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2023
ANNUAL REPORT
2
AKITA DRILLING | 2023 Annual Report CORPORATE
PROFILE
AKITA Drilling Ltd. is a premier oil and gas drilling contractor with
drilling operations throughout North America. The Company
strives to be the industry leader in safety, equipment quality,
drilling performance, employee and customer relations, and
First Nations, Métis and Inuit partnerships. In addition to
conventional drilling, the Company specializes in pad and other
purpose-built drilling rigs and is active in directional, horizontal
and underbalanced drilling providing specialized drilling
services to a broad range of independent and multinational oil
and gas companies. AKITA currently employs, at full operations,
approximately 1,000 people. The Company has ownership in 35
drilling rigs in all depth ranges.
Annual Meeting
The annual meeting (the “Meeting”) of the shareholders
of AKITA DRILLING LTD. (the “Company”) will be held in
a virtual only format via live webcast on Tuesday, May 14,
2024 at 10:00 a.m. Mountain Daylight Time. Details on
how to access the Meeting can be found in the Company’s
Management Proxy Circular.
11
AKITA DRILLING | 2023 Annual Report FORWARD-LOOKING STATEMENTS
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 industry and risk management discussions.
In particular, forward-looking information in this MD&A includes, but is not limited to, references to the outlook for the North American
economy and the drilling industry (including the demand for drilling services, customer exploration and development budgets and drilling
programs, day rates, active rig count, supply issues and labour shortages), the demand for oil and natural gas, crude oil and natural gas
prices, the Company's SAGD drilling activity, the Company's existing credit facility, the Company's operating performance and cash flows,
future investment, debt repayment, tax rates, the Company's capital program, advantages associated with the percentage of pad drilling
rigs in the Company's Canadian fleet, and the expansion of the Company's presence in the Montney deep gas basin and its role in drilling
potash and in achieving energy transition targets, and the upgrading of one of the Company’s oil sands rigs for deep gas drilling.
Although the Company believes that the expectations reflected in the forward-looking information are reasonable based on the information
available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of
future performance and no assurance can be given that these expectations will prove to be correct. By their nature, these forward-looking
statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and therefore carry the risk that
the predictions and other forward-looking statements will not be realized. Readers of this MD&A 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.
The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of, among
other things:
• Prevailing economic conditions
including world crude
oil prices, North American natural gas prices and global
liquified natural gas (LNG) demand;
•
Increased competition,
including as a result of the
movement of drilling rigs among regions or reduced levels
of activity in the oil and gas industry;
• Fluctuations and uncertainty surrounding the future price of
• Energy transition targets and industry’s ability to achieve
commodities;
them;
• The impact of global supply chain disruptions;
• The loss of one or more major customers;
• The impact of the level of industry activity for Canadian and
US crude oil and natural gas exploration and development
on the demand, pricing and terms for contract drilling
services;
• The impact of changes in demand for crude oil, natural gas
or other liquid hydrocarbons on the demand and pricing for
drilling services;
• Changes to existing laws, regulations and government
policies, and the introduction of new laws and regulations,
including those governing the management, transportation
and disposal of hazardous substances and other waste
materials and otherwise relating to the protection of the
environment;
• The impact of climate change activism;
• The level of exploration and development activity carried on
• Access to capital markets including AKITA’s ability to obtain
by AKITA’s customers;
additional debt or equity financing;
2
AKITA DRILLING | 2023 Annual Report FORWARD-LOOKING STATEMENTS
CONTENTS
CONTENTS
1
4
Corporate Profile
Operational Performance
6
Share Performance
10
8
Letter to the
Shareowners
34
Management's
Discussion and Analysis
Management's
Responsibility for
Financial Reporting
36
42
Independent Auditor's
Report
Consolidated Financial
Statements
74
10 Year Financial Review
46
Notes to the
Consolidated Financial
Statements
77
Corporate Information
3
• Variations in interest rates and principal repayments
under the terms of the Company's credit facility;
• The Company's ability to make scheduled payments
of principal and interest on, or to refinance, its
indebtedness;
• The sufficiency of AKITA's assets
to repay
indebtedness under its credit facility in the event
repayment were to be accelerated following an
event of default;
• The
impact of dilutive financings or other
transactions;
• Fluctuations in foreign exchange, interest and tax
rates;
• The adequacy of AKITA's insurance coverage or
contractual indemnity rights to cover losses, and
the applicability of anti-indemnification legislation;
• The Company's ability to attract, develop and
maintain a skilled and safe workforce and maintain
a cost structure that varies with activity levels;
• The availability of qualified management personnel;
• A general reduction in rates in the drilling industry
caused by a capital overbuild.
We caution that the foregoing list of factors is not exhaustive
and that while relying on forward-looking statements
to make decisions with respect to AKITA, 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 where required by law,
the Company does not undertake to update any forward-
looking statement, whether written or oral, that may be
made from time to time by it or on its behalf.
Additional information about these and other factors
can be found under the “Business Risks and Risk
Management” section of the Management’s Discussion
and Analysis of this 2023 Annual Report for AKITA.
AKITA DRILLING | 2023 Annual Report OPERATIONAL
PERFORMANCE
Revenue ($000's)
Net Earnings (Loss) ($000's)
250,000
200,000
150,000
100,000
50,000
0
40,000
20,000
0
(20,000)
(40,000)
(60,000)
(80,000)
(100,000)
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
Funds Flow from Continuing Operations ($000's)
Capital Expenditures ($000's)
30,000
25,000
20,000
15,000
10,000
5,000
0
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
4
AKITA DRILLING | 2023 Annual ReportOPERATIONAL PERFORMANCE RESPECT
COMMITMENT
FOUNDATIONAL
VALUES
INTEGRITY
At AKITA - integrity, respect
and commitment are
the foundational values
and guiding principles
engrained into every aspect
of our operations.
5
AKITA DRILLING | 2023 Annual Report SHARE
PERFORMANCE
The graph below compares the cumulative return over the last five years on the Class A Non-Voting shares and Class B
Common shares of the Company from December 31, 2023 with the cumulative total return of the S&P/TSX Composite
Stock Index and the TSX Energy Services Sub-Index over the same period, assuming reinvestment of dividends.
Five Year Total Return on $100 Investment
200
150
100
50
0
2018
2019
2020
2021
2022
2023
Dec 31,
2018
Dec 31,
2019
Dec 31,
2020
Dec 31,
2021
Dec 31,
2022
Dec 31,
2023
AKITA Class A
Non-Voting Shares
AKITA Class B
Common Shares
S&P/TSX
Composite Index
TSX Equal Weight
Oil & Gas
100
100
100
100
31
36
119
111
13
46
122
76
25
56
148
121
45
59
135
154
36
43
146
152
6
AKITA DRILLING | 2023 Annual ReportSHARE PERFORMANCE SHARE PERFORMANCE
Share Performance
Weighted average number of Class A and
Class B shares
39,609,191
30,608,191
39,608,191
39,622,805
39,658,520
Total number of Class A and Class B shares
39,608,191
39,608,191
39,608,191
39,650,191
39,710,191
Market prices for Class A Non-Voting shares
High $ 4.42 $ 1.22 $ 1.54 $ 2.96 $ 1.74
2019
2020
2021
2022
2023
Low $ 0.75 $ 0.25 $ 0.50 $ 0.89 $ 1.08
Close $ 1.19
$ 0.48 $ 0.94 $ 1.73 $ 2.05
Volume
8,875,748
21,339,080
7,239,647
20,529,992
12,340,380
Market prices for Class B Common shares
High $ 4.48 $ 2.89 $ 3.00 $ 4.98 $ 2.45
Low $ 1.25 $ 0.67 $ 0.98 $ 1.50 $ 1.35
Close $ 1.57 $ 0.77 $ 2.46 $ 2.60 $ 1.87
Volume
53,746
45,986
14,172
19,530
4,854
Dividend History
AKITA began paying dividends to shareholders in 1996. In July of 2019, AKITA suspended its dividend program in light of the current
economic environment.
Dividends per share ($)
2019
0.17
2020
0.00
2021
0.00
2022
0.00
2023
0.00
7
AKITA DRILLING | 2023 Annual Report Linda
Southern-Heathcott
Colin
Dease
While 2023 marked the 30th year of AKITA operating as a
falling from 1,486 DUCS at the end of 2021, to 982 at the
public entity after being spun off from ATCO Enterprises Ltd. on
end of 2022 and to 830 at the end of 2023. A decreasing
January 1, 1993, AKITA can trace its roots back even further
DUC count may be a positive leading indicator for increased
to 1964 when it formed part of Thomson Industries Ltd. AKITA
demand for drilling. The second positive in the Permian is the
has navigated through many changes in the industry over the
investment in takeaway capacity for natural gas out of the
last 60 years but one thing has held true at AKITA, it has always
Permian to the gulf coast to feed the expanding demand of the
committed to live up to the core principles of its founder, Mr.
LNG export terminals, including the Permian Highway Pipeline,
R.D. Southern, in setting and maintaining high standards,
the expansion of the Whistler Pipeline and the Matterhorn
striving for excellence and always conducting business with
Express Pipeline, which will all help to export gas out of the
integrity.
Permian, thereby increasing potential drilling. Recent operator
consolidation and the current pause on new LNG export
We had a strong start to 2023 in our US division, with 14 rigs
facilities, however, are two factors potentailly weighing on the
running steadily at materially higher day rates then we have
US market.
seen in several years in the US. Strong US rates and utilization
helped the Company generate significant earnings and free
In Canada, the Company saw an 11% reduction in operating
cash flow in the first half of the year. By the third quarter,
days in 2023, however, due to stronger day rates that
however, the active rig count in the US began to steadily
decline as natural gas prices significantly decreased and
crude oil prices remained volatile. The active rig count dropped
from 779 rigs at the start of 2023 to 622 rigs at the end of
the year. This weakening in the US market caught up with the
Company in the second half of the year, where AKITA’s activity
decreased to end the year with nine active rigs. The decrease
in activity put pressure on day rates which also decreased over
the second half of the year.
There are some signs that the second half of 2024 will improve
increased over the course of the year, saw a 16% increase
in operating margin. The Company is excited about optimism
in the Canadian market stemming from the near completion
of the TransMountain Expansion and the Coastal GasLink
pipeline project.
The Canadian Association of Energy Contractors released
its 2024 Drilling and Service Rig Forecast on November 24,
2023, estimating 6,229 wells to be drilled in 2024, up 481
from 2023, and drilling operating days to increase by 5,046
days in 2024 to 65,399. This should have a positive impact
in the US, especially in the Permian Basin where AKITA’s rigs
on AKITA’s Canadian division and we are anticipating stronger
are located. The drilled but uncompleted well count (“DUCS”)
results in 2024 in our Canadian operations.
has steadily declined in the Permian over the last two years,
8
AKITA DRILLING | 2023 Annual ReportLETTER TO THE SHAREOWNERS LETTER TO THE
SHAREOWNERS
Colin
Dease
AKITA had three primary focuses in 2023:
Safety - AKITA maintains a commitment to safety that
permeates all levels of the organization. Our focus on safety
We would like to express a special thanks to AKITA’s
employees for their adaptability, hard work and commitment
to excellence. We wish to acknowledge the contribution of our
in the year resulted in AKITA’s total recordable incident rate
directors, whose thoughtful counsel and guidance have helped
(“TRIR”) for 2023 decreasing 116% in Canada and 35% in the
to create and maintain a strong and successful Company, our
United States. A refresh of AKITA’s safety program complete
First Nation, Métis and Inuvialuit partners, and the AKITA
with new management and a back to basics approach to
Shareowners for their continued support and confidence in
safety were the contributing factors for this improvement. We
the Company.
will continue to make safety our first priority at AKITA, working
to continue to improve our results year over year.
On behalf of the Board of Directors,
Debt Repayment – our 2023 debt repayment target was
$20,000,000 and we are very pleased to have exceeded this
target by 20%, repaying $24,000,000 exceeded over the year
and ending the year with a total debt balance of $70,000,000,
1.2 x debt to EBITDA at the end of 2023, compared to a total
Linda Southern-Heathcott
debt balance of $94,000,000 at the start of 2023.
Executive Chairman of the Board
Capital Replenishment – after several lean years at the
Company, we reinvested in our fleet in 2023, building up
critical spares, rebuilding engines and implemented a host
of other initiatives that will improve operational performance,
reduce downtime and reduce ongoing maintenance costs. In
addition to this capital replenishment, we upgraded one of our
Canadian oil sands configured rigs, making it well suited for
oil sands as well as deep gas drilling. We see the Montney
gas basin as a growth opportunity for the Company and we
are excited about the possibility of duplicating the success we
achieved on our first oil sands rig with additional upgrades.
Colin Dease
President and Chief Executive Officer
March 21, 2024
9
AKITA DRILLING | 2023 Annual ReportLETTER TO THE SHAREOWNERS
MANAGEMENT’S
DISCUSSION & ANALYSIS
The following management’s discussion and analysis (“MD&A”) of the financial condition and results of operations is
intended to help the reader understand the current and prospective financial position and operating results of AKITA
Drilling Ltd. (“AKITA” or the “Company”). The MD&A discusses the operating and financial results for the year ended
December 31, 2023, is dated March 21, 2024, and takes into consideration information available up to that date. The
MD&A is based on the audited annual consolidated financial statements of AKITA for the year ended December 31,
2023. The MD&A should be read in conjunction with the audited annual consolidated financial statements and related
notes for the year ended December 31, 2023, prepared in accordance with International Financial Reporting Standards
("IFRS Accounting Standards") as issued by the International Accounting Standards Board ("IASB").
Additional information is available on AKITA’s website (www.AKITA-Drilling.com) and all previous public filings, including
the most recently filed Annual Report and Annual Information Form, are available through SEDAR+ (www.sedarplus.ca).
All amounts are denominated in Canadian dollars (“CAD”) and stated in thousands unless otherwise identified.
Introduction
AKITA is a premier Canadian oil and gas drilling contractor with a fleet of 35 drilling rigs. AKITA provides contract drilling services
through two geographical segments: Canada and the United States (“US”). AKITA’s US operating segment, which began as four rigs,
expanded to 16 rigs through the acquisition of Xtreme Drilling Ltd. (“Xtreme”) in 2018. At the time of the acquisition, Xtreme’s fleet
was widely dispersed, with rigs spread across eight different States and multiple basins. A post-acquisition focus was to consolidate
the US fleet to improve operational efficiencies. In support of this objective, AKITA strategically exited operations in Wyoming, North
Dakota, Oklahoma, Utah and Ohio. In 2023, AKITA completed its objective to consolidate its US division to the Permian, by closing
its operational office in Evans, Colorado. AKITA’s US marketed fleet is supported out of its operations base in Midland, Texas and is
comprised of 13 high specification AC triple rigs and one high specification AC double rig, all serving the Permian Basin, which is the
most active basin in the US and is currently supporting 50% of all US land drilling. While the US fleet primarily targets oil wells in the
Permian, saltwater disposal wells are a secondary market that our fleet has proven to be well equipped for.
With a fleet of 20 rigs, AKITA’s Canadian division operates in Alberta, British Columbia, Saskatchewan, and as market conditions
dictate, in the Yukon and the Northwest Territories. The Canadian division operates both wholly-owned rigs and rigs that are partially
owned by AKITA and First Nations, Métis or Inuvialuit joint venture partners including Akita Mistiyapew Aski Drilling Ltd., a joint venture
between AKITA and Saulteau First Nations, Akita Equtak Drilling Ltd., a joint venture between AKITA and the Inuvialuit Development
Corporation, and Akita Wood Buffalo Drilling Ltd., a joint venture between AKITA and Chipewyan Prairie First Nation, Fort McMurray
468 First Nation, Fort McKay Métis Nation, Fort Chipewyan Métis Local 125, and Conklin Métis Local 193. Each joint venture has
defined geographical boundaries and an equity interest in select AKITA rigs. Together AKITA’s First Nation, Métis and Inuit joint venture
10
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS partners hold equity interests in six of AKITA’s Canadian drilling rigs. AKITA’s Canadian division primarily operates in the oil sands and
heavy oil regions with a view to expanding its presence in the Montney deep gas basin. In addition, the Canadian division continues
to play a central role in drilling potash and other energy transition targets, including carbon capture wells, hydrogen storage wells and
geothermal wells.
In both Canada and the US, AKITA strives to ensure it is well positioned to meet the demanding requirements of global operators while
remaining flexible enough to tailor its services to custom operator requests. Fostered over three decades of operation, AKITA has
established a leading safety culture and is committed to coaching and mentoring its crew personnel in both divisions to ensure they
develop as future leaders and ambassadors for the Company. AKITA is extremely proud of the First Nation, Métis and Inuvialuit joint
venture relationships it has forged in Canada, which help to ensure such communities benefit from resource development AKITA is
involved in proximate to their traditional lands.
Financial Highlights
$Thousands except per share amounts
2023
2022
Change % Change
2023
2022
Change % Change
For the three months ended
December 31,
For the year ended December 31,
Revenue
47,317
59,525
(12,208)
(21%) 225,479 200,996
24,483
Operating and maintenance expenses
38,228
40,666
(2,438)
(6%) 167,029 151,884
15,145
Operating margin
Margin %
9,089
18,859
(9,770)
(52%)
58,450
49,112
9,338
19%
32%
(13%)
(41%)
26%
24%
2%
Net cash from operating activities
17,523
8,035
9,488
118% 35,567
18,198
17,369
Adjusted funds flow from operations (1)
7,177
16,144
(8,967)
(56%)
45,522
34,813
10,709
Per share
Net income (loss)
Per share
Capital expenditures
0.18
0.41
(0.23)
(56%)
1.15
0.88
0.27
(1,166)
8,813
(9,979)
(113%)
18,415
4,288
14,127
(0.03)
0.22
(0.25)
(114%)
0.46
0.11
12,822
4,917
7,905
161%
24,592
17,982
0.35
6,610
Weighted average shares outstanding
39,684
39,650
34
0% 39,659
39,623
36
Total assets
Total debt
263,640 268,281
(4,641)
69,542
93,514
(23,972)
12%
10%
19%
8%
95%
31%
31%
329%
318%
37%
0%
(2%)
(26%)
(1) See “Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
General Overview
AKITA ended the year with net earnings of $18,415,000 in 2023, compared to $4,288,000 in 2022, an increase of 329% year over
year and a return to a positive retained earnings balance. Significantly improved earnings translated into a 31% increase in adjusted
funds flow from operations, which increased to $45,522,000 for 2023, from $34,813,000 in 2022. Both net income and adjusted
funds flow from operations were the highest achieved since 2014. Despite improved financial results, activity was down year over year
with the Canadian division achieving 2,239 operating days in 2023, compared to 2,518 operating days in 2022 and the US division
achieving 3,853 operating days in 2023, compared to 4,088 operating days in 2022. In the US, 2023 started at full capacity but began
to decline over the second half of the year while Canada fell behind 2022 in the second quarter and remained behind for the balance
of the year. Improved operating margins per day, driven by improved day rates, were the key driver in the Company’s improved results
between the two years. Operating margin per operating day increased 30% in Canada and 31% in the US. Capital spending for the
year was 37% higher in 2023 than in 2022, and included the cost of upgrading one Canadian oil sands configured rig to position it for
deep gas drilling. The Company’s debt balance decreased by $23,972,000 in 2023, exceeding the Company’s debt repayment target
of $20,000,000 for 2023, and is now at $69,542,000 total debt
11
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS Industry Overview
WTI Prices ($USD/bbl) (1)
Alberta Natural Gas Price ($CAD/GJ) (2)
2023
2022
2021
130.00
110.00
90.00
70.00
50.00
30.00
10.00
JAN
FEB MAR
APR MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
JAN
FEB MAR
APR MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
Industry Utilization Canada (3)
US Active Rig Count (4)
60%
50%
40%
30%
20%
10%
0%
900
800
700
600
500
400
300
200
JAN
FEB MAR
APR MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB MAR
APR MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
1) Source: U.S. Energy Information Administration
2) Source: Natural Gas Exchange ("NGX")
3) Source: Canadian Association of Energy Contractors ("CAOEC")
4) Source: Baker Hughes North American Rotary Rig Count
Oil and gas drilling activity is cyclical and is affected by numerous factors, most importantly world crude oil prices, North American
natural gas prices and increasingly international LNG (liquified natural gas) pricing. West Texas Intermediate (“WTI”) crude oil prices,
which have seen significant volatility in 2023, reached a low of $70.25 USD in June and a high of $89.43 USD in September, ending
the year at $71.90 USD. This volatility had an impact on the demand for drilling services especially in the US. Natural gas prices did
not have as much volatility in 2023 compared to crude oil prices but did decline significantly throughout the year, falling from $4.90 at
the start of the year to $2.30 at the end of the year, which also had a significant impact on the demand for drilling services in the US.
In the US, the total active rig count began to decline at the end of 2022, and this decline accelerated in April of 2023, dropping from
779 active rigs at the end of 2022, to 622 active rigs at the end of 2023. The decline in 157 active rigs in 2023 was spread equally
between rigs drilling for oil and rigs drilling for gas and the roughly 80% of rigs drilling for oil and 20% of rigs drilling for gas. This ratio
was maintained from the start of the year to the end of the year. In the Permian Basin, AKITA’s US operating basin, the total decrease
in the year was 44 active rigs, a 12% decrease, compared to a 20% decrease in the US active rig count as a whole. The number of
available drilling rigs in the US market has put downward pressure on pricing for drilling rigs that may continue until the rig count begins
to recover.
In Canada, the recovery in the industry that appeared to begin in 2021, failed to materialize in any significant manner. Both pricing
and demand in the Canadian market, despite strong potential, remain challenged. Industry utilization, which started the year trending
above 2022, ended the year slightly below 2022. Similar to the United States, operators began to pause drilling programs as crude oil
and natural gas prices fell and activity levels have not yet fully recovered. The split between rigs drilling for oil and those drilling for gas
has remained constant through the year at 62% drilling for oil and 37% drilling for gas in Canada.
12
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS Results by Segment
Canada
For the three months ended December 31,
For the year ended December 31,
$Thousands except per day amounts
2023
2022
Change % Change
2023
2022
Change % Change
Revenue Canada
11,768
14,686
(2,918)
(20%)
56,005
55,279
726
Revenue from joint venture
drilling rigs
7,672
6,546
1,126
17%
35,662
25,958
9,704
Flow through charges (1)
(860)
(712)
(148)
(21%)
(5,986)
(3,800)
(2,186)
Adjusted revenue Canada (1)
18,580
20,520
(1,940)
(9%)
85,681
77,437
8,244
1%
37%
(58%)
11%
Operating and maintenance
expenses Canada
Operating and maintenance
expenses from joint venture
drilling rigs
Flow through charges (1)
Adjusted operating and
maintenance
expenses Canada (1)
8,935
10,806
(1,871)
(17%)
41,556
41,799
(243)
(1%)
6,129
4,470
1,659
37%
27,144
19,635
7,509
38%
(860)
(712)
(148)
(21%)
(5,986)
(3,800)
(2,186)
(58%)
14,204
14,564
(360)
(2%)
62,714
57,634
5,080
9%
Adjusted operating margin (1)
4,376
5,956
(1,580)
22,967
19,803
3,164
24%
465
29%
583
(5%)
(118)
27%
2,239
26%
2,518
(27%)
(17%)
(20%)
16%
4%
1%
(279)
(11%)
Margin % (1)
Operating days
Adjusted revenue per operating
day (1)
Adjusted operating and
maintenance expenses per
operating day (1)
Adjusted operating margin per
operating day (1)
Utilization (1)
Rig count
39,957
35,197
4,760
14%
38,268
30,753
7,515
24%
30,546
24,981
5,565
22%
28,010
22,889
5,121
22%
9,411
10,216
(805)
(8%)
10,258
7,864
2,394
30%
25%
20
32%
20
(7%)
(22%)
-
0%
31%
20
34%
20
(3%)
-
(9%)
0%
(1) See “Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
Results in Canada improved in 2023, with adjusted operating margin increasing 16% to $22,967,000 in the year from $19,803,000
in 2022. This increase was driven by improved day rates throughout the fleet which increased 24% in 2023 when compared to 2022.
Improved day rates were offset somewhat by reduced activity in 2023 compared to 2022. Operating days fell by 11% in the year due
to prolonged forest fires and conservation activities, which reduced second quarter activity and led to fewer operating days for AKITA’s
double rigs. During 2023, AKITA achieved 2,239 operating days in Canada, which corresponds to an annual utilization rate of 31%,
compared to a 2023 industry average of 36% and a 2022 utilization rate for the Company of 34% (2,518 days).
Adjusted operating and maintenance expenses increased 9% to $62,714,000 in 2023 from $57,634,000 in 2022. The increase
was not in-line with the 11% decrease in operating days but was reflective of increased per day costs. On a per day basis, adjusted
operating and maintenance costs increased to $28,010 in 2023 from $22,889 in 2022. Higher labour costs, which make up 68% of
the total operating and maintenance expense in 2023, were the main cause of the increase. Also contributing to higher operating and
maintenance costs in 2023 were higher maintenance costs in the year overall due to startup costs on two rigs.
In the fourth quarter of 2023, the Company completed the upgrade of one of its oil sands designed rigs, making it competitive in both
the oil sands as well as drilling for deep gas.
13
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS AKITA’s Canadian segment provided drilling services to 15 different customers in 2023 (2022 - 27 different customers), including four
customers that each provided more than 10% of AKITA’s Canadian revenue for the year (2022 – five customers).
United States
$Thousands except per day amounts
2023
2022
Change % Change
2023
2022
Change % Change
For the three months ended December 31,
For the year ended December 31,
Revenue US
Flow through charges (1)
Adjusted revenue US (1)
Operating and maintenance
expenses US
Flow through charges (1)
Adjusted operating and
maintenance
expenses US (1)
35,549
44,839
(9,290)
(21%)
169,474
145,717
23,757
(4,183)
(5,383)
1,200
22%
(17,610)
(14,919)
(2,691)
31,366
39,456
(8,090)
(21%)
151,864
130,798
21,066
16%
(18%)
16%
29,293
29,861
(568)
(2%)
125,473
110,086
15,387
14%
(4,183)
(5,383)
1,200
22%
(17,610)
(14,919)
(2,691)
(18%)
25,110
24,478
632
3%
107,863
95,167
12,696
13%
Adjusted operating margin US (1)
6,256
14,978
(8,722)
20%
812
38%
(18%)
1,046 (234)
(58%)
(47%)
(22%)
44,001
35,631
8,370
29%
3,853
27%
4,088
2%
(235)
38,628
37,721
907
2%
39,414
31,996
7,418
23%
7%
(6%)
23%
Margin % (1)
Operating days
Adjusted revenue per operating
day (1)
Adjusted operating and
maintenance expenses per
operating day (1)
Adjusted operating margin per
operating day (1)
Utilization (1)
Rig count
30,924
23,402
7,522
32%
27,995
23,280
4,715
20%
7,704
14,319
(6,615)
(46%)
11,419
8,716
2,703
31%
59%
15
71%
16
(12%)
(1)
(17%)
(6%)
70%
15
70%
16
0%
(1)
0%
(6%)
(1) See “Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
The Company’s US division began the year operating at full utilization with all 14 marketed rigs active, until August when the declining
rig count in the industry began to affect the Company, dropping AKITA’s US rig count to 10 active rigs in September before hitting a low
of eight active rigs in October, and ending the year with nine active rigs. Adjusted operating margin increased 23% to $44,001,000
in 2023, from $35,631,000 in 2022 despite a 6% decrease in year over year operating days. Higher revenue per operating day was
the cause of the increased adjusted operating margin. Revenue per day increased 23% to $39,414 in 2023, from $31,996 in 2022,
peaking at $40,499 in the second quarter of 2023 and ending the year at $38,628, 2% above the same period of 2022. Pressure
on day rates as the active industry rig count fell was the cause of the decrease in rates. Revenue in the US accounted for 64% of the
Company’s total 2023 adjusted revenue, consistent with 63% in 2022. Adjusted operating margin in the US was 65% of the total for
the Company in 2023, up from 64% in 2022.
Adjusted operating and maintenance costs increased to $107,863,000 in 2023 from $95,167,000 in 2022, due to higher per day
costs, which increased to $27,995 in 2023 from $23,280 in 2022 and peaked in the fourth quarter of 2023 at $30,924. The cause
of the increased adjusted operating and maintenance costs is an overall increase in all costs associated with operating a drilling rig.
This includes the provision of more ancillary items, such as rental drill pipe at the Company’s expense, as competition increased in
response to the reduced active industry rig count. Adjusted operating and maintenance costs were positively impacted by the receipt
of a $4.0 million Employee Retention Credit (“ERC”) from the IRS (2020–$20 million). The ERC is a COVID-19 related credit, granted to
employers that retained a certain number of employees while experiencing significant decreases in revenue during the pandemic. This
amount reduced the total operating costs in the year.
In the US, AKITA provided drilling services to 25 different customers in 2023 (2022 – 27 customers), including two customers that
provided more than 10% of AKITA’s US revenue for the year (2022 – two customers).
14
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS Seasonality
The Canadian drilling industry is seasonal with activity typically building in the fall as the ground freezes and peaking during the winter
months. Northern transportation routes become available once areas with muskeg conditions freeze to allow the movement of drilling
rigs and other heavy equipment. The peak Canadian drilling season ends with “spring break-up” at which time drilling operations are
curtailed due to seasonal road bans (temporary prohibitions on road use) and restricted access to agricultural land as frozen ground
thaws. The summer drilling season begins when road bans are lifted, typically later in June or early July. Some areas are subject to
environmental orders for specific well leases which can prevent drilling activity during certain periods when authorities prioritize wildlife
or habitat protections. Such restrictions may affect activity levels and operating results. While seasonality can affect all rig classes,
pad drilling rigs are generally less susceptible to seasonality than conventional drilling rigs since pad rigs can be situated on a pad
just before the start of spring break up with the ability to drill several wells before a rig move on restricted roads would be necessary.
The Permian Basin, where AKITA primarily conducts its US drilling operations, is infrequently subject to weather constraints, but may
experience operational restrictions for other reasons.
Depreciation and Amortization Expense
$Millions
Depreciation and amortization expense
2023
28.5
2022
30.3
Change
% Change
(1.8)
(6%)
The decrease in depreciation and amortization expense to $28,510,000 in 2023 from $30,263,000 in 2022 is due to a larger portion
of the Company’s assets being fully depreciated.
AKITA depreciates its drilling rig assets on a straight-line basis where the estimated useful lives and residual values of various rig
components have been chosen to match the expected life of that component. In 2023, drilling rig depreciation accounted for 98% of
total depreciation expense, from 97% in 2022.
While AKITA conducts some 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 by the joint ventures themselves. As the joint ventures do not hold any property, plant,
or equipment assets directly, the Company’s depreciation expense includes depreciation on assets involved in both wholly-owned and
joint venture activities.
Selling and Administrative Expenses
$Millions
Selling and administrative expenses
2023
16.1
2022
14.5
Change
% Change
1.6
11%
Selling and administrative expenses increased to $16,120,000 in 2023 from $14,541,000 in 2022 due to higher accrued short term
incentives and increased salaries across the Company.
Selling and administrative expenses stayed constant at 7% of revenue year over year. The single largest component of selling and
administrative expenses is salaries and benefits which accounted for 33% of these expenses in 2023 (2022 – 42%).
Asset Impairment
The Company did not identify any changes in the indicators of asset impairment or any new indicators of asset impairment during
2023. Therefore, no further assessment on asset impairment was performed as there have been no changes in circumstances that
indicate that the carrying amount of property, plant and equipment does not exceed its recoverable amount as at December 31, 2023.
15
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS Equity Income from Joint Ventures
Equity income from joint ventures is comprised of the following:
$Millions
Proportionate share of revenue from joint ventures
Proportionate share of operating & maintenance
expenses from joint ventures
Proportionate share of selling and administrative
expenses from joint ventures
Equity income from joint ventures
2023
35.7
27.1
0.4
8.2
2022
26.0
19.6
0.4
6.0
Change
% Change
9.7
7.5
-
2.2
37%
38%
0%
37%
The Company provides the same drilling services and utilizes the same management, financial and reporting controls for its joint
venture activities as it does for its wholly-owned operations. The analyses of these activities are incorporated throughout the relevant
sections of this MD&A relating to activity, revenue per day, as well as operating expenses. The increase in revenue for the Company’s
proportionate share of joint ventures year-over-year relates to the increased activity in SAGD (steam assisted gravity drainage) drilling
which is the key market for the Company’s joint venture rigs.
Other Income (Loss)
$Millions
Interest income
Interest and financing expense
Gain on sale of assets
Unrealized gain (loss) on risk management contracts
Net other gains
Total other loss
2023
0.3
(6.5)
2.2
0.1
0.4
(3.5)
2022
-
(6.8)
0.1
(0.3)
0.2
(6.8)
Change
% Change
0.3
0.3
2.1
0.4
0.2
3.3
n/a
4%
2100%
133%
100%
49%
The Company recorded interest and financing expense of $6,502,000 for 2023, down from $6,777,000 in 2022. This decrease is due
to a lower average debt balance in 2023 of $80,500,000 compared to $94,759,000 in 2022. This decrease in average debt balances
was offset by an increased interest rate which averaged 7.99% in 2023 up from 7.06% in 2022.
The Company is exposed to changes in interest rates on borrowings under its operating loan facility, which is subject to floating interest
rates. To mitigate this risk the Company entered into an interest rate swap with its principal banker in June of 2022. The term of the
interest rate swap is June 15, 2022 to June 15, 2026 and the notional amount of the swap is $50,000,000. The fixed rate is 4.24%
while the floating rate is indexed to the Canadian Dollar Offered Rate (“CDOR”). At period end the interest rate swap is valued at fair
value with any unrealized gain (loss) recorded as other income (loss) on the consolidated income statement. For the year ended
December 31, 2023 the Company recorded an unrealized gain of $95,000 compared to a loss of $290,000 in 2022.
During 2023, the Company realized a gain of $2,199,000 primarily on the sale of certain components, including the centre section of
an idle rig in the US, as well as spare equipment in Canada (2022–$93,000). Net other gains in 2023 was primarily on the sale of fully
depreciated assets, compared to foreign exchange gains in 2022.
16
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
Income Tax Recovery
$Millions, except income tax rate (%)
2023
2022
Change
% Change
Current tax expense
Deferred tax expense (recovery)
Total income tax expense (recovery)
Effective income tax rate
-
0.1
0.1
23.7%
-
(0.7)
(0.7)
23.5%
-
0.8
0.8
n/a
114%
114%
AKITA had an income tax expense of $130,000 in 2023 compared to an income tax recovery of $749,000 in 2022. A net deferred
tax asset has not been recognized for $67 million (2022 – $76 million). This amount is primarily related to non-capital losses carried
forward.
Total gross tax losses available to the Company are $415,652,000 with $379,378,000 in the US and $36,274,000 in Canada. The first
of these losses will begin to expire in 2031.
Net Income (Loss), Net Cash and Adjusted Funds Flow
$Millions
Net income
Net cash from operating activities
Adjusted funds flow from operations (1)
2023
18.4
35.6
45.5
2022
4.3
18.2
34.8
Change
% Change
14.1
17.4
10.7
328%
96%
31%
(1) See "Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
During 2023, the Company recorded net income of $18,415,000 (net income of $0.46 per Class A Non-Voting and Class B Common
share (basic and diluted)) compared to net earnings of $4,288,000 (net earnings of $0.11 per Class A Non-Voting and Class B Common
share (basic and diluted)) in 2022. Higher day rates were the cause of the significant improvement in net income.
Net cash from operating activities increased to $35,567,000 in 2023, up from $18,198,000 in 2022. In the fourth quarter of 2023,
AKITA’s non-cash working capital balances reduced by $11.9 million as activity slowed. This reduction in working capital coupled with
improved earnings in the year increased the net cash from operations in 2023 compared to 2022.
Adjusted funds flow from operations, which is not impacted by changes in non-cash working capital, increased in 2023 to $45,522,000
from $34,813,000 in 2022 due to higher net income and the factors discussed previously.
17
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
Summary of Quarterly Results
The following table shows key selected quarterly financial information for the Company:
$Thousands, except per share (unaudited)
Mar. 31
Jun. 30
Sep. 30
Dec. 31
Annual
Totals
Three Months Ended
Adjusted funds flow from operations (1)
15,159
12,620
10,566
2023
Revenue
Net income (loss)
Income (loss) per share (basic and diluted) ($)
Cash flow from operations
Capital expenditures
2022
Revenue
65,000
58,349
54,813
47,317
225,479
9,523
0.24
6,177
0.16
3,880
0.10
(414)
16,150
2,504
4,700
2,308
4,566
(1,165)
18,415
(0.04)
7,177
17,523
12,822
0.46
45,522
35,567
24,592
44,986
42,960
53,526
59,524
200,996
Net income (loss)
(2,933)
(4,252)
Income (loss) per share (basic and diluted) ($)
(0.07)
(0.11)
Adjusted funds flow from operations (1)
Cash flow from operations
Capital expenditures
4,996
247
6,412
4,716
6,189
3,633
2,660
0.07
8,957
3,727
3,020
8,813
0.22
16,144
8,035
4,917
4,288
0.11
34,813
18,198
17,982
2021
Revenue
Net loss
27,171
18,651
29,906
34,360
110,088
(3,651)
(6,108)
(6,433)
(4,798)
(20,990)
Loss per share (basic and diluted) ($)
Adjusted funds flow from operations (1)
(0.09)
3,719
(0.15)
1,056
(0.16)
252
(0.13)
2,427
(0.53)
7,454
Cash flow from (used in) operations
(5,692)
10,118
(1,560)
(6,327)
(3,461)
Capital expenditures
1,604
3,138
4,130
7,554
16,426
(1) See "Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
Key trends over the past 12 quarters, after giving consideration to the seasonal nature of AKITA’s operations, are as follows:
• The impact of COVID-19 on demand can be seen until the third quarter of 2021, when the US and Canadian drilling markets began
to recover after the pandemic and revenue began to increase;
•
Increased activity in Canada in 2022 can be seen when comparing the second quarter of 2021 to recent quarters;
• The impact of the significant improvement in the profitability of the US operating segment can be seen in the third and fourth
quarters of 2022 and the first quarter of 2023, comparing those quarters to any other;
18
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS • Revenue in the first quarter of 2022 was split relatively equally between Canada and the United States. The majority of revenue
shifted back to the US in the fourth quarter of 2022;
• Decreased demand in the US market for drilling services significantly impacted the Company’s results in the fourth quarter of 2023;
and
• The seasonal nature of the Canadian operations can been seen in the cash from operations balances peaking in the second
quarter of each year.
Three Year Annual Financial Summary
The following table highlights AKITA’s annual financial results for the last three years:
$Thousands, except per share
Revenue
Net income (loss)
Income (loss) per share (basic and diluted)
Adjusted funds flow from operations (1)
Net cash from (used in) operating activities
Year-end working capital
Year-end shareholders' equity
Year-end total assets
2023
225,479
18,415
0.46
45,522
35,567
27,130
155,962
263,640
2022
200,996
4,288
0.11
34,813
18,198
31,121
137,851
268,281
2021
110,088
(20,990)
(0.53)
7,454
(3,461)
6,502
131,485
247,574
(1) See "Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
Liquidity and Capital Resources
At December 31, 2023, AKITA had $27,130,000 in working capital (working capital ratio of 1.85:1) with $11,187,000 of cash,
compared to a working capital of $31,121,000 (working capital ratio of 2.01:1) and $13,311,000 cash for the previous year. In 2023,
AKITA generated $35,567,000 in cash from operating activities. Positive cash was also generated from joint venture distributions
($5,950,000) and from proceeds on sales of assets ($2,788,000). During the same period, cash was used for capital expenditures
of $24,592,000 and debt repayment of $24,000,000. Accounts payable at year-end included $12,276,000 in accrued expenses, the
majority of which relates to routine operations.
The Company has a syndicated credit agreement with the Company’s principal banker as the agent on the syndication and three
other Canadian banks. The operating loan facility totals $110,000,000. The Credit facility expires in September 2025. The interest
rate on the Company’s credit facility ranges from 175 to 300 basis points over prime interest rates depending on the Funded Debt(1)
to EBITDA(1) Ratio. Security for this facility includes all present and after-acquired personal property and a first floating charge over all
other present and after-acquired property including real property. The financial covenants are:
1. The Funded Debt(1) to EBITDA(1) Ratio: the Company shall ensure that the Funded Debt(1) to EBITDA(1) Ratio shall not be more than
3.00:1.00.
The Funded Debt(1) to EBITDA(1) Ratio shall be calculated quarterly on the last day of each Fiscal Quarter on a rolling four quarter basis;
2. The EBITDA(1) to Interest Expense(1) Ratio: the Company shall ensure that the EBITDA(1) to Interest Expense(1) Ratio shall not be less
than 3.00:1.00.
The EBITDA(1) to Interest Expense(1) Ratio shall be calculated quarterly on the last day of each Fiscal Quarter on a rolling four quarter
basis.
(1) See "Non-GAAP and Supplementary Financial Measures" near the end of the MD&A for further detail.
19
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
At December 31, 2023, the Company was in compliance with its covenants with a Funded Debt(1) to EBITDA(1) Ratio of 1.20:1.00, and
an EBITDA(1) to Interest Expense(1) Ratio of 7.73:1.00.
The facility also includes a borrowing base calculation which is the sum of:
(i)
(ii)
75% of Eligible Accounts Receivable(1); plus
50% of net book value of all Eligible Rig Assets(1); less
(iii) Priority Payables(1) of the Loan Parties.
At December 31, 2023, the Company’s borrowing base totalled $94,088,000.
The credit facility includes a $10,000,000 operating line of credit that is classified as current, given the Company expects to settle
the balance within a normal operating cycle. The maturity date aligns with the total credit facility. At December 31, 2023, the current
portion of debt was nil (December 31, 2022 – nil). The balance outstanding under the credit loan facility, net of unamortized loan
fees, is classified as long-term debt as the credit agreement has no required repayment obligations prior to the end of the loan facility
term. The Company borrowed $70,000,000 in total from this facility as at December 31, 2023 (December 31, 2022 - $94,000,000).
The Company's objectives when managing capital are:
• to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders and
benefits for other stakeholders; and
• to augment existing resources to meet further growth opportunities.
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of
dividends paid to shareholders, repurchase shares, issue new shares, sell assets or take on long-term debt.
Property, Plant and Equipment
Capital expenditures totaled $24,592,000 in 2023 ($17,982,000 in 2022). Capital spending in 2023 was as follows: $13,360,000
(2022 - $10,322,000) for certifications and overhauls, $1,380,000 (2022 - $3,206,000) for drill pipe and drill collars, $8,910,000
(2022 - $4,393,000) for drilling rig equipment and upgrades, and $942,000 in other capital assets.
During 2023, the Company sold ancillary assets for $2,788,000 (2022 - $133,000) that resulted in a gain of $2,199,000 (2022 – gain
of $93,000).
Future Outlook and Strategy
The drilling industry is cyclical and certain key factors that impact AKITA’s results are beyond management’s control. Like other drilling
contractors, AKITA is exposed to the effects of fluctuating oil and gas prices and changes in the exploration and development budgets
of its customers. The outlook for the drilling industry in 2024 is somewhat opaque with both oil and natural gas prices being at relative
lows compared to the last three years.
Activity levels in Canada for 2023 were largely in line with 2022 and on par with pre-pandemic activity levels in the first quarter of
2020. This trend in demand for drilling services is expected to continue into 2024, however, there is some optimism in the industry
that 2024 may improve over 2023. The CAOEC released its 2024 Drilling and Service Rig Forecast on November 24, 2023, estimating
6,229 wells to be drilled in 2024, up 481 from 2023 and for drilling operating days to increase by 5,046 days in 2024 to 65,399. The
Trans Mountain Pipe Line is expected to begin operation in mid-2024, which will increase the egress of Canadian crude oil and thereby
demand in the industry. A further positive development in Canada is the anticipated completion of the LNG Canada’s export facility in
(1) See "Non-GAAP and Supplementary Financial Measures" near the end of the MD&A for further detail.
20
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 2025, which in conjunction with the Coastal GasLink is expected to secure additional markets for Canadian natural gas and therefore
improve demand for drilling services. In order to service this growing market in Canada, in 2023 the Company successfully upgraded
one of its oil sands designed rigs to reposition it for deep gas drilling. The Company has additional oil sands designed rigs that can be
upgraded for deep gas should market conditions warrant.
In the US, the active rig count ended 2023 at 622 rigs, down 20% from the 779 rigs at the start of 2023. Market sentiment suggests
current activity levels are likely to persist through the first half of 2024. The current growth trend for large operators in the US is through
mergers and acquisitions as opposed to drilling new wells, which is having a negative effect on the demand for drilling services in
the near term. There are some signs that the second half of 2024 will improve, especially in the Permian Basin where AKITA’s US
rigs are located. The drilled but uncompleted well count (“DUCS”) has steadily declined in the Permian over the last two years, falling
from 1,486 DUCS at the end of 2021, to 982 at the end of 2022 and to 830 at the end of 2023. A decreasing DUC count may be a
positive leading indicator for increased demand for drilling. The second positive in the Permian is the investment in takeaway capacity
for natural gas out of the Permian to the gulf coast to feed the expanding demand of the LNG export terminals, the Permian Highway
Pipeline, the expansion of the Whistler Pipeline and the Matterhorn Express Pipeline, which will all help get gas out of the Permian,
thereby increasing potential drilling.
Although there is the potential for activity in 2024 to increase from the current levels in both Canada and the US, AKITA is taking
a cautious approach to the year and continuing to focus on debt repayment. The intention is to reach a level of debt that is easily
maintainable through the market cycles the industry is experiencing. The Company’s capital plans for 2024 are in line with 2023,
however, there is the potential for additional upgrade capital if the right opportunity warranted it.
Financial Instruments
The Company’s financial assets and liabilities include cash, accounts receivable, accounts payable, accrued liabilities and financial
instruments. Fair values approximate carrying values unless otherwise stated.
The Company is exposed to risks caused by fluctuations in currency exchange rates. US contracts are denominated in US dollars and,
accordingly, a material decrease in the value of the US dollar could negatively impact revenues. The Company does not currently use
hedges to offset this risk.
Management continues to consider the credit risk associated with accounts receivable to be generally low. AKITA has conservative
credit-granting procedures and in certain situations requires customers to make advance payment prior to provision of services or
takes other measures to mitigate credit risk. Provisions have been estimated by management and are included in the accounts to
recognize potential credit losses.
Off Balance Sheet Transactions
AKITA has not entered into any arrangements that involve off balance sheet transactions.
Related Party Transactions
AKITA is affiliated with the ATCO Group of companies and with Spruce Meadows, an equestrian show jumping facility, through its majority
shareholder. All related party transactions in 2023 and 2022 were made in the normal course of business with regular payment
terms and have been recorded at the paid amounts. In 2023, operating purchases totaled $981,000, and included sponsorship and
advertising of $350,000, operational costs of $518,000 and other miscellaneous purchases of $113,000. At December 31, 2023,
the outstanding commitment of the Company’s multi-year sponsorship and advertising contract with Spruce Meadows was $350,000.
Costs incurred related to this contract during 2023 were $350,000 (2022 - $175,000). Costs and related services are consistent with
parties dealing at arm’s length.
The Company is related to its joint ventures. The following table summarizes transactions and annual balances with its joint ventures.
These transactions were made in the normal course of business with regular payment terms and have been recorded at the paid
amounts.
21
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS $Thousands
Operating and maintenance expenses
Selling and administrative expenses
Year-end due to AKITA from joint venture partners
Year-end due to AKITA from joint ventures
Commitments and Contingencies
2023
5,727
581
2,248
3,470
2022
4,613
493
1,801
858
From time to time, the Company enters into drilling contracts with its customers that are for extended periods. At December 31, 2023,
the Company had no drilling rigs with multi-year contracts.
The Company has entered into a two year contract with a related party to provide sponsorship and advertising at an annual cost of
$350,000.
At December 31, 2023, the Company had capital expenditure commitments of $5,109,000 (2022 – $740,000).
Class A Non-Voting and Class B Common Shares
Authorized
An unlimited number of Class A Non-Voting shares
An unlimited number of Class B Common shares
Issued
Class A Non-Voting
Class B Common
Total
$Thousands, except share
amounts
Number of
Shares
Consideration
Number of
Shares
Consideration
Number of
Shares
Consideration
December 31, 2022
37,996,407
144,940
1,653,784
1,366
39,650,191
146,306
Stock options exercised
60,000
42
-
-
60,000
42
December 31, 2023
38,056,407
144,982
1,653,784
1,366
39,710,191
146,348
At March 21, 2024, the Company had 38,080,407 Class A Non-Voting shares and 1,653,784 Class B Common shares outstanding. At
that date, there were also 1,853,500 stock options outstanding, of which 947,000 were exercisable.
Accounting Estimates
The preparation of AKITA’s consolidated financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent liabilities as at the date of the consolidated financial
statements as well as reported amounts for revenue and expenses for the year. Estimates and judgments are continually evaluated
and are based upon historical experience and other factors including expectations of future events that are believed to be reasonable
in the circumstances. Actual outcomes, however, can differ materially from such estimates.
The Company makes assumptions relating to transactions that were incomplete at the Statement of Financial Position date. Depending
on the actual transaction, total assets and liabilities of the Company as well as results of operations, including net income, could be
either understated or overstated as a result of differences between amounts accrued for incomplete transactions and the subsequent
actual balances.
22
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS The preparation of AKITA’s consolidated financial statements requires management to make significant estimates relating to the useful
lives of drilling rigs. Depreciation methods and rates have been selected so as to amortize the net cost of each asset over its expected
useful life to its estimated residual value. The estimated useful lives, residual values and depreciation methods are reviewed at the
end of each annual reporting period.
AKITA’s depreciation estimates do not have any effect on the changes to the financial condition for the Company, as depreciation is a
non-cash item. However, total assets and results of operations, including net income, could be either understated or overstated as a
result of excessively high or low depreciation estimates.
At each reporting date, the Company assesses whether there are indicators of asset impairment. If such indicators exist, the Company
performs an asset impairment test and, if required, the Company recognizes an asset impairment loss calculated as the lesser of
the difference between the amortized cost of the asset and the present value of the estimated future cash flows or the recoverable
amount. The carrying amount of the asset is reduced by the impairment loss. Impairment losses recognized in prior periods are
assessed at each reporting date for any indicators that the impairment losses may no longer exist or may have decreased. In the event
that an impairment loss reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but
only to the extent that the carrying amount does not exceed the amount that would have been determined had no impairment loss been
recognized on the asset in prior periods.
AKITA’s asset impairment estimates do not have any effect on the changes to financial condition for the Company, as any asset write
down would be a non-cash item. However, total assets and results of operations, including net income, could be overstated as a result
of projections of discounted future cash flows that are too high.
A significant estimate used in the preparation of AKITA’s consolidated financial statements relates to the long-term defined benefit
pension liability for certain retired employees that was recorded as $4,091,000 at December 31, 2023 (2022 - $3,964,000). Changes
in AKITA’s pension liability estimates do not have any effect on the changes to the financial condition of the Company, since the
defined benefit pension is a non-cash item. However, total liabilities and results of operations, including net income, could be either
understated or overstated as a result of pension estimates that are either too high or too low. AKITA utilizes the services of a third party
to assist in the actuarial estimate of the Company’s pension expense and liability. For 2023, a key assumption is the 4.6% discount
rate at year end (2022 – 5.1%).
The Company makes assumptions relating to deferred income taxes, including future tax rates, timing of reversals of timing differences
and the anticipated tax rules that will be in place when timing differences reverse. Consequently, total liabilities of the Company as well
as results of operations, including net income, could be either understated or overstated.
Business Risks and Risk Management
The following information is a summary only of certain risk factors relating to the business of AKITA and is qualified in its entirety by
reference to and must be read in conjunction with, the detailed information appearing elsewhere in this document. Shareholders and
potential shareholders should consider carefully the information contained herein and, in particular, the following risk factors:
Crude Oil and Natural Gas Prices
Fluctuations and uncertainty surrounding the future price
of commodities could lead to changes in demand for oil
and natural gas, and may impact the economics of planned
drilling projects and ongoing production projects, resulting
in the curtailment, reduction, delay or postponement
of such projects for an indefinite period of time. The
price AKITA’s customers receive for their production has
a direct impact on the cash flow available to them and
the subsequent demand for drilling services provided by
AKITA. An extended period of lower oil and natural gas
prices could result in a decline in demand and day rates.
High volatility in crude oil and natural gas prices may also
impact AKITA’s customers’ capital programs, causing
delays in spending and lower overall demand for drilling
services.
Competition
The contract drilling industry is highly competitive and includes a
large number of drilling contractors with varied rig fleets. Drilling
contracts are usually awarded through a competitive bid process
with pricing, rig suitability and availability being primary drivers
in the bid process. Other factors that influence the bid process
include: mobility and efficiency of the rig, location of the rig in
relation to the drilling location, experience and quality of service
provided by rig crews, safety record of the rig as well as the
contractor as a whole, and the adaptability of equipment to utilize
new technologies. Rigs can be moved from one region to another
depending on the competitive environment within that region and
therefore a contractor’s competitive advantage in a region can
be quickly eroded by other contractors moving in equipment from
other regions. Reduced levels of activity in the oil and gas industry
can also increase competition and therefore lower day rates.
2323
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS Advancements in technology
Advancements in technology could impact AKITA’s ability
to remain competitive. New technology is required to meet
demands for complex drilling programs and improve efficiency
and there is a risk that competitors may have access to
technologies that put them at a competitive advantage and
render some of AKITA’s services or equipment obsolete.
Access to or development of new technology can be costly.
Dependence on Major Customers
AKITA earned 34% of its total revenue in 2023 from two major
customers. These were the only two customers who individually
provided over 10% of the Company’s revenue for the year. The
loss of one or more major customers or a significant reduction
in the business done with any customer without offsetting
new revenue could have a material adverse effect on AKITA’s
business, results of operations and prospects.
Volatility of Industry Conditions
The demand, pricing and terms for contract drilling services
are dependent upon the level of industry activity for Canadian
and US crude oil and natural gas exploration and development.
Industry conditions are influenced by numerous factors
which AKITA does not control including (without limitation):
current crude oil and natural gas prices, expectations about
future crude oil and natural gas prices, the cost of exploring
for, producing and delivering crude oil and natural gas, the
expected rates of decline in current production for AKITA’s
customers, discovery rates of new oil and gas reserves by
AKITA’s customers, sufficient crew labour, available pipeline
and other oil and gas transportation capacity, weather
conditions, political, regulatory and economic conditions,
influences from special interest groups, the use of energy
generated from sources that are not crude oil or natural gas
based, the ability of oil and gas companies to raise equity
capital or debt financing and technological advances in the
exploration and production of crude oil and natural gas.
The level of activity in both the Canadian and US oil and gas
exploration and production industry is volatile. No assurance
can be given that the expected trends in oil and gas exploration
and production activities will continue or that demand for
contract drilling services will reflect the level of activity in the
industry. Recent global economic events and uncertainty have
significantly affected commodity pricing. While commodity
pricing recovered over the course of 2022 to pre-pandemic
levels, a return to a prolonged substantial reduction in crude
oil and natural gas prices would likely lead to a reduction in
oil and gas production levels and therefore adversely affect
the demand for drilling services to oil and gas customers.
Any elimination or curtailment of government incentives or
adverse changes in government regulation could have a
significant impact on the contract drilling industry in Canada or
in the US. These factors could lead to a decline in demand for
AKITA’s services which could result in a material adverse effect
on AKITA’s business, financial condition, results of operations
and cash flows.
AKITA’s customers rely on access to pipelines and liquified
natural gas facilities to increase transportation and refinery
capacity. There has been downward pressure on oil and
natural gas prices in Western Canada due to delays to critical
infrastructure construction projects as a result of political
pressure, both within Canada and the US, and societal
pressures leading to permit cancellations. These delays may
depress AKITA’s customers’ overall exploration and production
activities which could impact the demand for drilling services.
Labour
The contract drilling industry is dependent upon attracting,
developing and maintaining a skilled and safe workforce.
During periods of peak activity levels, AKITA is susceptible
to increased labour costs as a result of a competitive labour
market or may be faced with a lack of experienced personnel
to operate AKITA’s equipment. There is a risk of unionization
efforts to parts of the Company’s workforce that could lead to
increased costs due to strikes, work stoppages, other labour
disruptions and collective bargaining agreements. AKITA is
also faced with the challenge of retaining employees during
periods of low utilization. The Company’s financial results
depend, at least in part, upon its ability to attract, develop
and maintain a skilled work force, while maintaining a cost
structure that varies with activity levels.
A number of AKITA’s key customers evaluate the ability of
contract drilling companies to provide and maintain a high
standard of safe operations prior to their selecting a drilling
contractor for the provision of drilling services. AKITA’s
financial success is related to its ability to continue to meet
those expectations.
Capital Overbuild in Contract Drilling Industry
Drilling rigs have a long life span. Further, there is a significant
lag between when the decision to build a rig is made and when
the construction is complete. High demand typically spurs
greater capital expenditures by drilling contractors which
may, in turn, lead to excessive supply in future periods. A
potential capital overbuild could lead to a general reduction in
rates in the industry as a whole, which could have a material
adverse effect on AKITA’s business, financial condition, results
of operations and cash flows. The cyclical nature of AKITA’s
business makes the impact of this risk significant.
Debt Service
AKITA has a syndicated credit facility. Variations in interest
rates and principal repayments, under the terms of the facility,
could result in significant changes in the amount required to
be applied to debt service before payment of any amounts by
AKITA. Although management’s view is that AKITA’s current
24
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS facility is sufficient, there is no assurance that it will be
adequate for the future financial obligations of AKITA or that
additional funds can be obtained if required.
AKITA’s credit facility is a revolving facility which matures on
September 11, 2025 and is subject to annual extensions of
an additional year on each anniversary date of the closing
date, contingent upon the consent of the lenders holding two-
thirds of the aggregate commitments under the facility. To the
extent the facility is not extended, the drawn down principal
would be due on the maturity date. Interest payments are
required quarterly and are based on the Canadian prime rate
for Canadian prime rate loans and the US prime rate for US
rate loans.
Leverage and Restrictive Covenants
AKITA has third party debt service obligations under its credit
facility. The degree to which AKITA is leveraged could have
important consequences to shareholders, including:
1.
2.
a portion of the consolidated cash flow from operations
could be dedicated to the payment of the principal
and interest on indebtedness, thereby reducing cash
available for other initiatives; and
certain borrowings are at variable rates of interest,
which exposes AKITA to the risk of increased interest
rates.
AKITA's ability to make scheduled payments of principal and
interest on, or to refinance, its indebtedness will depend on its
future operating performance and cash flow, which are subject
to prevailing economic conditions, prevailing interest rate
levels and financial, competitive, business and other factors,
many of which are beyond its control.
AKITA’s credit facilities contain certain customary operating
covenants that
limit the discretion of management to
incur additional indebtedness, to create liens or other
encumbrances, to pay dividends or make certain other
payments, investments, loans and guarantees and to sell or
otherwise dispose of assets and merge or consolidate with
another entity. In addition, AKITA is required to satisfy and
maintain two financial ratio tests, Debt to EBITDA and EBITDA
to Interest Expense. A failure to comply with the obligations in
the agreements in respect of the credit facilities could result in
an event of default which, if not cured or waived, could permit
acceleration of the repayment of the relevant indebtedness. If
the repayment of the indebtedness under the credit facilities
were to be accelerated, there can be no assurance that AKITA's
assets would be sufficient to repay the debt.
Access to Additional Financing
AKITA may find it necessary in the future to obtain additional
debt or equity financing to support ongoing operations,
undertake capital expenditures or undertake acquisitions
or other business combination activities. There can be no
guarantee that AKITA will have access to the required capital
as its ability to do so is dependent on, among other factors, the
overall state of capital markets, interest rates, the oil and gas
industry as well as the appetite for investment in the oilfield
drilling industry. As an oilfield service company, AKITA’s ability to
obtain additional debt or equity financing could be constrained
by pressure from investors and environmental groups to divest
from fossil fuel related investments. An inability to obtain
necessary financing, on terms that are acceptable to AKITA,
could limit AKITA’s growth and could have a material adverse
effect on AKITA’s business, financial condition and cash
flows in the future. Access to financing also impacts AKITA’s
customers, potentially limiting capital budgets and therefore
the demand for AKITA’s services.
AKITA’s customers also rely on favourable access to credit and
debt capital markets to fund capital budgets. They may face
the same risks relating to the state of markets, interest rates
and appetite for investment in hydrocarbons. Customers may
choose to reduce their capital budget if the cost of accessing
additional funding is unfavourable which would lower the
demand for drilling services.
in the United States
Foreign Exchange and Foreign Operations Risk
increase the
AKITA’s operations
Company’s exposure to risks inherent in foreign operations.
The Company is exposed to risks caused by fluctuations in
currency exchange rates. US contracts are denominated in US
dollars and, accordingly, a material decrease in the value of
the US dollar could negatively impact revenues.
In addition to foreign exchange, risks include, but are not
limited to: different taxation regimes, potential litigation and
potential political protectionist measures. While AKITA has
increased its insurance coverage to offset the increased
chance of litigation and has engaged third party experts to
assist in taxation matters, there can be no assurance that the
Company will be fully effective in mitigating foreign operation
risks. Such risks could have material adverse effects on
AKITA’s business, financial condition, results of operations and
cash flows.
Regulation of Industry
AKITA’s operations are subject to a variety of federal, provincial,
state and local laws, regulations and guidelines relating to
health and safety, the conduct of operations, the operation of
equipment used in drilling operations and the transportation of
materials and equipment provided to customers. Compliance
with, or breaches of, such laws, or costs or implications of
changes to such laws, regulations and guidelines could have a
material effect on AKITA’s business, financial condition, results
of operations and cash flows.
25
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS increasingly
is becoming
Cybersecurity
AKITA’s business
reliant on
information technology for delivery of services to its customers
both in the field and in the office. An increasing reliance on
information technology exposes the Company to cybersecurity
issues through either malicious attacks, unauthorized access
or human error. These issues could lead to disruption of
services, potential loss of information or improper use of
assets, any of which could have a material effect on the
Company’s reputation and financial position.
Safety Issues
The Company is governed by industry safety standards in both
Canada and the United States. These regulatory standards
outline safety frameworks that serve as the minimum baseline
for AKITA’s safety policies and procedures. Failure to comply
with these guidelines could result in a reduction in demand for
the Company’s services as safety performance is an important
criteria for contractor selection by AKITA’s customers and could
have a material financial impact to the Company.
Litigation and Unknown Liabilities
From time to time, AKITA is subject to legal proceedings relating
to its business. Legal actions against the Company may
have a material impact on the Company’s financial position
despite having insurance to cover such claims. The Company’s
assessment of the financial impact of these matters is based
on historical claims and management’s assessment of the
likelihood of such a claim resulting in a material financial
impact to the Company.
Carbon Emissions, Climate Change Activism and
Environmental Regulations
While AKITA’s operations, and those of its customers, are
subject to numerous
laws, regulations and guidelines
governing the management, transportation and disposal
of hazardous substances and other waste materials and
otherwise relating to the protection of the environment, the
trend in environmental regulation has been to impose more
restrictions and limitations on activities that may impact the
environment, particularly regarding the generation of carbon
emissions. AKITA operates in jurisdictions that have regulated,
or proposed to regulate, industrial carbon emissions. Laws
and regulations implemented to reduce carbon emissions have
potential to impose significant compliance costs on the oil and
gas, potash and mining companies that the Company provides
drilling services for. Consequently, future oil and gas, potash
and mining development could face increased operating costs
relating to increased carbon regulation which could result in a
reduced demand for the drilling services that AKITA provides.
In recent years, public support for climate change action
and pressure by climate activists to shift from fossil fuels
to alternative and renewable energy technology has grown.
26
Climate change activism
impact could reduce demand
for hydrocarbons in favour of lower carbon intense fuels.
Further, within Canada, increased climate change activism
has translated to opposition to new pipeline approvals,
to ongoing oil sands development and to the practice of
hydraulic fracturing. In the US, the Biden administration has
implemented restrictions of drilling permits on federal lands,
has stopped the construction of the Keystone pipeline and
most recently has implemented a moratorium on new LNG
terminal expansion.
Laws, regulations and guidelines relating to carbon emissions,
spills, releases, and discharges of hazardous substances or
other waste materials into the environment, requiring removal
or remediation of pollutants or contaminants are increasingly
becoming more stringent and can impose civil and criminal
penalties for violations. Some of the laws, regulations and
guidelines that apply to AKITA’s operations also authorize
the recovery of natural resource damages by governmental
authorities, injunctive relief and the imposition of stop, control,
remediation and abandonment orders. The costs arising from
compliance with such laws, regulations and guidelines may be
material to AKITA.
While AKITA maintains liability insurance, including insurance
for environmental claims, there can be no assurance that such
insurance will continue to be available to AKITA on commercially
reasonable terms, that the possible types of liabilities that may
be incurred by AKITA will be covered by AKITA’s insurance, or
that the dollar amount of such liabilities will not exceed AKITA’s
policy limits. Even a partially uninsured claim, if successful and
of sufficient magnitude, could have a material adverse effect
on AKITA’s business, results of operations and prospects.
Key Management
The success and growth of AKITA are dependent upon its key
management personnel. The loss of services of any of such
persons without suitable replacements could have a material
adverse effect on the business and operations of AKITA. While
this risk is mitigated by ongoing succession planning, no
assurance can be provided that AKITA will be able to retain key
management members.
fuel
Energy Alternatives
AKITA’s management cannot predict the impact of changing
demand for crude oil and natural gas products. Fuel
requirements,
conservation measures, alternative
opposition to fossil fuel energy, increasing consumer demand
for alternatives to crude oil and gas and technological
advances in fuel economy and energy generation devices
could reduce the demand for crude oil, natural gas and other
liquid hydrocarbons. Any major change in demand for crude
oil, natural gas or other liquid hydrocarbons could result
in a reduction in the demand for drilling services and could
have a material adverse effect on AKITA’s business, financial
condition, results of operations and cash flow.
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS Pandemic Risk
On March 11, 2020, the World Health Organization declared a
global pandemic in relation to the spread of COVID-19. As the
virus spread across the world, many businesses closed and
isolation and social distancing practices were implemented
to reduce the spread. The virus and its impact on transacting
business resulted in a decline in the world economy. Among
other effects, demand for oil decreased materially over the
balance of 2020, which resulted in a significant reduction
in demand for the Company’s drilling services. In addition
to the reduced demand for drilling services, the pandemic
presented operational challenges for the Company’s staff and
rig crews as an outbreak of COVID-19 at a rig site could lead to
suspended or cancelled operations.
The possibility of future pandemics and their impact cannot be
estimated at this time but could have a significant impact on
the Company and demand for the drilling services.
Seasonal Nature of Industry
In Canada, the level of activity in the contract drilling industry,
particularly for conventional rigs, is influenced by seasonal
weather patterns. Spring breakup, which typically occurs
between mid-March and mid-June, makes the ground unstable
leaving many secondary roads temporarily incapable of
supporting the weight of heavy equipment, thereby reducing
drilling activity levels. In addition, during excessively rainy
periods, equipment moves may be delayed, thereby adversely
affecting revenue.
Typically, there is greater demand for contract drilling services
in the winter as freezing permits the movement and operation
of heavy equipment. Drilling activities tend to increase in the
fall as the ground begins to freeze and peak in the winter
months of November through February as areas having muskeg
conditions also become accessible to drilling operations.
Variability in the weather can therefore create unpredictability
in activity and utilization rates. Unusually warm weather may
limit access to drilling sites and could have a material adverse
effect on the Company’s business, financial condition, results
of operations and cash flows.
The Permian Basin, where AKITA primarily conducts its
US drilling operations, is infrequently subject to weather
constraints, but may experience operational restrictions
for other reasons. These restrictions could have a material
adverse effect on the Company’s business, financial condition,
results of operations and cash flows.
Operating Hazards
AKITA’s operations are subject to numerous hazards inherent
to the drilling industry, including but not limited to: fires or
explosions, hydrocarbon influx or kicks, loss of well control,
well blow-outs, cratering, collapse of the well, damage to,
or loss of, drilling equipment and equipment lost down the
hole. AKITA’s insurance policies and contractual indemnity
rights may not adequately cover all losses, and therefore, the
Company may not have adequate insurance coverage or rights
to indemnity for all risks. Pollution and environmental risks
may not be fully insurable. AKITA generally attempts to obtain
contractual protection against uninsured operating risks from
its customers. However, customers who provide contractual
indemnification protection may not in all cases maintain
adequate insurance or otherwise have the financial resources
indemnification obligations.
necessary
AKITA’s
indemnification arrangements may
not adequately protect it against liability or loss from all
operating hazards. Further, certain states in the US where
AKITA operates have anti-indemnity legislation that could
preclude operator indemnification in certain circumstances.
The occurrence of a significant event that has not been fully
insured or indemnified against, the failure of a customer to
meet its indemnification obligations to the Company, or the
applicability of anti-indemnification legislation could materially
and adversely affect the results of operations and financial
condition of the Company.
insurance or
to support
their
Dilution
AKITA’s articles permit the issuance of an unlimited number
of Class A Non-Voting and Class B Common shares, and the
Company may make future acquisitions or enter into financings
or other transactions involving the issuance of securities of
AKITA which may be dilutive.
Supply Chain Risk
AKITA purchases equipment, raw materials, components and
parts from suppliers located in Canada and the US, and from
time to time, international suppliers. The recent supply chain
disruptions manifested in reduced inventory for many of the
Company’s suppliers. Recognizing the risks presented by the
disruptions to the supply chain, AKITA’s operations team aims
to anticipate the equipment, raw materials, components and
parts it may need with sufficient lead time to procure same.
Notwithstanding this effort, however, ongoing supply chain
disruptions could result in our vendors delaying delivery of,
or being unable to deliver, such equipment, raw materials,
components or parts when ordered. As drilling activity
increases, so too does the risk of an undersupplied inventory
of equipment, raw materials, components and parts. In the
event the Company is not able to secure equipment, raw
materials, components or parts that are critical to AKITA’s
operations, it could force the Company to suspend operations
and have a material adverse effect on AKITA’s business and
financial condition.
27
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS Risk Management
AKITA manages its risks by:
• maintaining a conservative balance sheet that includes
a low cost structure for the Company;
•
improving the skills of its employees through training
programs;
• having its risk management committee deliberate
periodically to assess, evaluate and develop a plan to
deal with the risk conditions for the Company;
• maintaining effective systems of internal control to
safeguard assets and ensure timely and accurate
reporting of financial results;
• developing an annual strategic business plan and
budget to help determine the levels of capital and
operating expenditures;
• continuously developing long-term relationships with a
core base of customers who maintain ongoing drilling
programs during all phases of the economic cycle;
• obtaining multi-year drilling contracts whenever
possible, but especially when tailoring rig construction
or reconfiguration to customer demand;
• maintaining an efficient fleet of drilling rigs through a
rigorous ongoing maintenance program;
• employing well-trained, experienced and responsible
employees;
• ensuring that all employees comply with clearly defined
safety standards;
• reducing health, safety and operational risk by
maintaining its rigorous safety policies and procedures;
• maintaining comprehensive insurance policies with
respect to its operations;
• reducing environmental risk through the implementation
of industry-leading standards, policies and procedures;
• exploring opportunities to decarbonize its operations;
• developing and maintaining a succession plan to
provide for a smooth transition in the event of key
personnel turnover;
• diversifying into the US market where demand for
drilling services is correlated to West Texas Intermediate
pricing rather than Western Canadian Select pricing
as in Canada, which allows AKITA to generate revenue
denominated in US currency; and
• expanding beyond oil and natural gas to drill geothermal
wells, carbon capture wells and hydrogen storage wells
in an aim to ensure it plays a meaningful role in energy
transition.
Disclosure Controls and Internal Controls Over Financial Reporting
As of December 31, 2023, the Company’s management evaluated the effectiveness of the Company’s disclosure controls and
procedures as required by the Canadian Securities Administrators (“CSA”). This evaluation was performed under the supervision of,
and with the participation of the Chief Executive Officer (“CEO”) and the Vice President, Finance and Chief Financial Officer (“CFO”).
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in
documents filed with the securities regulatory authorities is recorded, processed, summarized and reported on a timely basis. The
controls also seek to assure that this information is accumulated and communicated to management, including the CEO and CFO,
as appropriate, to allow timely decisions on required disclosure. Based on this evaluation, the CEO and CFO have concluded that the
Company’s disclosure controls and procedures were effective at December 31, 2023.
As of December 31, 2023, management evaluated the effectiveness of the Company’s internal control over financial reporting as
required by the CSA. This evaluation was performed utilizing the framework developed by the Committee of Sponsoring Organizations
of the Treadway Commission, as revised effective May 14, 2013 under the supervision of, and with the participation of the CEO and
CFO.
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with IFRS.
Based on this evaluation, the CEO and CFO have concluded that the Company’s internal control over financial reporting was effective
at December 31, 2023.
28
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS There was no change in the Company’s internal control over financial reporting that occurred during the period that began on October
1, 2023 and ended December 31, 2023 that materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting. There was also no change in the Company’s internal control over financial reporting that has occurred
since December 31, 2023.
Non-GAAP and Supplementary Financial Measures
Non-GAAP Financial Measures
Adjusted Revenue and Adjusted Operating and Maintenance Expenses
Revenue and operating and maintenance expenses in AKITA’s Canadian operating segment include revenue and expenses from
AKITA’s wholly-owned drilling rigs as well as its share of joint venture revenue and expenses.
Excluded from the revenue and expenses in AKITA’s Canadian and US operating segment are flow through charges that are billed to
operators and repaid to the Company. The volume and timing of the flow through charges can artificially impact the operational per
day analysis and as a result management and certain investors may find the comparability between periods is improved when these
flow through charges are excluded from revenue per day and operating and maintenance expense per day. The flow through charges
do not have any impact on the Company’s net earnings as the amounts offset each other.
Adjusted Funds Flow from Operations
Adjusted funds flow from operations is not a recognized GAAP measure under IFRS and users of this MD&A should note that AKITA’s
method of determining adjusted funds flow from operations may differ from methods used by other companies, and includes cash flow
from operating activities before working capital changes, equity income from joint ventures, and income tax amounts paid or recovered
during the period. Nonetheless, management and certain investors may find adjusted 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.
$Thousands
Net cash from operating activities
Interest paid
Interest expense
Post-employment benefits paid
Equity income from joint ventures
Change in non-cash working capital
Adjusted funds flow from operations
For the three months ended
For the year ended
December 31,
2023
December 31,
2022
December 31,
2023
December 31,
2022
17,523
1,243
(1,294)
79
1,488
(11,862)
7,177
8,035
2,142
(2,181)
378
2,001
5,769
35,567
6,292
(6,502)
322
8,184
1,659
16,144
45,522
18,198
6,622
(6,777)
584
5,954
10,232
34,813
Terms Defined in the Company’s Credit Facility
The following terms are defined in the Company’s credit facility and are used in the calculation of the Company’s financial covenants:
“EBITDA" means, for any fiscal period, the Net Income of the Canadian Borrower on a consolidated basis in accordance with GAAP but
without duplication, plus (in each case, for the Canadian Borrower on a consolidated basis but without duplication):
29
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS a)
b)
c)
d)
e)
f)
g)
h)
all amounts deducted in the calculation of Net Income in respect of Interest Expense;
all amounts deducted in the calculation of Net Income in respect of the provision for income taxes (in accordance with Generally
Accepted Accounting Principles);
all amounts deducted in the calculation of Net Income in respect of non-cash items including, without limitation, depletion,
accretion (to the extent not included in clause (a) above), depreciation, amortization and future income tax liabilities;
all amounts deducted in the calculation of Net Income in respect of equity loss, minority interests, extraordinary losses, non-
recurring losses (including losses on the sale of property, plant and equipment) and any non-cash impairment charges and any
other non-cash charges;
all cash distributions received in such period from persons which are not Guarantors;
all amounts deducted in the calculation of Net Income in respect of discretionary management bonuses, fees and other
compensation declared and payable to the directors or shareholders of the Canadian Borrower on commercially reasonable
terms. For the avoidance of doubt, bonuses, fees or other compensation that the Canadian Borrower, on a consolidated basis,
is contractually required to pay may not be added back;
all amounts deducted in the calculation of Net Income in respect of share based compensation;
unrealized foreign exchange losses incurred in the ordinary course of business;
"Funded Debt" means, as of any date of determination, with respect to the Canadian Borrower on a consolidated basis, all Indebtedness,
but excluding obligations owing between any Loan Parties and less all cash and Cash Equivalents denominated in Canadian Dollars
and U.S. Dollars held by the Loan Parties up to a maximum of $10,000,000 and which are: (i) in accounts with the Agent which
are subject to Perfected Security Interests and rights of set-off in favour of the Agent; or (ii) in accounts with a financial institution
acceptable to the Agent (acting reasonably) which are subject to Perfected Security Interests and a blocked account control agreement
in favour of and satisfactory to the Agent.
"Interest Expense" means for any fiscal period, in respect of the Canadian Borrower on a consolidated basis as determined in accordance
with GAAP, the aggregate cost of credit outstanding during that period including, without limitation, interest charges (including for
postponed Indebtedness), capitalized interest, the interest component of Financial Leases, fees payable in respect of letters of credit
and letters of guarantee, discounts incurred and fees payable in respect of bankers' acceptance advances.
"Eligible Accounts Receivable" means at any time, any Account Receivable of the Loan Parties (net of any credit balance, returns, trade
discounts, or unbilled amounts or retention) that meets and at all times continues to meet all of the standards of eligibility (and the
Canadian Borrower by including such account in any computation of the Borrowing Base shall be deemed to represent and warrant to
the Agent and the Lenders that to the knowledge of the Canadian Borrower all of the following statements are accurate and complete
with respect to such account):
a)
b)
c)
d)
e)
f)
it is a valid and legally enforceable obligation of the applicable Account Debtor;
such account is genuine as appearing on its face or as represented in the books and records of the Canadian Borrower on a
consolidated basis;
such account is free from valid claims regarding rescission, cancellation or avoidance, whether by operation of Applicable Law or
otherwise, and except to the extent of any reduction made pursuant to paragraph (e) of this definition is net of all then applicable
holdbacks and prepayment credits;
such account does not relate to services not as of yet completed;
without limiting the generality of paragraph (c) of this definition, is not subject to any offset, counterclaim or other defence on the
part of the Account Debtor or any claim by the Account Debtor that denies liability in whole or in part; and, if the Account Debtor
denies liability only in part, the undisputed portion of the Account Receivable shall be allowed so long as the Account Debtor has
agreed that it will pay such portion not in dispute in accordance with its terms;
such Account Receivable is not outstanding more than 90 days after billing date, provided that the under 90 day portion may be
included; (i) where the over 90 day portion is less than 10% of all Accounts Receivable of such Account Debtor and its Related
Parties; (ii) the Agent and the Lenders have nevertheless designated the Account Receivable as good; or (iii) where the Account
Debtor has long term debt obligations rated no worse than BBB by S&P or DBRS Limited;
30
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS g)
it is owed by an Account Debtor whose principal place of business is located in Canada or the United States, unless otherwise
supported by a letter of credit acceptable to the Agent, in its discretion;
h)
it is denominated in either Canadian Dollars or United States Dollars;
i)
j)
k)
l)
it is subject to a Perfected Security Interest in favour of the Agent;
such account is, and at all times will be, free and clear of all Security Interests other than Priority Payables (to the extent
deducted in calculating the Borrowing Base) and any Permitted Encumbrances;
such account is not in respect of a builders lien or similar holdbacks;
the Account Receivable does not arise from a sale or lease to or rendering of services to a Related Party of any Loan Party, or, in
each case, to their respective Affiliates;
Any Eligible Accounts Receivable which are at any time Eligible Accounts Receivable but which subsequently fail to meet any of the
foregoing requirements shall immediately cease to be an Account Receivable.
"Tangible Net Worth" means, as of any date of determination, with respect to the Canadian Borrower on a consolidated basis, the sum
of Shareholders' Equity and Subordinated Debt, less:
a)
any amount that would be included on the consolidated balance sheet of the Canadian Borrower prepared in accordance with
GAAP as an investment in or as amounts owed by any Related Party which does not constitute Subordinated Debt; and
b)
any amount included in the assets column on the consolidated balance sheet of the Canadian Borrower in respect of Intangibles.
Non-GAAP Ratios
“Adjusted funds flow from operations per share” is calculated on the same basis as net loss per class A and class B share basic
and diluted, utilizing the basic and diluted weighted average number of class A and class B shares outstanding during the periods
presented.
“Adjusted revenue per operating day” may be useful to analysts, investors, other interested parties and management as a measure of
pricing strength and is calculated by dividing adjusted revenue by the number of operating days for the period.
“Adjusted operating and maintenance expenses per operating day” may be useful to analysts, investors, other interested parties and
management as it demonstrates a degree of cost control and provides a proxy for specific inflation rates incurred by the Company.
Supplementary Financial Measures
A supplementary financial measure:
a)
b)
c)
d)
is, or is intended to be, disclosed on a periodic basis to depict the historical or expected future financial performance, financial
position or cash flow of the Company;
is not presented in the financial statements of the Company;
is not a non-GAAP financial measure; and
is not a non-GAAP ratio.
Supplementary financial measures presented and discussed in this MD&A are as follows:
• “Operating Margin %” – represents operating margin as a percentage of revenue.
• “Adjusted Operating Margin %” – represents adjusted operating margin as a percentage of adjusted revenue.
• “Utilization” – represents the operating days achieved divided by the maximum operating days based on the number of days in the
year and the rigs available.
31
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 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 industry and risk management discussions.
In particular, forward-looking information in this MD&A includes, but is not limited to, references to the outlook for the North American
economy and the drilling industry (including the demand for drilling services, customer exploration and development budgets and
drilling programs, day rates, active rig count, supply issues and labour shortage), pipeline capacity in Canada, the demand for oil and
natural gas, crude oil and natural gas prices, future investment, the Company's SAGD drilling activity, the Company's existing credit
facility, the Company's operating performance and cash flows, future investment, debt repayment, tax rates, the Company's capital
program, advantages associated with the percentage of pad drilling rigs in the Company's Canadian fleet, and the expansion of the
Company's presence in the Montney deep gas basin and its role in drilling potash and in achieving energy transition targets, and the
upgrading of one of the Company’s oil sands rigs for deep gas drilling.
Although the Company believes that the expectations reflected in the forward-looking information are reasonable based on the
information available on the date such statements are made and processes used to prepare the information, such statements are
not guarantees of future performance and no assurance can be given that these expectations will prove to be correct. By their nature,
these forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and
therefore carry the risk that the predictions and other forward-looking statements will not be realized. Readers of this MD&A 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.
The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of, among
other things:
- Prevailing economic conditions including world crude oil prices, North American natural gas prices and global liquified natural gas
(LNG) demand;
- Fluctuations and uncertainty surrounding the future price of commodities;
- The impact of global supply chain disruptions;
- The impact of the level of industry activity for Canadian and US crude oil and natural gas exploration and development on the
demand, pricing and terms for contract drilling services;
- The impact of changes in demand for crude oil, natural gas or other liquid hydrocarbons on the demand and pricing for drilling
services;
- The level of exploration and development activity carried on by AKITA’s customers;
-
Increased competition, including as a result of the movement of drilling rigs among regions or reduced levels of activity in the oil and
gas industry;
- Energy transition targets and industry’s ability to achieve them;
- The loss of one or more major customers;
- Changes to existing laws, regulations and government policies, and the introduction of new laws and regulations, including those
governing the management, transportation and disposal of hazardous substances and other waste materials and otherwise relating
to the protection of the environment;
- The impact of climate change activism;
- Access to capital markets including AKITA’s ability to obtain additional debt or equity financing;
- Variations in interest rates and principal repayments under the terms of the Company's credit facility;
- The Company's ability to make scheduled payments of principal and interest on, or to refinance, its indebtedness;
- The sufficiency of AKITA's assets to repay indebtedness under its credit facility in the event repayment were to be accelerated
following an event of default;
- The impact of dilutive financings or other transactions;
32
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS - Fluctuations in foreign exchange, interest and tax rates;
- The adequacy of AKITA's insurance coverage or contractual indemnity rights to cover losses, and the applicability of anti-
indemnification legislation;
- The Company's ability to attract, develop and maintain a skilled and safe workforce and maintain a cost structure that varies with
activity levels;
- The availability of qualified management personnel;
- A general reduction in rates in the drilling industry caused by a capital overbuild
We caution that the foregoing list of factors is not exhaustive and that while relying on forward-looking statements to make decisions
with respect to AKITA, 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 where required by law, the Company does not undertake to update any forward-
looking statement, whether written or oral, that may be made from time to time by it or on its behalf.
Upcoming Accounting Standard Changes
Certain new or amended standards or interpretations have been issued by the International Accounting Standards Board (“IASB”) or
the International Financial Reporting Interpretations Committee. One amendment became applicable for the current reporting period
and the Company had to change its accounting policies as a result. The amendment below was applied and did not have a material
impact on the consolidated financial statements:
•
IAS 12, “Income Taxes”, has been amended to recognize deferred tax on particular transactions that, on initial recognition, give rise
to equal amounts of taxable and deductible temporary differences.
The following amendments have not yet been early adopted and are not expected to have a material impact on the consolidated
financial statements. They are effective for reporting periods beginning on or after January 1, 2024:
•
•
IAS 1, “Presentation of Financial Statements”, has been amended to clarify how to classify debt and other liabilities as either current
or non-current.
IAS 1, “Presentation of Financial Statements”, has been amended to clarify how to determine that an entity has the right to defer
settlement for a liability arising from a loan arrangement for at least twelve months after the reporting period.
There are no other standards and interpretations that have been issued, but are not yet effective, that the Company anticipates will
have a material effect on the financial statements once adopted.
Other Information
Additional information is provided by the Company in its Annual Information Form, Notice of Annual Meeting and Information Circular all
dated March 21, 2024. Copies of these documents including additional copies of the Annual Report for the year ended December 31,
2023 may be obtained upon request from the Vice President, Finance and Chief Financial Officer of the Company at 1000, 333 – 7th
Avenue S.W., Calgary, Alberta, T2P 2Z1 or at www.sedarplus.ca.
33
AKITA DRILLING | 2023 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS MANAGEMENT’S RESPONSIBILIT Y FOR FINANCIAL REPORTING
MANAGEMENT’S
RESPONSIBILITY FOR
FINANCIAL
REPORTING
The accompanying consolidated financial statements of AKITA
Drilling Ltd., Management's Discussion and Analysis and other
information relating to AKITA contained in this Annual Report are
the responsibility of management and have been approved by the
Board of Directors. The consolidated financial statements have
been prepared in accordance with accounting policies detailed
in the notes to the consolidated financial statements and are
in conformity with International Financial Reporting Standards
(also referred to as “IFRS”) using methods appropriate for the
industry in which the Company operates. Where necessary,
management made estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as at the date of the financial
statements including estimates related to transactions and
operations that were incomplete at year-end, the useful lives of
drilling rigs and other assets, the measurement of the defined
benefit pension liability, assumptions around future income
tax calculations and the measurement of asset impairments.
Financial
is
consistent with the consolidated financial statements except as
noted.
this Annual Report
information
throughout
34
34 AKITA DRILLING | 2023 Annual Report
AKITA DRILLING | 2023 Annual Report MANAGEMENT’S RESPONSIBILIT Y FOR FINANCIAL REPORTING
Management ensures the integrity of the consolidated financial
statements by maintaining a system of internal control. This
system of internal control is based on the control criteria
framework of the Committee of Sponsoring Organizations of the
Treadway Commission published in their report titled, Internal
Control – Integrated Framework, as revised effective May 14,
2013. The system is designed to provide reasonable assurance
that transactions are executed as authorized and accurately
recorded; that assets are safeguarded; and that accounting
records are sufficiently reliable to permit the preparation of
financial statements that conform in all material respects
with accounting principles generally accepted in Canada.
The Company maintains disclosure controls and procedures
designed to ensure that information required to be disclosed in
reports is disclosed, processed and summarized and reported
within specified time periods. Internal controls are monitored
through self-assessments and are reinforced through a Code of
Business Conduct, which sets forth the Company’s commitment
to conduct business with integrity, and within both the letter and
the spirit of the law.
PricewaterhouseCoopers LLP, the Company's
independent
auditors, have conducted an examination of the consolidated
financial statements and have had full access to the Audit
Committee.
The Board of Directors, through its Audit Committee comprised
of four independent directors as defined in National Instrument
52-110 – Audit Committees
(“NI 52-110”), oversees
management's responsibilities for financial reporting. The
Audit Committee meets regularly with management and the
independent auditors to discuss auditing and financial matters
and to gain assurance that management is carrying out its
responsibilities
Colin Dease
President and
Chief Executive Officer
Darcy Reynolds
Vice President, Finance
and Chief Financial Officer
March 21, 2024
AKITA DRILLING | 2023 Annual Report 35
35
AKITA DRILLING | 2023 Annual Report
Independent auditor’s report
To the Shareholders of AKITA Drilling Ltd.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of AKITA Drilling Ltd. and its subsidiaries (together, the Company) as at
December 31, 2023 and 2022, and its financial performance and its cash flows for the years then ended in
accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board
(IFRS Accounting Standards).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2023 and 2022;
the consolidated statements of net income (loss) and comprehensive income (loss) for the years then
ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, comprising material accounting policy information
and other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
Suncor Energy Centre, 111 5th Avenue South West, Suite 3100, Calgary, Alberta, Canada T2P 5L3
T.: +1 403 509 7500, F.: +1 403 781 1825, Fax to mail: ca_calgary_main_fax@pwc.com
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
36
AKITA DRILLING | 2023 Annual ReportINDEPENDENT AUDITOR'S REPORT Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2023. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Our approach to addressing the matter included the
following procedures, among others:
• Evaluated management’s assessment of
indicators of impairment and impairment
reversal, which included the following:
Assessed the completeness of external or
internal factors that could be considered as
indicators of impairment or impairment
reversal of the Company’s PP&E.
Assessed significant changes in the market
capitalization of the Company, which may
indicate a change in value of the
Company’s net assets.
Assessed significant changes in the
condition of the drilling rig assets of the
Company, which may indicate a change in
value of the drilling rig assets.
Assessed changes in oil and gas prices,
forecasted activity or earnings and changes
in interest rates by considering the current
and past performance of the CGUs,
external market data and evidence
obtained in other areas of the audit, as
applicable.
Assessment of indicators of impairment or
impairment reversal for property, plant and
equipment (PP&E)
Refer to note 10 – Property, plant and equipment
and note 8 – Segmented information to the
consolidated financial statements.
As at December 31, 2023, the total net book value
of PP&E, which mainly consists of drilling rig
assets, amounted to $197 million, of which
$57 million and $140 million related to the
Canadian and US Cash Generating Units (CGUs),
respectively. At each reporting period,
management considers both internal and external
factors (indicators) when assessing whether there
are indicators of impairment. When impairment
indicators of PP&E exist, an impairment
assessment is conducted at the level of the CGUs
(a group of assets that generate independent cash
inflows). An impairment loss is recognized when
the carrying amount of a CGU exceeds its
recoverable amount. Impairment losses recognized
in prior periods are assessed at each reporting date
by management for any indicators that the
impairment losses may no longer exist or may have
decreased. In the event that an impairment loss
reverses, the carrying amount of the asset is
increased to the revised estimate of its recoverable
amount, but only to the extent that the carrying
amount does not exceed the amount that would
have been determined had no impairment loss
been recognized on the asset in prior periods. As at
December 31, 2023, management concluded that
37
AKITA DRILLING | 2023 Annual ReportINDEPENDENT AUDITOR'S REPORT How our audit addressed the key audit matter
Key audit matter
no indicators of impairment or impairment reversal
existed.
Management applies significant judgment in
assessing whether indicators of impairment or
impairment reversal exist that would necessitate
either impairment testing or impairment reversal
calculations. Internal and external factors such as
(i) a significant change in the market capitalization
of the Company’s share price; (ii) changes in
conditions of drilling rig assets; (iii) changes in oil
and gas prices in the market; (iv) changes in
forecasted activity or earnings; and (v) changes in
interest rates, are evaluated by management in
determining whether there are any indicators of
impairment or impairment reversal.
We considered this a key audit matter due to (i) the
significance of the PP&E balance and (ii) the
significant audit effort and subjectivity in applying
audit procedures to assess the internal and
external factors evaluated by management in its
assessment of indicators of impairment or
impairment reversal, which required significant
management judgment.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
38
AKITA DRILLING | 2023 Annual ReportINDEPENDENT AUDITOR'S REPORT Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS Accounting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
39
AKITA DRILLING | 2023 Annual ReportINDEPENDENT AUDITOR'S REPORT Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Reynold Tetzlaff.
Chartered Professional Accountants
Calgary, Alberta
March 21, 2024
40
AKITA DRILLING | 2023 Annual ReportINDEPENDENT AUDITOR'S REPORT Leading the
Drilling
Industry
SAFETY
ENVIRONMENTAL
STEWARDSHIP
FOUNDATIONAL
VALUES
PERFORMANCE
41
AKITA DRILLING | 2023 Annual ReportINDEPENDENT AUDITOR'S REPORT Consolidated Statements of Financial Position
$Thousands
ASSETS
Current Assets
Cash
Accounts receivable
Prepaid expenses and other
Non-current Assets
Other long-term assets
Investments in joint ventures
Right-of-use assets
Property, plant and equipment
TOTAL ASSETS
LIABILITIES
Current Liabilities
December 31,
2023
December 31,
2022
$ 11,187
$ 13,311
47,098
812
59,097
1,420
5,121
718
46,868
1,599
61,778
1,551
2,887
1,515
197,284
200,550
$ 263,640
$ 268,281
Note 12
Note 11
Note 9
Note 10
Accounts payable and accrued liabilities
Note 12
$ 30,695
$ 29,461
Deferred revenue
Current portion of lease obligations
Non-current Liabilities
Risk management contracts
Deferred income taxes
Share-based compensation plans
Employee future benefits
Lease obligations
Long-term debt
Total Liabilities
SHAREHOLDERS' EQUITY
Class A and Class B shares
Contributed surplus
Accumulated other comprehensive income
Retained earnings (deficit)
Total Equity
TOTAL LIABILITIES AND EQUITY
Note 15
Note 12
Note 7
Note 18
Note 19
Note 15
Note 14
Note 17
627
645
31,967
196
719
935
4,091
228
69,542
107,678
146,348
6,064
1,043
2,507
155,962
206
990
30,657
290
644
558
3,964
803
93,514
130,430
146,306
5,693
1,760
(15,908)
137,851
$ 263,640
$ 268,281
The accompanying notes are an integral part of these financial statements.
Approved by the Board,
Director
Director
42
AKITA DRILLING | 2023 Annual ReportCONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Net Income (Loss) &
Comprehensive Income (Loss)
$Thousands, except per share amounts
REVENUE
COSTS AND EXPENSES
Operating and maintenance
Depreciation and amortization
Selling and administrative
Total Costs and Expenses
For the Year Ended December 31,
2023
2022
Note 4
$ 225,479
$ 200,996
Note 6
Note 10
Note 6
167,029
28,510
16,120
211,659
151,884
30,263
14,541
196,688
Revenue Less Costs and Expenses
13,820
4,308
EQUITY INCOME FROM JOINT VENTURES
Note 11
8,184
5,954
OTHER INCOME (LOSS)
Interest income
Interest and financing expense
Unrealized gain (loss) on risk management contracts
Gain on sale of assets
Net other gains
Total Other Loss
Note 5
Note 12
373
(6,502)
95
2,199
376
(3,459)
41
(6,777)
(290)
93
210
(6,723)
Income Before Income Taxes
18,545
3,539
Income tax expense (recovery)
Note 7
130
(749)
NET INCOME FOR THE PERIOD ATTRIBUTABLE TO SHAREHOLDERS
18,415
4,288
OTHER COMPREHENSIVE INCOME INCOME (LOSS)
Items that will not subsequently be reclassified to profit or loss:
Remeasurement of pension liability and deferred tax
Items that may subsequently be reclassified to profit or loss:
Foreign currency translation adjustment
Total Other Comprehensive Income (Loss)
(176)
827
(541)
(717)
968
1,795
COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO SHAREHOLDERS
$ 17,698
$ 6,083
NET INCOME PER CLASS A AND CLASS B SHARE
Note 3
Basic
Diluted
$ 0.46
$ 0.11
$ 0.46
$ 0.11
The accompanying notes are an integral part of these financial statements.
43
AKITA DRILLING | 2023 Annual ReportCONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Shareholders’ Equity
Attributable to the Shareholders of the Company
Class A
Non-Voting
Shares
Class B
Common
Shares
Total
Class A
and
Class B
Shares
Contributed
Surplus
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
(Deficit)
Total
Equity
$ 144,898
$ 1,366 $ 146,264
$ 5,452
$ (35) $ (20,196) $ 131,485
-
-
-
42
-
-
-
-
-
-
-
-
-
4,288
4,288
-
-
968
-
-
-
827
-
42
-
(9)
250
-
-
-
-
968
827
33
250
$ 144,940
$ 1,366 $ 146,306
$ 5,693
$ 1,760 $ (15,908) $ 137,851
-
-
-
42
-
-
-
-
-
18,415
18,415
-
-
-
-
-
-
(541)
-
(541)
-
-
(176)
-
(176)
42
-
(16)
387
-
-
-
-
26
387
$ 144,982 $ 1,366 $ 146,348
$ 6,064
$ 1,043 $ 2,507 $ 155,962
$Thousands
BALANCE AT
DECEMBER 31, 2021
Net loss for the year
Foreign currency translation
adjustment
Remeasurement of pension
liability
Stock options exercised
Stock options expense
BALANCE AT
DECEMBER 31, 2022
Net income for the year
Foreign currency translation
adjustment
Remeasurement of pension
liability
Stock options exercised
Stock options expense
BALANCE AT
DECEMBER 31, 2023
The accompanying notes are an integral part of these financial statements.
44
AKITA DRILLING | 2023 Annual ReportCONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
$Thousands
OPERATING ACTIVITIES
Net income
Non-cash items included in net income:
Depreciation and amortization
Deferred income tax recovery
Defined benefit pension plan expense
Stock options expense
Share-based compensation expense
Gain on sale of assets
Gain on termination of lease
Unrealized (gain) loss on risk management contracts
Change in non-cash working capital
Equity income from joint ventures
Post-employment benefits paid
Interest expense
Interest paid
Net Cash From Operating Activities
INVESTING ACTIVITIES
Capital expenditures
Change in non-cash working capital related to capital
Distributions from investments in joint ventures
Change in long-term assets
Proceeds from sale of assets
Net Cash Used In Investing Activities
FINANCING ACTIVITIES
Change in debt
Change in lease obligations
Proceeds from exercise of stock options
Loan commitment fee
Net Cash From (Used In) Financing Activities
Effect of Foreign Exchange on Cash
Increase (Decrease) In Cash
Cash, beginning of year
CASH, END OF YEAR
The accompanying notes are an integral part of these financial statements.
For The Year Ended December 31,
2023
2022
18,415
$4,288
Note 10
Note 7
Note 19
Note 18
Note 18
Note 12
Note 13
Note 11
Note 10
Note 13
Note 11
28,510
130
-
387
377
(2,199)
(3)
(95)
(1,659)
(8,184)
(322)
6,502
(6,292)
35,567
(24,592)
3,872
5,950
(6)
2,788
(11,988)
Note 14
(24,000)
(913)
26
(275)
(25,162)
(541)
(2,124)
13,311
30,263
(749)
18
250
546
(93)
-
290
(10,232)
(5,954)
(584)
6,777
(6,622)
18,198
(17,982)
(1,130)
5,443
(62)
133
(13,598)
7,283
(1,071)
33
(275)
5,970
968
11,538
1,773
$ 11,187
$ 13,311
45
AKITA DRILLING | 2023 Annual ReportCONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES CONTENTS
47
49
53
BUSINESS AND ENVIRONMENT
RESULTS FOR THE YEAR
LONG-TERM ASSETS
1. General Information
2. Basis of Preparation
47
47
3. Net Income (Loss) per Share
4. Revenue
5. Interest and Financing Expense
6. Expenses by Nature
7. Income Taxes
8. Segmented Information
58
62
WORKING CAPITAL
DEBT AND EQUITY
12. Financial Instruments
58
14. Debt
13. Change in Non-Cash Working Capital 62
15. Lease Obligations
16. Capital Management
17. Share Capital
9. Right-of-Use Assets
10. Property, Plant and Equipment
11. Investments in Joint Ventures
53
54
57
66
PERSONNEL
18. Share-Based Compensation Plans
19. Employee Future Benefits
66
70
49
49
50
51
51
53
62
63
65
65
71
OTHER NOTES
20. Commitments and Contingencies
21. Related Party Transactions
22. New and Upcoming Accounting
Standards
71
72
73
46
46
AKITA DRILLING | 2023 Annual Report
AKITA DRILLING | 2023 Annual Report NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended December 31, 2023 and December 31, 2022
BUSINESS AND ENVIRONMENT
1. General Information
AKITA Drilling Ltd. and its subsidiaries (the “Company” or “AKITA”) provide contract drilling services, primarily to the oil and gas industry,
in Canada and the United States (“US”). The Company owns and operates 35 drilling rigs (33.65 net of joint venture ownership).
The Company conducts certain rig operations via joint ventures with First Nations, Métis or Inuit partners whereby rig assets are jointly
owned. While joint venture interests are at least 50% owned by the Company, in each case the joint venture is governed on a joint
basis.
The Company is a limited liability company incorporated and domiciled in Alberta, Canada. The address of its registered office is 1000,
333 – 7th Avenue SW, Calgary, Alberta. The Company is listed on the Toronto Stock Exchange. The Company is controlled by Sentgraf
Enterprises Ltd. and its controlling share owner, the Southern family.
2. Basis of Preparation
The consolidated financial statements for the year ended December 31, 2023, have been prepared in accordance with International
Financial Reporting Standards (“IFRS Accounting Standards”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements have been prepared under the historical cost convention, except as specifically stated within
these notes. Material accounting policy information is located throughout the consolidated financial statements along with the required
disclosures.
These consolidated financial statements were approved by the Company’s Board of Directors on March 21, 2024.
Consolidation
The consolidated financial statements of the Company consolidate the accounts of AKITA and its subsidiaries which are entities over
which the Company has control. Control exists when the Company has the power, directly or indirectly, to direct the relevant activities
of an entity so as to obtain benefit from its activities. Subsidiaries are fully consolidated from the date on which control is transferred
to the Company and are deconsolidated from the date that control ceases. Inter-company transactions, balances and unrealized gains
and losses from inter-company transactions are eliminated on consolidation.
47
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Functional and Presentation Currency
Items included in the financial statements of each of the Company's entities are measured using the currency of the primary economic
environment in which the entity operates ("the functional currency"). The functional currency of the Company and its Canadian
subsidiaries is the Canadian dollar ("CAD") while the functional currency of its US subsidiaries is the US dollar ("USD").
The consolidated financial statements are presented in CAD, which is the Company's presentation currency.
Foreign Currency Translation
(i)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognized in the statement
of net income and comprehensive income.
(ii)
Group companies
The results and financial position of foreign operations that have a functional currency different from the presentation currency
are translated into the presentation currency as follows:
• assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that
balance sheet;
•
income and expenses for each statement of net income and comprehensive income are translated at average exchange
rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates,
in which case income and expenses are translated at the dates of the transactions); and
• all resulting exchange differences are recognized in Other Comprehensive Income (“OCI”).
Estimates and Judgments
The preparation of these consolidated financial statements required management to make estimates and judgments. Estimates and
judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable in the circumstances. Actual results could differ materially from these estimates. Estimates and judgments
which are material to the consolidated financial statements are found in the following notes:
• Note 4 - Revenue
• Note 7 - Income Taxes
• Note 9 - Right-of-Use Assets
• Note 10 - Property, Plant and Equipment
• Note 12 – Financial Instruments
• Note 19 – Employee Future Benefits
48
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
RESULTS FOR THE YEAR
3. Net Income per Share
Basic earnings per share is calculated by dividing the net income for the period attributable to shareholders of the Company by the
weighted average number of Class A Non-Voting and Class B Common shares outstanding during the period.
Diluted earnings per share is calculated by adjusting the weighted average number of Class A Non-Voting and Class B Common shares
outstanding to assume conversion of all dilutive potential Class A Non-Voting shares, typically stock options granted to directors and
employees. The calculation is performed for the stock options to determine the number of shares that could have been acquired at fair
value (determined as the average quarterly or annual, as appropriate, market share price of the Company’s outstanding Class A Non-
Voting shares) based on the monetary value of the subscription rights attached to outstanding stock options. The number of shares
calculated as above is compared with the number of shares that would have been issued assuming the exercise of stock options.
Net income ($Thousands)
Weighted average outstanding shares
Incremental shares for diluted income calculation
Weighted average outstanding shares for income per share - diluted
Income per share - basic
Income per share - diluted
4. Revenue
For the Year Ended
December 31,
2023
December 31,
2023
$ 18,415
$ 4,288
39,658,520
39,622,805
447,710
467,647
40,106,230
40,090,452
$ 0.46
$ 0.11
$ 0.46
$ 0.11
IFRS 15, "Revenue from Contracts with Customers" – Accounting Policies
Revenue is recognized when the Company satisfies a performance obligation by transferring promised goods or services to a customer
and the amount recorded is measured at the fair value of the consideration received. A typical contract with a customer includes
performance obligations to provide drilling services and rig equipment, which are satisfied over time. Once determined, the transaction
price will be allocated to each performance obligation based on stand-alone selling prices. Where stand-alone selling prices are not
directly observable, the Company will make an estimate based on expected cost-plus margin.
Where possible, the Company will apply the practical expedient not to disclose the transaction price for unsatisfied performance if the
performance obligation is part of a contract that has an original expected duration of one year or less. The Company does not expect
to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the
customer exceeds one year. Consequently, the Company does not adjust any of the transaction prices for the time value of money.
The receipt of unearned contract revenue is recorded as deferred revenue until the contracted passage of time has occurred. Contract
cancellation revenue is recognized when both parties to the contract have agreed upon an amount, collection is probable, and the
Company does not have any further services to render in order to earn the revenue.
49
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Significant Estimates and Judgments – Relative Stand-Alone Selling Price
The majority of the Company’s contracts contain both a lease and a service element. IFRS 15, “Revenue from Contracts with Customers”
requires that contract revenue be presented separately from lease revenue. In this case, the transaction price will be allocated to each
of the lease and service elements based on the stand-alone selling prices. Where these are not directly observable, they are estimated
based on expected cost-plus margin.
The Company’s revenue streams are comprised of the following:
$Thousands
Contract drilling services
Rig lease rental
Total revenue
Significant Customers
For the Year Ended
December 31,
2023
December 31,
2022
$ 124,119
$ 110,436
101,360
90,560
$ 225,479
$ 200,996
During 2023 two customers (2022 – one customer) provided more than 10% of the Company’s revenue. While the loss of one or more
of these customers may have a material adverse effect on the financial results of the Company, in management’s assessment, the
future viability of the Company is not dependent upon these major customers.
5. Interest and Financing Expense
The following table summarizes the components of interest and financing expense:
$Thousands
Interest expense
Interest expense, lease obligations
Interest expense, pension
Financing expense, risk management contracts
Total interest and financing expense
For the Year Ended
December 31,
2023
December 31,
2022
$ 6,664
$ 6,267
58
210
(430)
118
155
237
$ 6,502
$ 6,777
50
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6. Expenses by Nature
The Company presents certain expenses in the consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) by
function. The following table presents those expenses by their nature:
$Thousands
Expenses
Salaries, wages and benefits
Materials and supplies
Repairs and maintenance
External services and facilities
Total expenses
Allocated to:
Operating and maintenance
Selling and administrative
Total expenses
7. Income Taxes
For the Year Ended
December 31,
2023
December 31,
2022
$ 102,370
$ 96,329
36,971
30,780
13,028
26,113
32,949
11,034
$ 183,149
$ 166,425
$ 167,029
$ 151,884
16,120
14,541
$ 183,149
$ 166,425
Income taxes are comprised of current and deferred income taxes.
Current taxes are calculated using tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting year.
Deferred tax is recognized, using the liability method, on temporary differences arising between the tax basis of assets and liabilities
and their carrying amounts in the consolidated financial statements. Deferred taxes are measured using tax rates that are enacted or
substantively enacted at the end of the reporting period and are expected to apply when the deferred tax asset is realized or the liability is
settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.
Income taxes are comprised of the following:
$Thousands
Current tax recovery
Deferred tax expense (recovery)
Total income tax expense (recovery)
For the Year Ended
December 31,
2023
December 31,
2022
$ -
$ -
130
(749)
$ 130
$ (749)
51
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table reconciles the income tax expense (recovery) using a weighted average Canadian federal and provincial rate of
23.70% (2022– 23.57%) to the reported tax recovery. The rate increase is due to changes in the jurisdictions the Company operates
in. The reconciling items represent, aside from the impact of tax rate differentials and changes, non-taxable benefits or non-deductible
expenses arising from permanent differences between the local tax base and the financial statements.
$Thousands
Income before income taxes
Expected income tax at the statutory rate
Add (deduct):
Change in income tax rates
Permanent differences
Jurisdictional rate difference
For the Year Ended
December 31,
2023
December 31,
2022
$ 18,545
$ 3,539
4,396
1
103
(216)
834
(8)
102
(75)
Change in unrecognized deferred tax asset
(4,060)
(1,571)
Return to provision adjustment
Other
Total income tax expense (recovery)
The deferred tax balance consists of the following:
(25)
(69)
(48)
17
$ 130
$ (749)
$Thousands
Property,
Plant and
Equipment
Defined
Benefit
Pension Plan
Benefits
Non-Capital
Losses
Other
Total
Balance as at December 31, 2021
$ 34,947
$ (1,338)
$ (23,291)
$ (9,180)
$ 1,138
Charged (credited) to net loss
Charged to OCI
3,588
-
74
255
(4,093)
-
Balance as at December 31, 2022
38,535
(1,009)
(27,384)
Charged (credited) to net income
Charged to OCI
1,569
-
19
(55)
(972)
-
(318)
-
(9,498)
(486)
-
(749)
255
644
130
(55)
Balance as at December 31, 2023
$ 40,104
$ (1,045)
$ (28,356)
$ (9,984)
$ 719
A net deferred tax asset has not been recognized for $67 million (2022 – $76 million). This amount is primarily related to non-capital
losses carried forward.
Total gross tax losses available to the Company are $415,652,000 with $379,378,000 in the US and $36,274,000 in Canada. The first
of these losses will begin to expire in 2031.
Significant Estimates and Judgments - Deferred Income Taxes
The Company makes estimates and judgments relating to the measurement of deferred income taxes, including future tax rates, timing of
reversals of temporary timing differences and the anticipated tax rules that will be in place when timing differences reverse.
52
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. Segmented Information
The Company has one operating segment providing contract drilling services primarily to the oil and gas industry. From time to time, the
Company is involved in other forms of drilling related to potash mining and the development of storage caverns. The Company determines
its operating segments based on internal information, regularly reviewed by management, to allocate resources and assess performance.
Geographical information is presented in the following tables:
$Thousands
Revenue
Revenue less costs and
expenses
For the Year Ended December 31, 2023
For the Year Ended December 31, 2022
Canada
US
Total
Canada
US
Total
$ 56,005
$ 169,474
$ 225,479
$ 55,279
$ 145,717
$ 200,996
$ (6,554)
$ 20,374
$ 13,820
$ (6,860)
$ 11,168
$ 4,308
$Thousands
Canada
US
Total
Canada
US
Total
Property, plant and equipment
$ 57,284
$ 140,000
$ 197,284
$ 56,920
$ 143,630
$ 200,550
As at December 31, 2023
As at December 31, 2022
LONG-TERM ASSETS
9. Right-of-Use Assets
IFRS 16 "Leases" - Accounting Policies
The Company leases various offices, yards, rig equipment, vehicles and office equipment. Lease contracts are typically made for fixed
periods of two to five years, but may have extension or termination options. Lease terms are negotiated on an individual basis and contain
a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used
as security for borrowing purposes.
Lease right-of-use (“ROU”) assets arising from a lease are initially measured on a present value basis. The initial measurement of the
ROU assets is comprised of the following:
• the amount of the initial measurement of the lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs; and
• restoration costs.
ROU assets are depreciated over the lease term on a straight-line basis.
Payments associated with short-term leases and leases of low-value assets are recognized as an expense in the statement of net
income and comprehensive income. Short-term leases are leases with a lease term of 12 months or less. Low-value assets are
comprised of office and IT software.
53
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ROU assets are reviewed for internal and external indicators of impairment at each reporting date or when facts and circumstances
suggest that the carrying amount may exceed its recoverable amount. If indicators of impairment exist, the recoverable amount of
the ROU asset is estimated as the greater of value-in-use (“VIU”) and fair value less costs of disposal (“FVLCOD”). VIU is estimated
as the present value of the future cash flows expected to arise from the continuing use of the ROU asset. FVLCOD is determined by
estimating the discounted after-tax future net cash flows. If the recoverable amount of the ROU asset is less than the carrying amount,
an impairment loss is recognized.
Continuity of ROU Assets
$Thousands
Land and
Property
Office
Equipment
and Software
Vehicles
Total
Balance as at December 31, 2021
$ 1,007
$ 822
$ -
$ 1,829
Additions
Amortization expense
Balance as at December 31, 2022
Additions
Disposals
Amortization expense
-
(448)
559
-
-
(291)
245
(394)
673
388
(78)
(533)
304
(21)
283
-
(304)
21
549
(863)
1,515
388
(382)
(803)
Balance as at December 31, 2023
$ 268
$ 450
$ -
$ 718
Significant Estimates and Judgments
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the
lease term if the lease is reasonably certain to be extended (or not terminated).
The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and
that is within the control of the lessee.
10. Property, Plant and Equipment
IAS 16, “Property, Plant and Equipment” – Accounting Policies
Property, plant and equipment (PP&E) is recognized at cost less accumulated depreciation and impairment.
Cost includes expenditures directly attributable to the acquisition of the asset. The cost of assets constructed by the Company includes
the cost of all materials and services used in the construction and direct labour on the project. Costs cease to be capitalized as soon
as the asset is ready for productive use. Subsequent costs associated with equipment upgrades that result in increased capabilities or
performance enhancements of PP&E are capitalized. Costs incurred to repair or maintain PP&E are charged to expense as incurred.
The carrying amount of a replaced asset is derecognized when replaced.
54
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The PP&E cash generating units (“CGUs”) are reviewed for internal and external indicators of impairment at each reporting date or
when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Internal and external factors
such as (i) a significant change in the market capitalization of the Company’s share price; (ii) changes in conditions of drilling rig assets,
(iii) changes in oil and gas prices in the market (iv) changes in forecasted activity or earnings and (v) changes in interest rates or other
market rates of return, are evaluated by management in determining whether there are any indicators of impairment or impairment
reversal.
If indicators of impairment exist, the recoverable amount of the CGU is estimated as the greater of VIU and FVLCOD. VIU is estimated as
the present value of the future cash flows expected to arise from the continuing use of a CGU. FVLCOD is determined by estimating the
discounted after-tax future net cash flows or through the use of external equipment appraisals obtained from independent third party
valuation experts, less an estimated cost to sell. If the recoverable amount of the CGU is less than the carrying amount, an impairment
loss is recognized. An impairment loss is allocated to the CGU and then to reduce the carrying amounts of the assets in the CGU.
Impairment losses recognized in prior periods are assessed at each reporting date for any indicators that the impairment losses may
no longer exist or may have decreased. In the event that an impairment loss reverses, the carrying amount of the asset is increased
to the revised estimate of its recoverable amount, but only to the extent that the carrying amount does not exceed the amount that
would have been determined had no impairment loss been recognized on the asset in prior periods. The amount of the reversal is
recognized in net earnings.
Impairment of Assets
The Company did not identify any changes in the indicators of asset impairment or impairment reversals or any new indicators of asset
impairment as at December 31, 2023. Therefore, no further assessment on asset impairment was performed as there have been no
changes in circumstances that indicate that the carrying amount of PP&E does not exceed its recoverable amount as at December 31,
2023.
Significant Estimates and Judgments
Useful Lives of Drilling Rigs
Depreciation is recognized on PP&E excluding land. Depreciation methods and rates have been selected so as to amortize the net cost
of each asset over its expected useful life to its estimated residual value. The estimated useful lives, residual values and depreciation
methods are reviewed at the end of each annual reporting period.
Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major renovation,
whichever is sooner.
Asset Impairment
The determination of indicators of asset impairment and impairment reversals involves the use of estimates and judgments including
changes in the conditions of drilling rig assets, changes in forecasted activity or earnings and changes in interest rates or other market
rates of return.
Asset impairment testing involves the use of estimates and judgments in the calculation of future cash flows which include future
revenue projections, discount rates, probabilities of cash flow variability, future capital and operating costs, salvage values and income
taxes and may consider the report of an external appraiser.
55
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Depreciation Methods
The depreciation methodologies for the Company’s major PP&E classes are as follows:
Equipment Class
Drilling rigs
Major inspection and overhaul expenditures
Drill pipe and other ancillary drilling equipment
Furniture, fixtures and equipment
Buildings
Depreciation Method
Depreciation Rates
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
10 to 20 years
3 to 5 years
2 to 8 years
10 years
10 to 20 years
The salvage values for the drilling rig equipment ranges from zero to 10% depending on the specific rig component. There are no
salvage values for the remaining equipment classes.
Property, Plant and Equipment Continuity
Cost
$Thousands
Land and
Buildings
Drilling Rigs
Other
Total
Balance as at December 31, 2021
$ 7,135
$ 572,608
$ 9,639
$ 589,382
Additions
Disposals
-
-
17,921
61
(179)
-
Balance as at December 31, 2022
7,135
590,350
9,700
483
24,109
(20,376)
-
17,982
(179)
607,185
24,592
(20.376)
Additions
Disposals
-
-
Balance as at December 31, 2023
$ 7,135
$ 594,083
$ 10,183
$ 611,401
Accumulated Depreciation
$Thousands
Land and
Buildings
Drilling Rigs
Other
Total
Balance as at December 31, 2021
$ 2,408
$ 366,999
$ 8,506
$ 377,913
Disposals
Depreciation expense
Balance as at December 31, 2022
Disposals
Depreciation expense
-
(139)
-
247
2,655
27,982
394,842
632
9,138
-
(19,798)
-
195
26,648
437
(139)
28,861
406,635
(19,798)
27,280
Balance as at December 31, 2023
$ 2,850
$ 401,692
$ 9,575
$ 414,117
Net Book Value
$Thousands
As at December 31, 2021
As at December 31, 2022
As at December 31, 2023
Land and
Buildings
Drilling Rigs
Other
Total
$ 4,727
$ 205,609
$ 1,133
$ 211,469
$ 4,480
$195,508
$ 562
$ 200,550
$ 4,285
$192,391
$ 608
$ 197,284
At December 31, 2023, the Company had $2,948,000 in PP&E that was not being depreciated, as these assets were under construction
(December 31, 2022 – $172,000).
56
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In addition to depreciation on its PP&E, the Company had amortization expense of $1,230,000 for the year ended December 31, 2023
(2022 - $1,402,000).
11. Investments in Joint Ventures
The Company conducts certain rig operations via joint ventures with First Nations, Métis or Inuit partners whereby rig assets are jointly
owned. Currently, there are eight different First Nations, Métis or Inuit groups with equity investments in six of AKITA’s drilling rigs.
These equity investments are facilitated through joint venture agreements. Each joint venture operates the drilling rig with the joint
venture partners’ owning a share of each drilling rig directly. The equity ownership of the drilling rigs for each First Nations, Métis or
Inuit partner varies between rigs and groups and ranges from 5% to 50% per group per rig. All joint ventures operate in Canada.
While joint venture interests are at least 50% owned by the Company, in each case the joint venture is governed on a joint basis. The
accounting policies of the joint ventures are consistent with the policies described herein.
The Company has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are
accounted for using the equity method of accounting whereby the Company’s share of individual assets and liabilities are recognized
as investments in joint ventures on the consolidated Statements of Financial Position, and revenues and expenses are recognized as
equity income from joint ventures on the consolidated Statements of Net Income and Comprehensive Income.
The following table lists the Company’s active joint ventures.
AKITA
Ownership Interest
85%
85%
85%
70%
90%
50%
Active Joint Ventures
AKITA Wood Buffalo Joint Venture 25
AKITA Wood Buffalo Joint Venture 26
AKITA Wood Buffalo Joint Venture 27
AKITA Wood Buffalo Joint Venture 28
AKITA Mistiyapew Aski Joint Venture 56
AKITA Equtak Joint Venture 61
Continuity of Investments in Joint Ventures
$Thousands
Balance as at December 31, 2021
Net income for the year ended December 31, 2022
Distributions for the year ended December 31, 2022
Balance as at December 31, 2022
Net income for the year ended December 31, 2023
Distributions for the year ended December 31, 2023
Balance as at December 31, 2023
Investments in
Joint Ventures
$ 2,376
5,954
(5,443)
2,887
8,184
(5,950)
$ 5,121
57
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summarized Joint Venture Financial Information
The following summarized financial information is a reconciliation of the Company’s investments in joint ventures to the aggregate
of the amounts included in the IFRS financial statements of the joint ventures which include both the Company’s and joint venture
partners’ interests.
$Thousands
Cash
Other current assets
Non-current assets
Total assets
Current liabilities
Net assets
As at December 31, 2023
As at December 31, 2022
AKITA % JV Partner %
Total
AKITA %
JV Partner %
Total
$ 3,775
$ 861
$ 4,636
$ 850
$ 210
$ 1,060
6,443
1,067
7,510
4,148
1,067
5,215
55
-
55
55
-
10,273
(5,152)
1,928
12,201
(825)
(5,977)
5,053
(2,166)
1,277
(588)
55
6,330
(2,754)
$ 5,121
$ 1,103
$ 6,224
$ 2,887
$ 689
$ 3,576
$Thousands
Revenue
Operating and maintenance
expenses
Selling and administrative
expenses
Net income and
comprehensive income
For the Year Ended December 31, 2023
For the Year Ended December 31, 2022
AKITA % JV Partner %
Total
AKITA %
JV Partner %
Total
$ 35,662
$ 7,611
$ 43,273
$ 25,958
$ 6,403
$ 32,361
27,144
5,637
32,781
19,635
4,892
24,527
334
60
394
369
87
456
$ 8,184
$ 1,914
$ 10,098
$ 5,954
$ 1,424
$ 7,378
WORKING CAPITAL
12. Financial Instruments
IFRS 9, “Financial Instruments” - Accounting Policies
Due to the short-term nature of the Company’s financial instruments, fair values approximate carrying values unless otherwise stated.
The Company recognizes cash received or paid via electronic transfer as at the bank settlement date.
The Company discloses its financial instruments within a hierarchy prioritizing the inputs to fair value measurements at the following
three levels:
• Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities;
• Level 2 – inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
• Level 3 – inputs that are not based on observable market data.
58
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Classification and measurement
The Company classifies its financial instruments in the following measurement categories depending on the Company’s business model
for managing financial assets and the contractual terms of the cash flows:
(i)
Financial assets at amortized cost:
Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and
interest are measured at amortized cost. Interest income from these financial assets is included in finance income using the
effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss and presented
in other gains or losses, together with foreign exchange gains and losses. As at December 31, 2023, the Company’s financial
assets in this category include cash and accounts receivable.
(ii) Financial liabilities at amortized cost:
Financial liabilities that are measured at amortized cost are initially recognized at the amount required to be paid less, when
material, a discount to reduce the payables and accrued liabilities to fair value. Subsequently, financial liabilities are measured
at amortized cost using the effective interest rate method. As at December 31, 2023, the Company's financial liabilities in this
category include accounts payable and accrued liabilities and its operating loan facility.
(iii) Fair value through other comprehensive income (“FVOCI”):
Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows
represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken
through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses
which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized
in OCI is reclassified from equity to profit or loss and recognized in other gains or losses and impairment expenses are presented
as a separate line item on the statement of profit or loss. As at December 31, 2023, the Company held no financial instruments
in this category.
(iv) Fair value through profit or loss (“FVPL”):
Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that
is subsequently measured at FVPL is recognized in profit or loss and presented net within other gains or losses in the period in
which it arises. Financial assets at FVPL are financial assets held for trading. Derivatives are also categorized as held for trading
and measured at FVPL unless they are designated as hedges. As at December 31, 2023, the Company’s financial instruments
in this category include its interest rate swap.
Impairment of financial assets
The Company assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortized
cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
Financial Instrument Risk Exposure and Management
The Company is exposed to the following risks associated with its financial instruments:
Credit risk
Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations
and arises primarily from the Company’s trade and other receivables. The credit risk is managed via the Company’s credit-granting
procedures which include an evaluation of the customer’s financial condition and payment history. In certain circumstances the
Company may require customers to make advance payment prior to the provision of services, issue a letter of credit or take other
measures to reduce credit risk.
For trade receivables, the Company applies the simplified approach to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables. To measure the expected credit losses, trade receivables and contract assets have been
grouped based on shared credit-risk characteristics and analyzed. Accounts receivable are written-off when there is no reasonable
59
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor
to engage in a repayment plan with the Company and a failure to make contractual payments for a period greater than 180 days past
due.
The terms of the Company’s contracts generally require payment within 30 days. The Company continuously monitors the recoverability
of its accounts receivable balances and subject to agreed payment terms, generally considers the balance to be overdue when it ages
over 90 days. In management’s judgment there is no significant credit risk exposure in the balances outstanding at:
$Thousands
Within 30 days
31 to 60 days
61 to 90 days
Over 90 days
Estimated credit losses
Total accounts receivable
As at December 31,
2023
As at December 31,
2022
$ 27,465
$ 34,308
15,125
3,738
1,420
(650)
12,196
732
407
(775)
$ 47,098
$ 46,868
Significant Estimates and Judgments – Estimated Credit Losses
The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses
judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history,
existing market conditions as well as forward-looking estimates at the end of each reporting period.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company mitigates
liquidity risk through management of its working capital balance, monitoring actual and forecasted cash flows and using its operating
loan facility when necessary. At December 31, 2023, this risk was limited by a positive working capital balance of $27.1 million and
$40.0 million available in the Company’s undrawn banking facility.
If future results do not meet the Company’s expectations there is a risk that the Company could be offside with its financial covenants in
its banking facility and lose the ability to draw on the facility to meet its financial obligations or have to repay the amounts outstanding
on the facility. The Company maintains a positive working relationship with the banks in its syndicated facility and on July 17, 2020,
entered into an amending agreement with its lenders in the syndicate to provide a five quarter covenant relief period. The facility was
further amended quarterly to add additional quarters of covenant relief to June 30, 2023 (Note 14). On March 30, 2023, the Company
elected to end its covenant relief period.
Maturity information regarding the Company’s long-term debt is as follows:
$Thousands
Less than 1 Year
1-3 Years
Total
Bank credit facility - principal
$ -
$ 69,542
$ 69,542
Bank credit facility - interest
4,957
3,407
8,364
Total
$ 4,957
$ 72,949
$ 77,906
60
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Maturity information regarding the Company’s long-term lease obligations is as follows:
$Thousands
Lease obligations
Less than 1 Year
2-3 Years
4-5 Years
Total
$ 645,044
$ 228,298
$ -
$ 873,342
Lease obligations - interest
49,136
24,824
-
73,960
Total
$ 694,180
$ 253,122
$ -
$ 947,302
Foreign currency exchange - transaction risk
Foreign currency exchange transaction risk is the risk that future cash flows will fluctuate as a result of changes in foreign currency
exchange rates. The Company’s geographical divisional operations are primarily denominated in their local currency with limited
exposure to foreign currency exchange transaction risk through capital expenditures or financial instruments. From time to time the
Company may enter into forward currency contracts to manage this risk.
Foreign currency exchange - translation risk
The Company is exposed to foreign currency exchange translation risk as revenues, expenses and working capital from its US operations
are denominated in USD. In addition, the Company’s foreign subsidiaries are subject to unrealized foreign currency exchange translation
gains or losses on consolidation.
Interest rate risk
The Company is exposed to changes in interest rates on borrowings under its operating loan facility which is subject to floating interest
rates. To mitigate this risk the company entered into an interest rate swap with its principal banker as the agent on the syndication
along with two other Canadian banks. The term of the interest rate swap is June 15, 2022 to June 15, 2026 and the notional amount
of the swap is $50,000,000. The fixed rate is 4.24% while the floating rate is indexed to the Canadian Dollar Offered Rate ("CDOR").
At period end the interest rate swap is valued at fair value with any unrealized gain (loss) recorded as other income (loss) on the
consolidated statement of net income. At December 31, 2023, the Company recorded an unrealized gain of $95,000. The fair value
measurement of the risk management contract has a fair value hierarchy of Level 3.
Commodity risk
The Company is exposed to the effects of fluctuating crude oil and natural gas prices through the resultant changes in the exploration
and development budgets of its customers.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are comprised of the following:
$Thousands
Trade payables
Statutory liabilities
Accrued expenses
Post-employment benefits
As at December 31,
2023
As at December 31,
2022
$ 16,815
$ 12,238
970
12,595
315
1,264
15,636
323
Total accounts payable and accrued liabilities
$ 30,695
$ 29,461
61
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. Change in Non-Cash Working Capital
$Thousands
Change in non-cash working capital:
Accounts receivable
Prepaid expenses and other
Accounts payable and accrued liabilities
Deferred revenue
Change in non-cash working capital
Pertaining to:
Operating activities
Investing activities
Change in non-cash working capital
DEBT AND EQUITY
14. Debt
Operating Loan Facility
For The Year Ended
December 31,
2023
December 31,
2022
$ (230)
$ (19,640)
787
1,235
421
(377)
8,731
(76)
$ 2,213
$ (11,362)
$ (1,659)
$ (10,232)
3,872
(1,130)
$ 2,213
$ (11,362)
The Company has a syndicated credit agreement with the Company’s principal banker as the agent on the syndication and three other
Canadian banks in the syndication. The operating loan facility totals $110,000,000. The Credit facility expires in September 2025. The
interest rate on the Company’s credit facility ranges from 175 to 300 basis points over prime interest rates depending on the Funded
Debt(1) to EBITDA(1) Ratio. Security for this facility includes all present and after-acquired personal property and a first floating charge
over all other present and after-acquired property including real property. The financial covenants are:
1. The Funded Debt(1) to EBITDA(1) Ratio: the Company shall ensure that the Funded Debt(1) to EBITDA(1) Ratio shall not be more than
3.00:1.00.
The Funded Debt(1) to EBITDA(1) Ratio shall be calculated quarterly on the last day of each Fiscal Quarter on a rolling four quarter basis;
2. The EBITDA(1) to Interest Expense(1) Ratio: the Company shall ensure that the EBITDA(1) to Interest Expense(1) Ratio shall not be less
than 3.00:1.00.
The EBITDA(1) to Interest Expense(1) Ratio shall be calculated quarterly on the last day of each Fiscal Quarter on a rolling four quarter
basis.
At December 31, 2023, the Company was in compliance with its covenants with a Funded Debt(1) to EBITDA(1) Ratio of 1.20:1.00, and
an EBITDA(1) to Interest Expense(1) Ratio of 7.73:1.00.
(1) Readers should be aware that EBITDA, Funded Debt, Interest Expense, Tangible Net Worth, Eligible Accounts Receivable, Priority Payables and Eligible Rig Assets have
specifically set out definitions in the loan facility agreement and are not necessarily defined by or consistent with either GAAP or determinations by other users for other purposes.
62
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The facility also includes a borrowing base calculation which is the sum of:
(i)
(ii)
75% of Eligible Accounts Receivable(1); plus
50% of net book value of all Eligible Rig Assets(1); less
(iii) Priority Payables(1) of the Loan Parties.
At December 31, 2023, the Company’s borrowing base totalled $94,088,000.
The credit facility includes a $10,000,000 operating line of credit that is classified as current, given the Company expects to settle
the balance within a normal operating cycle. The maturity date aligns with the total credit facility. At December 31, 2023, the current
portion of debt was nil (December 31, 2022 – nil). The balance outstanding under the credit loan facility, net of unamortized loan fees,
is classified as long-term debt as the credit agreement has no required repayment obligations prior to the end of the loan facility term.
The Company borrowed $70,000,000 in total from this facility as at December 31, 2023 (December 31, 2022 - $94,000,000).
Continuity of Debt
$Thousands
Balance as at December 31
Drawn on credit facility
Repayment of debt
Net deferred loan fees
Balance as at December 31
$Thousands
Debt allocated to:
Current portion
Long-term portion
Balance as at December 31
15. Lease Obligations
IFRS 16 “Leases” – Accounting Policies
For The Year Ended
December 31,
2023
December 31,
2022
$ 93,514
$ 86,156
-
(24,000)
28
10,000
(2,717)
75
$ 69,542
$ 93,514
As at December 31,
2023
As at December 31,
2022
$ -
$ -
69,542
93,514
$ 69,542
$ 93,514
The Company leases various offices, yards, rig equipment, vehicles and office equipment. Lease contracts are typically made for fixed
periods of two to five years, but may have extension or termination options. Lease terms are negotiated on an individual basis and
contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may
not be used as security for borrowing purposes.
(1) Readers should be aware that EBITDA, Funded Debt, Interest Expense, Tangible Net Worth, Eligible Accounts Receivable, Priority Payables and Eligible Rig Assets have
specifically set out definitions in the loan facility agreement and are not necessarily defined by or consistent with either GAAP or determinations by other users for other purposes.
63
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Lease obligations arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value
of the following lease payments.
• fixed payments less any lease incentives receivable;
• amounts expected to be payable by the lessee under residual value guarantees;
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease
period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s
incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset
of similar value in a similar economic environment with similar terms and conditions. The discount rates range from 5.01% to 9.95%.
Continuity of Lease Obligations
$Thousands
Land and
Property
Office
Equipment and
Software
Vehicles
Total
Balance as at December 31, 2021
$ 1,486
$ 829
$ -
$ 2,315
Change in lease obligations
Lease additions
Balance as at December 31, 2022
Change in lease obligations
Lease additions
Lease terminations
(696)
-
790
(491)
(356)
245
718
(451)
388
-
(81)
(19)
304
285
19
-
(304)
(1,071)
549
1,793
(923)
388
(385)
Balance as at December 31, 2023
$ 299
$ 574
$ -
$ 873
$Thousands
Current portion
Long-term portion
Land and
Property
Office
Equipment and
Software
Vehicles
Total
$ 299
$ 346
$ -
$ 645
-
228
-
228
Balance as at December 31, 2023
$ 299
$ 574
$ -
$ 873
Lease Expense
The Company recorded $58,000 in interest expense related to its lease obligations for the year ended December 31, 2023 (2022 -
$118,000).
64
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. Capital Management
The Company has determined capital to include long-term debt and share capital. The Company's objectives when managing capital
are:
• to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders and
benefits for other stakeholders; and
• to augment existing resources in order to meet growth opportunities.
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of
dividends paid to shareholders, repurchase shares, issue new shares, sell assets or take on long-term debt.
17. Share Capital
Authorized:
• An unlimited number of Series Preferred shares, issuable in series, designated as First Preferred shares, no par value
• An unlimited number of Series Preferred shares, issuable in series, designated as Second Preferred shares, no par value
• An unlimited number of Class A Non-Voting shares, no par value
• An unlimited number of Class B Common shares, no par value
Issued:
• All issued shares are fully paid
The shares outstanding are:
Number of shares
Class A Non-Voting
Class B Common
Total
Shares outstanding at December 31, 2022
37,996,407
1,653,784
39,650,191
Stock options exercised
60,000
-
60,000
Shares outstanding at December 31, 2023
38,056,407
1,653,784
39,710,191
Each Class B Common share may be converted into one Class A Non-Voting share at the shareholder’s option.
The holders of Class A Non-Voting shares have no right to participate if a takeover bid is made for Class B Common shares unless:
• an offer to purchase Class B Common shares is made to all or substantially all holders of Class B Common shares;
• at the same time, an offer to purchase Class A Non-Voting shares on the same terms and conditions is not made to the holders of
Class A Non-Voting shares; and
• holders of more than 50% of the Class B Common shares do not reject the offer in accordance with the terms of AKITA's articles of
incorporation.
If these three pre-conditions are met, then the holders of Class A Non-Voting shares will be entitled to exchange each Class A Non-Voting
share for one Class B Common share for the purpose of depositing the resulting Class B Common shares pursuant to the terms of the
takeover bid.
65
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Class A Non-Voting shares and Class B Common shares rank equally in all other respects.
Incremental costs attributable to the issue of new shares or options are recorded as a reduction in equity, net of income taxes.
Shares repurchased by the Company are recorded as a reduction of shareholders’ equity based upon the consideration paid, including any
directly incremental costs, net of income taxes. All shares repurchased by the Company are cancelled upon repurchase.
PERSONNEL
18. Share-Based Compensation Plans
The Company has four share-based compensation plans. Stock options qualify as an equity-settled share-based compensation plan,
the deferred share units (“DSUs”) and share appreciation rights (“SARs”) qualify as cash-settled share-based compensation plans and
the performance share units (“PSUs”) are cash-settled or equity-settled at the discretion of the Company. For all four of the share-
based compensation plans, associated services received are measured at fair value and are calculated by multiplying the number of
options, DSUs, SARs or PSUs expected to vest with the fair value of one option, DSU, SAR or PSU as of the grant date.
Stock Options
Subject to the approval of the Company’s Board of Directors, the Company’s Corporate Governance, Nomination, Compensation and
Succession Committee may designate directors, officers, employees and other persons providing services to the Company to be granted
options to purchase Class A Non-Voting shares.
The vesting provisions and exercise period (which cannot exceed 10 years) are determined at the time of the grant. Each tranche is
considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the
date of grant using either the Binomial or the Black Scholes option pricing model. The number of awards expected to vest is reviewed
at least annually, with any impact being recognized immediately.
The following table summarizes stock options reserved, granted and available for future issuance:
Number of options
Reserved under the current stock option plan
Balance at beginning of year
Added to stock option plan (1)
Expired
Granted
Available for future issuance
December 31,
2023
December 31,
2022
6,500,000
3,633,500
-
-
(515,000)
3,118,500
6,500,000
365,500
3,400,000
298,000
(430,000)
3,633,500
(1) On May 10, 2022, the Company’s stock option plan was replenished, and 3,400,000 shares were added to the shares reserved for future issuance under the current stock
option plan.
66
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table is a summary of the Company's stock options plan:
2023
2022
Number of
Options
Weighted
Average
Exercise Price
Number of
Options
Weighted
Average
Exercise Price
Options outstanding at January 1
1,422,500
$ 1.63
1,332,500
$ 2.14
Granted
Exercised
Expired
515,000
1.36
430,000
$ 1.69
(60,000)
0.44
(42,000)
$ 0.77
-
-
(298,000)
$ 4.12
Options outstanding at December 31
1,877,500
$ 1.59
1,422,500
$ 1.63
Options exercisable at December 31
971,000
$ 1.85
652,000
$ 1.94
The following table summarizes the outstanding stock options at December 31:
Vesting
Period
(Years)
Exercise
Price
Number
Outstanding
5
5
5
5
5
5
$ 5.62
$ 3.93
$ 0.44
$ 1.01
$ 1.69
$ 1.36
42,500
197,500
262,500
430,000
430,000
515,000
Weighted Average
Contractual Life
Deferred Share Units
2023
Remaining
Contractual
Life (Years)
4.7
5.2
4.5
5.3
7.0
8.0
6.3
Number
Exercisable
Number
Outstanding
42,500
197,500
198,000
258,000
172,000
103,000
42,500
197,500
322,500
430,000
430,000
2022
Remaining
Contractual
Life (Years)
5.7
6.2
5.5
6.3
8.0
6.6
Number
Exercisable
42,500
158,000
193,500
172,000
86,000
The Company has a cash-settled share-based long-term incentive compensation plan for certain employees. Each DSU granted equates
to one Class A Non-Voting share and entitles the holder to receive a cash payment equal to the Company’s share price on the payment
date. DSU holders are entitled to share in dividends, which are credited as additional DSUs, at each dividend payment date. DSUs vest
immediately but are not exercisable until resignation or retirement from management and/or the Board of Directors.
Units issued under the Company’s DSU plan are measured at fair value using the intrinsic value method when granted and subsequently
re-measured at each reporting date using the Company’s Class A Non-Voting share price at the reporting date with the associated
expense (recovery) recognized in selling and administrative expense. The Company assumes a zero forfeiture rate.
67
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company’s DSU plan is presented in the following table:
2023
2022
Number of
Deferred
Share Units
Fair
Value
($000's)
Number of
Deferred
Share Units
Fair
Value
($000's)
DSUs outstanding as at January 1
258,526
$ 447
349,882
$ 329
Granted
Redeemed
Change in fair value
88,235
(4,946)
120
(7)
(92)
74,850
(166,206)
125
(309)
302
DSUs outstanding as at December 31
341,815
$ 468
258,526
$ 447
Deferred share units allocated to:
2023
2022
Number of
Deferred
Share Units
Fair
Value
($000's)
Number of
Deferred
Share Units
Fair
Value
($000's)
Accounts payable and accrued liabilities
-
$ -
4,947
$ 8
Non-current liabilities
341,815
468
253,579
439
DSUs outstanding as at December 31
341,815
$ 468
258,526
$ 447
Performance Share Units
The Company has granted PSUs to certain employees under its Performance Share Unit Plan. PSUs are time-vested whole-share units that
entitle employees to receive, upon vesting, either one Class A Non-Voting share of AKITA or a cash payment equal to the value of one Class
A Non-Voting share of AKITA. The number of PSUs eligible to vest is determined by a multiplier that ranges from zero percent to 100 percent
and is based on the Company achieving key pre-determined performance measures. PSUs vest after three years.
Units issued under the Company’s PSU plan are measured at fair value using the intrinsic value method when granted and subsequently
re-measured at each reporting date using the Company’s Class A Non-Voting share price at the reporting date with the associated expense
(recovery) recognized in selling and administrative expense. The Company assumes a zero forfeiture rate and that all performance
measurements will be met.
A summary of the Company’s PSU plan is presented in the following table:
2023
2022
Number of
Performance
Share Units
Fair
Value
($000's)
Number of
Performance
Share Units
Fair
Value
($000's)
PSUs outstanding as at January 1
68,862
$ 119
-
$ -
Granted
Change in fair value
272,059
370
(22)
68,862
115
4
PSUs outstanding as at December 31
340,921
$ 467
68,862
$ 119
The total long-term share-based compensation plan liability is $935,000 (December 31, 2022 - $558,000).
68
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Share Appreciation Rights
SARs may be granted to directors, officers and key employees of the Company. The vesting provisions (which range from three to eight
years) and exercise period (which cannot exceed 10 years) are determined at the time of the grant. The holder is entitled on exercise
to receive a cash payment from the Company equal to any increase in the market price of the Class A Non-Voting shares over the base
value of the SAR exercised. The base value is equal to the closing price of the Class A Non-Voting shares on the day before the grant.
As at December 31, 2023, no SARs have been granted (December 31, 2022 – nil).
Share-Based Compensation Expense
The fair value of the services received is recognized as selling and administrative expense. In the case of equity-settled share-based
payment plans, the selling and administrative expense results in a corresponding increase in contributed surplus over the vesting
period of the respective plan. When stock options are exercised, shares are issued and the amount of the proceeds, together with the
amount recorded in contributed surplus, is recognized in share capital. For cash-settled share-based payment plans, a corresponding
liability is recognized. The fair value of the cash-settled share-based payment plans is remeasured at each Statement of Financial
Position date through the Statement of Net Income and Comprehensive Income until settlement.
Share-based compensation expense consists of the following:
$Thousands
Stock option expense
DSU expense
PSU expense
For the Year Ended
December 31,
2023
$ 387
29
348
December 31,
2022
$ 250
427
119
Total share-based compensation expense
$ 764
$ 796
The stock option expense was determined using the Binomial Model based on the following assumptions. Expected volatility is
calculated by examining a historical 60 month (5 year) trading history up to the grant date, where significant outliers are excluded to
provide a better estimate.
Risk-free interest rate
Expected volatility
Dividends yield rate
Option life
Weighted average share price
Forfeiture rate
Fair value of options
2023
3.36%
91%
0.00%
5.4 years
$ 1.36
0.00%
$ 1.00
2022
2.86%
92%
0.00%
5.4 years
$ 1.69
0.00%
$ 1.25
69
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. Employee Future Benefits
The Company has a defined contribution pension plan, registered under the Alberta Employment Pension Plans Act, which covers
substantially all of its Canadian employees. Under the provisions of the plan, the Company contributes 5% of regular earnings for
eligible employees on a current basis. In addition, Canadian employees having eligible terms of service are subject to admission
into the Company’s group RRSP. The Company makes contributions on behalf of these plans to a separate entity and has no
legal or constructive obligations to pay further contributions if the plans do not hold sufficient assets to pay the employee benefits
relating to employee service in current or prior periods.
The Company has a 401(k) plan, registered under the Employment Retirement Income Security Act of 1974, which covers all
of its United States employees. Under the provisions of the plan, the Company contributes 3% of regular earnings for eligible
employees on a current basis.
Contributions to the Company’s defined contribution pension plan, group RRSP and the 401(k) plan are recognized as employee
benefit expense when they are due.
The Company has established an unregistered defined benefit pension plan for certain retired employees. The defined benefit
pension plan, which provides for pensions based upon the age of the retiree at the date of retirement, is non-contributory
and unfunded. The Company obtains an actuarial valuation from an independent actuary subsequent to each year-end or if
circumstances change. The most recent evaluation was dated January 11, 2024, and was utilized in measuring the December
31, 2023 balances.
The defined benefit pension plan liability is the present value of the defined benefit obligation at the Statement of Financial
Position date. The cost of the defined benefit pension plan is determined using the projected unit credit method. The defined
benefit pension obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality
Canadian denominated corporate bonds that have terms to maturity approximating the terms of the related pension liability. Past
service costs are recognized in net income when incurred. Post-employment benefits expense is comprised of the interest on
the net defined benefit liability, calculated using a discount rate based on market yields on high quality bonds, and the current
service cost. Remeasurements consisting of actuarial gains and losses, the actual return on plan assets (excluding the net
interest component) and any change in the asset ceiling are recognized in other comprehensive income.
Continuity of Defined Benefit Pension Liability
$Thousands
Actuarial present value of defined benefit obligation as at January 1
Interest cost
Current service cost
Benefits paid
Unrealized actuarial (gain) loss
2023
$ 4,279
210
-
(315)
232
Actuarial present value of defined benefit obligation as at December 31
$ 4,406
2022
$ 5,463
155
18
(275)
(1,082)
$ 4,279
$Thousands
Pension liability allocated to:
Accounts payable and accrued liabilities
Non-current liabilities
Pension liability outstanding as at December 31
2023
2022
$ 315
4,091
$ 4,406
$ 315
3,964
$ 4,279
70
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Key Assumptions
Discount rate at beginning of the year
For the Year Ended
December 31,
2023
5.1%
December 31,
2022
2.9%
The Company’s pension expense is recorded in selling and administrative expenses and interest expense and is comprised of the
following:
$Thousands
Defined benefit pension plan
Interest cost
Service cost
Expense for defined benefit pension plan
Expense for defined contribution pension plans
For the Year Ended
December 31,
2023
December 31,
2022
$ 210
$ 155
-
210
3,631
18
173
3,054
Total expense
$ 3,841
$ 3,227
Significant Estimates and Judgments – Defined Benefit Pension Liability
Significant estimates used in the preparation of AKITA’s financial statements relate to the measurement of the non-current defined
benefit pension liability for certain retired employees that was recorded as $4,091,000 at December 31, 2023 (December 31, 2022 -
$3,964,000). AKITA utilizes the services of a third party to assist in the actuarial estimate of the Company’s defined benefit pension
expense and liability. At December 31, 2023, a key assumption is the discount rate of 4.6% (2022 – 5.1%). From the perspective of
a sensitivity analysis, a 1% decrease in the discount rate would result in a $448,000 increase in the defined benefit obligation while
a 1% increase in the discount rate would result in a $381,000 decrease in the defined benefit obligation. Additionally, if members’
lives should be one year longer than actuarial expectations, the defined benefit obligation would increase by $70,000. Except for the
impact on the discount rate used in the pension assumptions, recent changes in the global economy and related markets have not
otherwise affected the measurement of the Company’s defined benefit pension liability.
OTHER NOTES
20. Commitments and Contingencies
From time to time, the Company enters into drilling contracts with its customers that are for extended periods. At December 31, 2023,
the Company had no drilling rigs with multi-year contracts.
The Company has entered into a two year contract with a related party to provide sponsorship and advertising at an annual cost of
$350,000.
At December 31, 2023, the Company had capital expenditure commitments of $5,109,000 (2022 – $740,000).
71
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Related Party Transactions
All related party transactions were made in the normal course of business with regular payment terms and have been recorded at the
amounts agreed upon with the related parties.
a) ATCO Group and Spruce Meadows
The Company is related to the ATCO Group of companies and to Spruce Meadows through its controlling shareholder (see Note 1 –
General Information). The transactions and year-end balances with those affiliates are as follows:
$Thousands
Revenue (computer services, rent)
Purchases:
Sponsorship and advertising (Note 20)
Selling and administrative
Operating
Year-end accounts payable
For the Year Ended
December 31,
2023
December 31,
2022
$
$
$
$
$
87
350
113
518
58
$
$
$
$
$
87
175
81
744
74
b) Joint ventures and joint venture partners
The Company is related to its joint ventures and joint venture partners. The joint ventures’ and joint venture partners’ transactions
and year-end balances with AKITA are as follows:
$Thousands
Operating costs
Selling and administrative costs
$Thousands
Due to AKITA from joint venture partners
Due to AKITA from joint ventures
For the Year Ended
December 31,
2023
$
$
5,727
581
December 31,
2022
$
$
4,613
493
As at December 31,
2023
As at December 31,
2022
$
$
2,248
3,470
$
$
1,801
858
72
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
c) Key management compensation
Key management includes the officers and directors of the Company. The following table presents the compensation paid or payable
to key management for services in the capacity as either officers or directors:
$Thousands
Salaries, director's fees and other short-term benefits
Post-employment benefits
Share-based payments
Long-service payable
For the Year Ended
December 31,
2023
December 31,
2022
$
$
$
$
1,415
59
840
-
$
$
$
$
1,906
94
690
50
22. New and Upcoming Accounting Standards
Certain new or amended standards or interpretations have been issued by the International Accounting Standards Board (“IASB”) or
the International Financial Reporting Interpretations Committee. One amendment became applicable for the current reporting period
and the Company had to change its accounting policies as a result. The amendment below was applied and did not have a material
impact on the consolidated financial statements:
•
IAS 12, “Income Taxes”, has been amended to recognize deferred tax on particular transactions that, on initial recognition, give rise
to equal amounts of taxable and deductible temporary differences.
The following amendments have not yet been early adopted and are not expected to have a material impact on the consolidated
financial statements. They are effective for reporting periods beginning on or after January 1, 2024:
•
•
IAS 1, “Presentation of Financial Statements”, has been amended to clarify how to classify debt and other liabilities as either current
or non-current.
IAS 1, “Presentation of Financial Statements”, has been amended to clarify how to determine that an entity has the right to defer
settlement for a liability arising from a loan arrangement for at least twelve months after the reporting period.
There are no other standards and interpretations that have been issued, but are not yet effective, that the Company anticipates will
have a material effect on the financial statements once adopted.
73
AKITA DRILLING | 2023 Annual ReportNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10 YEAR FINANCIAL REVIEW
$Thousands (except per share)
Summary of Operations
Revenue
Income (loss) before income taxes
Income taxes expense (recovery)
Net income (loss)
As a percentage of average shareholders’ equity
Earnings (loss) per Class A and Class B share (basic)
Funds flow from operations
As a percentage of average shareholders’ equity
Financial Position at Year End
Working capital (deficiency)
Current ratio
Total assets
Shareholders’ equity
per share
Other
Capital expenditures (net)
Depreciation and amortization
Dividends paid
per share
Annual
Ranking
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
1
2
4
2
1
2
2
1
1
3
5
5
7
7
2
7
7
7
$
$
$
$
$
$
$
$
$
$
$
$
$
$
225,479
18,545
130
18,415
11.8%
0.46
45,522
29.2%
25.3%
27,130
1.85
263,640
155,962
3.93
24,592
28,510
-
-
$
$
$
$
$
$
$
$
$
$
$
$
200,996
3,539
(749)
4,288
3.1%
0.11
34,813
25.3%
31,121
2.02
268,281
137,851
3.48
17,982
30,263
$ -
$ -
$
$
$
$
$
$
$
$
$
$
$
$
$
$
110,088
(21,782)
(792)
(20,990)
(16.0%)
(0.53)
7,454
5.7%
6,496
1.27
247,574
131,485
3.32
16,416
28,838
-
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
119,664 $
175,890 $
118,361
61,061 $
112,488
165,274
(102,701) $
(24,679)
(12,228)
(9,427) $
(4,804)
3,651
(93,274) $
(19,875)
(15,939)
(61.3%)
(8.1%)
(2.03) $
(0.50)
$
(5.9%)
(0.65)
$
$
$
7,535 $
(44,544)
2,206 $
(10,579)
5,329 $
(33,965)
2.4%
(14.2%)
0.30 $
(1.89)
28,121
7,042
21,079
8.3%
1.17
10,322 $
12,925 $
14,306
34,500 $
38,510
56,195
6.8%
5.3%
5.3%
15.7%
16.0%
22.2%
8,683 $
4,032 $ 11,166
34,907 $
16,002
$
(5,028)
1.56
1.14
1.31
4.49
2.45
0.90
251,521 $
369,116 $ 403,641
257,907 $
254,516
340,926
152,266 $
245,134 $ 271,728
219,646 $
220,200
259,841
3.84 $
6.19 $
6.86
12.24 $
12.27
14.48
$
$
$
$
$
$
$
$
$
$
$
$
$
$
71,198
(53,230)
(14,053)
(39,177)
(22.5%)
(2.18)
6,607
3.8%
15,528
2.02
207,497
174,455
9.72
20,348
27,126
6,100
0.34
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7,593 $
15,238 $
17,546
13,193 $
17,960
103,949
32,681 $
36,763 $
26,614
23,959 $
36,748
30,200
-
-
$
$
10,101 $
7,942
0.17 $
0.34
6,100 $
0.34 $
6,101
0.34
6,015
0.34
$
$
$
$
$
$
$
$
$
$
$
$
$
74
AKITA DRILLING | 2023 Annual Report10 YEAR FINANCIAL REVIEW $Thousands (except per share)
Summary of Operations
Revenue
Income (loss) before income taxes
Income taxes expense (recovery)
Net income (loss)
As a percentage of average shareholders’ equity
Earnings (loss) per Class A and Class B share (basic)
Funds flow from operations
As a percentage of average shareholders’ equity
Financial Position at Year End
Working capital (deficiency)
Current ratio
Total assets
Shareholders’ equity
per share
Other
Capital expenditures (net)
Depreciation and amortization
Dividends paid
per share
1
2
4
2
1
2
2
1
1
3
5
5
7
7
2
7
7
7
$
$
$
$
$
$
$
$
$
$
$
$
$
$
225,479
18,545
130
18,415
11.8%
0.46
45,522
29.2%
25.3%
27,130
1.85
263,640
155,962
3.93
24,592
28,510
-
-
$
$
$
$
$
$
$
$
$
$
$
$
200,996
110,088
3,539
(749)
4,288
3.1%
0.11
34,813
25.3%
31,121
2.02
268,281
137,851
3.48
17,982
30,263
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(21,782)
(792)
(20,990)
(16.0%)
(0.53)
7,454
5.7%
6,496
1.27
247,574
131,485
3.32
16,416
28,838
-
-
$ -
$ -
Annual
Ranking
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
119,664 $
175,890 $
118,361
(102,701) $
(24,679)
(9,427) $
(4,804)
(93,274) $
(19,875)
(61.3%)
(8.1%)
$
$
$
(2.03) $
(0.50)
$
(12,228)
3,651
(15,939)
(5.9%)
(0.65)
10,322 $
12,925 $
14,306
6.8%
5.3%
5.3%
8,683 $
4,032 $ 11,166
1.56
1.14
1.31
251,521 $
369,116 $ 403,641
152,266 $
245,134 $ 271,728
3.84 $
6.19 $
6.86
7,593 $
15,238 $
17,546
32,681 $
36,763 $
26,614
-
-
$
$
10,101 $
7,942
0.17 $
0.34
$
$
$
$
$
$
$
$
$
$
$
$
$
$
71,198
(53,230)
(14,053)
(39,177)
(22.5%)
(2.18)
6,607
3.8%
15,528
2.02
207,497
174,455
9.72
20,348
27,126
6,100
0.34
$
$
$
$
$
$
$
$
$
$
$
$
$
$
61,061 $
112,488
7,535 $
(44,544)
2,206 $
(10,579)
5,329 $
(33,965)
2.4%
(14.2%)
0.30 $
(1.89)
34,500 $
38,510
15.7%
16.0%
$
$
$
$
$
$
165,274
28,121
7,042
21,079
8.3%
1.17
56,195
22.2%
34,907 $
16,002
$
(5,028)
4.49
2.45
0.90
257,907 $
254,516
219,646 $
220,200
12.24 $
12.27
13,193 $
17,960
23,959 $
36,748
6,100 $
0.34 $
6,101
0.34
$
$
$
$
$
$
$
340,926
259,841
14.48
103,949
30,200
6,015
0.34
75
AKITA DRILLING | 2023 Annual Report10 YEAR FINANCIAL REVIEW CORPORATE INFORMATION
Officers
Linda A. Southern-Heathcott
Executive Chair
Colin A. Dease
President and Chief Executive Officer
Darcy Reynolds
Vice President, Finance and
Chief Financial Officer
Head Office
AKITA Drilling Ltd.,
1000, 333 - 7th Avenue SW
Calgary, Alberta T2P 2Z1
403.292.7979
Banker
ATB Financial
Calgary, Alberta
Counsel
Bennett Jones LLP
Calgary, Alberta
Auditors
PricewaterhouseCoopers LLP
Calgary, Alberta
Registrar and Transfer Agent
Odyssey Trust Company
Calgary, Alberta
1.888.290.1175
Share Symbol/TSX
Class A Non-Voting (AKT.A)
Class B Common (AKT.B)
Website
www.akita-drilling.com
Directors
Loraine M. Charlton
Corporate Director
Calgary, Alberta
Douglas A. Dafoe
President and CEO
Ember Resources Inc.
Calgary, Alberta
Harish K. Mohan
Corporate Director
Calgary, Alberta
Robert J. Peabody
Corporate Director
Calgary, Alberta
Nancy C. Southern
Chairman, President and
Chief Executive Officer,
ATCO Ltd., Canadian Utilities Limited, and
CU Inc.
Calgary, Alberta
Linda A. Southern-Heathcott
Executive Chair,
AKITA Drilling Ltd.
President and
Chief Executive Officer,
Spruce Meadows Ltd.,
President,
Team Spruce Meadows Inc.,
Calgary, Alberta
Henry G. Wilmot
Corporate Director
Calgary, Alberta
Charles W. Wilson
Corporate Director
Boulder, Colorado
77
AKITA DRILLING | 2023 Annual Report A
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2
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a
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HEAD OFFICE
AKITA Drilling Ltd., 1000, 333 - 7th Ave SW
Calgary, Alberta T2P 2Z1 Canada
www.akita-drilling.com