Akita's Acquisition of Xtreme Results in Improved Performance in the First Quarter of 2019

Source Quarterly Report
Company Akita Drilling LtdXtreme Drilling Corp. 
Tags Corporate Deals, Deals, Oil Services
Date May 01, 2019

AKITA's September 11, 2018 acquisition of US based Xtreme Drilling Corp. ("Xtreme") and the strategy to integrate the two companies into one premium pure play drilling company with operations in Canada and the US is proving to be successful.  The realization of corporate synergies is on track to meet targets.  Post-acquisition, AKITA commands a total fleet of 40 rigs, comprised of 17 rigs in its US fleet and 23 rigs in its Canadian fleet.

AKITA announced that adjusted funds flow from operations for the quarter ended March 31, 2019increased 73% to $7,828,000 compared to $4,519,000 in the corresponding quarter of 2018.  AKITA's improved results in the first quarter of 2019, when compared to the same period in 2018, are directly attributable to the Company's acquisition of Xtreme in the fall of 2018, increasing its US fleet from just 2 rigs in Q1 of 2018 to 17 rigs in Q1 of 2019. During the first quarter of 2019 AKITA achieved 1,140 operating days in the US. In Canada, however, results were much weaker than in the prior year as operating days dropped by 47% to 604 days in 2019 compared to 1,133 in 2018. These results translated to a consolidated net loss for the three months ended March 31, 2019 of $1,470,000 (or $0.04 per share) compared to a net loss of $1,912,000 (or $0.11 per share) for the corresponding period in 2018.

Karl Ruud, AKITA's President and Chief Executive Officer stated: "During the quarter, AKITA continued executing its plan to optimize performance, through cost control, operational excellence and continued dedication to safety, across its recently expanded US operational division and existing Canadian operations."

United States Drilling Division

AKITA's 1,140 operating days in the US equated to utilization of 74% in the first quarter of 2019 compared to 43 operating days and 23% utilization in the same period of 2018. The delta between the US results in 2019 compared to 2018 is attributable to the aforementioned Xtreme acquisition. In the first quarter of 2019, 16 of AKITA's 17 US based rigs operated compared to only two rigs operating in 2018 in the same quarter. Revenue from AKITA's US division increased to $34,500,000 in the first quarter of 2019 from $1,150,000 in the same period of 2018. With oil prices increasing from the dramatic decrease in the fourth quarter of 2018, AKITA is optimistic about its investment in its US operations. In 2019, the focus for the Company in the US will be on consolidation of operations into higher demand basins, cost rationalization, improving margins and exploring additional opportunities.

United States Drilling Division Results

For the three months ended March 31,   2019  2018 
$ Thousands (CAD) except per day amounts     
Revenue  34,500  1,150 
Operating and maintenance expense  21,232  1,686 
Operating income  13,268  (536) 
Margin %  38%  (47%) 
     
Operating days  1,140  43 
     
Revenue per operating day(1)  30,263  26,744 
Operating and maintenance per operating day(1)  18,625  39,209 
     
Utilization (2)  75%  24% 
     
Rig count  17 
 
(1)See "Non-GAAP Items".  
(2)Utilization in the US is a weighted average for the year based on the
number of days each rig was physically in the US and owned by the Company. 

Canadian Drilling Division

In Canada, results were much weaker than in the prior year as utilization decreased to 29% (604 operating days) in the first quarter of 2019 from 48% (1,133 operating days) in the first quarter of 2018. Revenue in the Canadian division decreased to $18,706,000 in the first quarter of 2019 from $33,322,000 in the first quarter of 2018. Regulated production cuts, pipeline access and political and regulatory uncertainty are all weighing heavily on the Canadian energy industry, which in turn is affecting drilling activity. Activity levels in Canada declined sharply in the fourth quarter of 2018 and this has persisted into the first quarter of 2019.  AKITA does not anticipate a change to this low demand environment without an improvement in the factors mentioned above.

Canadian Drilling Division Results

For the three months ended March 31,  2019  2018 
$Thousands except per day amounts     
Revenue(1)  18,706  33,322 
Operating and maintenance expense(1)  12,778  23,964 
Operating income  5,928  9,358 
Margin %  32%  28% 
     
Operating days  604  1,133 
     
Revenue per operating day(1)(2)  30,970  29,410 
Operating and maintenance per operating day(1)(2)  21,156  21,151 
     
Utilization  29%  48% 
     
Rig count  23  26 
(1) Includes AKITA's share of Joint Venture revenue and expenses. See  "Non-GAAP Items" 
 
(2)See "Non-GAAP Items" 

Corporate

On May 1st, 2019 AKITA declared a second quarter dividend for 2019 of eight and one half cents ($0.085) per Class A Non-Voting and ClassB Common Shares.

CONSOLIDATED FINANCIAL HIGHLIGHTS

($ thousands except per share amounts)     
For the three months ended March 31,   2019  2018 
Adjusted revenue(1)  53,206  34,472 
Adjusted operating and maintenance expenses (1)  34,010  25,650 
Operating income  19,196  8,822 
Margin %  36%  26% 
     
EBITDA(2)  9,121  4,437 
Per share  0.23  0.25 
     
Adjusted funds flow from operations(2)  7,828  4,519 
Per share  0.20  0.25 
     
Net loss  (1,470)  (1,912) 
Per share  (0.04)  (0.11) 
     
Capital expenditures  1,023  1,685 
Dividend declared  3,367  1,525 
Weighted average shares outstanding  39,608  17,946 
     
Total assets  407,448  207,911 
(1)Includes AKITA's share of Joint Venture revenue and expenses. See "Non-GAAP Items".  
(2)See "Non-GAAP Items".  

CONSOLIDATED OPERATIONAL HIGHLIGHTS

For the three months ended March 31,   2019  2018 
Operating days(1)     
  Canada  604  1,133 
  United States  1,140  43 
     
Revenue per operating day(1)     
  Canada(2)   30,970  29,410 
  United States  30,263  26,744 
     
Operating and maintenance expense per operating day(1)     
  Canada(2)  21,156  21,151 
  United States  18,625  39,209 
   
Utilization (1)     
  Canada  29%  48% 
  United States(3)  75%  24% 
   
(1)See "Non-GAAP Items".  
(2)Includes AKITA's share of Joint Venture revenue and expenses. See "Non-GAAP Items".  
(3)Utilization in the US is a weighted average for the year based on the number of days each rig was physically
in the US and owned by the Company. 

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd