CALGARY, May 5, 2020 /CNW/ - AKITA Drilling Ltd. (TSX: AKT.A)
AKITA Drilling Ltd. ("the Company") announces results for the first quarter ended March 31, 2020. Revenue of $53,572,000 in the first quarter of 2020, was consistent with the first quarter of 2019 ($52,342,000). Adjusted EBITDA increased by 28% to $11,646,000 in the first quarter of 2020 compared to $9,121,000 in the same period of 2019. With the late first quarter collapse in oil prices and the uncertainty in future oil prices, however, the Company evaluated the carrying value of its cash generating units ("CGU") for asset impairment and concluded an asset impairment of both the US and Canadian CGU's was required. The net loss for the quarter increased to $52,257,000 ($1.32 per share basic and diluted) in the first quarter of 2020 from $1,470,000 ($0.04 per share basic and diluted) in the same quarter of 2019 as a result of the Company recording an asset impairment expense of $60,000,000 (2019 – nil). Excluding the asset impairment expense and related tax adjustment, the Company's net earnings for the first quarter of 2020 were $371,000.
In March 2020, the World Health Organization declared a global pandemic related to COVID-19. To date, the COVID-19 related economic slowdown has resulted in significant declines and volatility in the stock markets as well as steep reductions in both global oil demand and prices. In this environment of reduced demand, Saudi Arabia and Russia instigated an oil price war by flooding the market with cheap oil; a tactic that placed further pressure on oil prices. There remains significant uncertainty surrounding the future impact of COVID-19 on demand and prices for the Company's drilling services. The health and safety of the Company's employees has always been a key focus of the Company and in light of COVID-19, additional health and safety measures, in line with government recommendations, have been implemented in both the field and offices to ensure our employees and our customers remain healthy and safe.
With heightened uncertainty in these unprecedented times, it is very difficult to predict demand or pricing in both the near and long term for the drilling industry. The Company has taken aggressive steps to mitigate uncertainty, however, by implementing significant cost cutting measures, in both Canada and the US. These measures include reducing corporate overhead through a reduction in staffing levels, in addition to wage reductions from 5% to 50%, and working with our vendors to reduce and minimize expenses. These measures will help the Company through the challenging times ahead. In addition to its internal cost cutting measures, the Company is progressing well with negotiating its financial covenants with its bank for relief for the next six quarters to ensure the Company has access to the liquidity it may require.
CONSOLIDATED FINANCIAL HIGHLIGHTS
($ thousands except per share amounts)
For the three months ended March 31,
Operating and maintenance expenses
Net cash from (used in) operating activities
Adjusted funds flow from operations(1)
Weighted average shares outstanding
CONSOLIDATED OPERATIONAL HIGHLIGHTS
For the three months ended March 31,
Revenue per operating day(1)
Operating and maintenance per operating day(1)
Includes AKITA's share of Joint Venture revenue and expenses.
United States Drilling Division
Activity in the US totaled 1,108 operating days in in the first quarter of 2020 compared to 1,140 in the same period of 2019. Although the Company achieved similar operating days in the quarter, the US segment was impacted by the fall in oil prices in the first quarter of 2020. Several rigs operating in the first quarter shut down drilling operations as prices fell leaving seven rigs running at the end of April 2020, down from 11 rigs at the end of March 2020 (a 36% reduction). The total active rig count in the US dropped 43% from 728 rigs at the end of March 2020 to 408 active rigs at the end of April 2020. The Company recorded $1.6 million in contract cancelation fees in the first quarter as a result of these shutdowns which increased the revenue per day to $35,996 in the first quarter of 2020 from $30,263 in the first quarter of 2019. This increase in revenue in the US was offset by increased operating costs in the quarter. Operating and maintenance expenses per day rose to $28,013 in the first quarter of 2020 from $18,625 in the first quarter of 2019. This 50% increase in direct costs per day was attributable to move and startup costs incurred at the beginning of the quarter to relocate rigs to the Permian basin and commence operations. At March 31, 2020, the Company had seven drilling rigs with multi-year contracts representing approximately 2,000 days. Of these contracts, three are due to expire in 2020 and four in 2021.
Canadian Drilling Division
Activity in Canada remained constant between the first quarter of 2020 and the first quarter of 2019 with 613 days in the first quarter of 2020 and 604 operating days in the first quarter of 2019. The sharp decline in oil prices late in the first quarter of 2020 impacted the demand for drilling services in Canada. Rigs shut down earlier than forecasted as a result, leaving four rigs running for the Company at the end of March 2020, which has decreased further to one rig at the end of April 2020. In the industry the total active rig count in Canada has dropped 41% from 41 rigs at the end of March 2020 to 24 active rigs at the end of April 2020. Revenue per day was consistent between the first quarter of 2020 and the first quarter of 2019 but operating costs did increase. Operating and maintenance costs increased to $23,002 in the first quarter of 2020 from $21,156 in the first quarter of 2019 due to the mix of rigs that the Company operated in the quarter.
This news release shall be used as preparation for reading the full disclosure documents. AKITA's unaudited interim condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2020 will be available on the AKITA website (www.akita-drilling.com) or via SEDAR (www.sedar.com) or can be requested in print from the Company.
This news release references Non-GAAP (Generally Accepted Accounting Principles) items. Revenue per operating day, operating and maintenance expense per operating day, Adjusted EBITDA and adjusted funds flow from operations are all considered Non-GAAP items. Management feels that these Non-GAAP items are useful in assessing the Company's performance. These terms do not have standardized meanings prescribed under International Financial Reporting Standards (IFRS) and may not be comparable to similar measures used by other companies. For further information, see "Basis of Analysis in this MD&A and Non-GAAP Items" in AKITA's 2020 first quarter Management's Discussion & Analysis
Certain statements contained in this news release may constitute forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "will", "intend", "should", and similar expressions.
Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information.
The Company's actual results could differ materially from those anticipated in this forward-looking information as a result of regulatory decisions, competitive factors in the industries in which the Company operates, prevailing economic conditions, and other factors, many of which are beyond the control of the Company.
The Company believes that the expectations reflected in the forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking information should not be unduly relied upon.
Any forward-looking information contained in this news release represents the Company's expectations as of the date hereof, and is subject to change after such date. The Company disclaims any intention or obligation to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required by applicable securities legislation.
SOURCE AKITA Drilling Ltd.