract cancellation revenue) in 2016, while net cash from operating activities for 2017 was $3,724,000 compared to $11,892,000 in 2016.
The Canadian drilling industry saw significant activity improvements in 2017 with utilization improving to an annual industry average of 30% from 17% in 2016. AKITA’s utilization rose to 36% in 2017 from 14% in 2016. This improvement in activity was driven by higher prices for crude oil which steadily increased throughout 2017. The increase in activity was spread across several rig categories for the Company, with pad triples, pad doubles, conventional doubles and conventional singles all more than doubling their operating days in 2017 compared to 2016. Triple pad rigs were the most active category for the Company generating 65% of the Company’s operating days. These rigs are primarily focussed in the SAGD/Heavy Oil segments of the Canadian market.
Despite the significant escalation in drilling activity in 2017 over 2016, there is still more supply than demand for rigs which is resulting in low pricing for drilling services. The Company’s revenue per operating day decreased to $26,704 in 2017 from $31,447 in 2016. This 15% drop had a significant impact on the Company’s earnings as well as funds flow from operations. The decrease in revenue per day for the Company was a result of a change in the mix of rigs that operated in the year. Without a significant shift in demand for rigs or a reduction in the Canadian rig fleet, AKITA does not anticipate any significant price increases in the near future.
On November 21, 2017, the Canadian Association of Oilwell Drilling Contractors (“CAODC”) released its 2018 industry drilling forecast, estimating 32% average rig utilization up slightly from the 30% actual average rig utilization in 2017, and 6,138 wells in 2018, up from 6,031 in 2017. The 2018 forecast was based upon commodity price assumptions of US $52.50 per barrel for crude oil and CAD $2.35 per mcf for natural gas. Based on the CAODC forecast it would appear that 2018 will be very similar to 2017. Without improvements to the existing takeaway capacity in Canada, the Canadian market may see limited growth.
AKITA began looking for growth opportunities in other geographical markets in 2017 due to the low activity and low profit margins prevailing in the Canadian market. After evaluating several potential alternatives, the Company created a United States subsidiary to pursue opportunities in the most active basin in North America, the Permian Basin. In December of 2017 the Company moved a state of the art rig into Odessa Texasand began marketing the rig to operators in the area. This rig has subsequently been contracted to a major USA operator. AKITA’s expansion into the USA presents an exciting opportunity for the Company, with significant growth potential.
Selected information from AKITA Drilling Ltd.’s Management’s Discussion and Analysis for the Annual Report is as follows:
Fleet and Utilization
Oil and gas contract drilling activity is cyclical and is affected by numerous factors, most importantly world crude oil prices and North American natural gas prices. Overall demand for AKITA’s drilling services improved in 2017 compared to 2016.
Driving the increase in activity was the steady increase in oil prices through 2017, with the average West Texas Intermediate (“WTI”) price increasing 18% in 2017 compared to 2016. Average Alberta natural gas prices also improved 6% in 2017 over 2016. Improved prices for both crude oil and natural gas led to increased capital spending by AKITA’s customers, many of whom had scaled back their drilling programs in 2016.
At the same time both industry and AKITA utilization levels increased in 2017, the Western Canadian Sedimentary Basin (“WCSB”) rig count continued to decline, dropping 6% in 2017 compared to 2016. The decrease in rig count contributed to the improvement in industry utilization; increased activity was the prime driver of the utilization increase. AKITA’s drilling fleet of 27 rigs in Canada represented 4.5% of the total Canadian drilling fleet at December 31, 2017 (December 31, 2016 – 4.2%).
Utilization rates are a key statistic for the drilling industry since they directly affect total revenue and influence pricing. During 2017, AKITA achieved 3,659 operating days, which corresponds to an annual utilization rate of 36%, compared to 2016 utilization of 14% (1,583 days), and a 2017 industry average of 30%. Historically AKITA’s utilization has been above industry standard due to the higher than average number of pad rigs in AKITA’s fleet. Pad rigs typically have higher utilization than conventional rigs as pad drilling is a more efficient way to drill multiple wells without needing trucks to move.
In 2017, the Company built and deployed an AC heavy double pad rig that commenced operations in the third quarter of 2017. AKITA also decommissioned one conventional triple rig during the year.
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