ANNUAL REPORT
2024
1
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 13, 2025 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.
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 Inuvialuit 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 32
drilling rigs in all depth ranges.
AKITA DRILLING | 2024 Annual Report 1
AKITA DRILLING | 2024 Annual Report
2
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;
• 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;
FORWARD-LOOKING STATEMENTS
• 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 2024 Annual Report for AKITA.
FORWARD-LOOKING STATEMENTS
CONTENTS
1
Corporate Profile
8
Letter to the
Shareowners
4
Operational Performance
6
Share Performance
10
Management's
Discussion and Analysis
36
Management's
Responsibility for
Financial Reporting
38
Auditor's Report
44
Consolidated Financial
Statements
48
Notes to the
Consolidated Financial
Statements
76
10 Year Financial Review
79
Corporate Information
CONTENTS
AKITA DRILLING | 2024 Annual Report 3
AKITA DRILLING | 2024 Annual Report
4
OPERATIONAL PERFORMANCE
200,000
150,000
100,000
50,000
2020
2021
2022
2023
2024
0
250,000
40,000
0
(100,000)
2020
2021
2022
2023
2024
(80,000)
(20,000)
(60,000)
(40,000)
30,000
10,000
2020
2021
2022
2023
2024
20,000
40,000
0
5,000
15,000
25,000
35,000
Funds Flow from Continuing Operations($000's)
5,000
2020
2021
2022
2023
2024
25,000
15,000
0
Capital Expenditures ($000's)
OPERATIONAL
PERFORMANCE
Revenue ($000's)
Net Earnings (Loss) ($000's)
30,000
20,000
10,000
20,000
45,000
50,000
AKITA DRILLING | 2024 Annual Report 5
INTEGRITY
COMMITMENT
FOUNDATIONAL
VALUES
At AKITA - integrity, respect
and commitment are
the foundational values
and guiding principles
engrained into every aspect
of our operations.
RESPECT
AKITA DRILLING | 2024 Annual Report
6
SHARE PERFORMANCE
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, 2024 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.
Dec 31,
2019
Dec 31,
2020
Dec 31,
2021
Dec 31,
2022
Dec 31,
2023
Dec 31,
2024
AKITA Class A
Non-Voting Shares
100
40
79
145
115
134
AKITA Class B
Common Shares
100
127
157
166
119
159
S&P/TSX
Composite Index
100
102
124
114
123
145
TSX Equal Weight
Oil & Gas
100
69
109
139
137
160
200
150
100
50
0
2019
2020
2021
2022
2023
2024
Five Year Total Return on $100 Investment
AKITA DRILLING | 2024 Annual Report
7
SHARE PERFORMANCE
Share Performance
2020
2021
2022
2023
2024
Weighted average number of Class A and
Class B shares
30,608,191
39,608,191
39,608,191
39,658,520
39,729,732
Total number of Class A and Class B shares
39,608,191
39,608,191
39,650,191
39,710,191
39,734,191
Market prices for Class A Non-Voting shares
High
$ 1.22
$ 1.54
$ 2.96
$ 2.05
$ 1.87
Low
$ 0.25
$ 0.50
$ 0.89
$ 1.08
$ 1.20
Close
$ 0.48
$ 0.94
$ 1.73
$ 1.37
$ 1.60
Volume
21,339,080
7,239,647
20,529,992
12,340,380
7,938,498
Market prices for Class B Common shares
High
$ 2.89
$ 3.00
$ 4.98
$ 2.45
$ 5.25
Low
$ 0.67
$ 0.98
$ 1.50
$ 1.35
$ 1.55
Close
$ 0.77
$ 2.46
$ 2.60
$ 1.87
$ 2.50
Volume
45,986
14,172
19,530
4,854
8,879
AKITA DRILLING | 2024 Annual Report
8
LETTER TO THE SHAREOWNERS
AKITA’s continued focus on setting and maintaining high
standards, striving for excellence, and conducting its business
with integrity were instrumental to our success in 2024 despite
challenging market conditions.
In Canada, 2024 was a more active year for both the industry
and AKITA. The industry achieved 61,457 operating days in
2024 compared to 57,944 in 2023, marking a 6% increase.
AKITA outpaced industry’s growth, with 2,719 operating
days in 2024, up from 2,239 in 2023, equivalent to a 21%
increase. This heightened activity positively impacted our
adjusted margin per operating day in Canada, which increased
to $11,612 in 2024 from $10,258 in 2023. Additionally, the
Canadian Division successfully upgraded one of its oilsands
triple rigs in January 2024 enabling it to drill deep natural
gas wells, and the rig performed consistently well throughout
the year. Looking into 2025, the Canadian Division started
the year very active and the Canadian Association of Energy
Contractors forecasted continued industry growth, estimating
69,344 operating days in 2025, up 4,706 days from 2024.
In the US, the active rig count declined significantly in the
second half of 2023 and throughout 2024, creating challenging
conditions for the industry. AKITA's active rig count followed
a similar trajectory but rebounded in the latter half of 2024,
ending the year with 13 of 14 marketed rigs in operation. Over
the fourth quarter, AKITA’s utilization rate more than doubled
industry’s average. Despite this recovery, however, AKITA’s
US Division activity fell to 3,025 operating days in 2024 from
3,853 in 2023, as the late-year rebound could not fully offset
weaker activity over the first three quarters. The decline in
activity also affected adjusted operating margin per day, which
dropped by 9% year-over-year. The US market outlook for 2025
remains uncertain, with industry sentiment not anticipating a
material recovery in rig count.
A key corporate objective for 2024 was to reduce debt by $20
million, a goal achieved in December 2024. This milestone
lowered long-term debt to $50 million from $94 million in
2022. Notably, our debt coverage ratio also improved, dropping
below 1x and sitting at 0.93:1 debt to EBITDA at year-end.
Operational excellence remains a top priority for the Company,
which begins by deploying experienced crews supported by strong
mentorship and oversight at all levels in the field. This focus
enhances crew retention, which is essential for safe and efficient
operations. Further reflecting our commitment to operational
excellence, AKITA invested $28,043,000 in rig maintenance and
upgrades in 2024, primarily for maintenance capital allocated
to improve efficiencies and minimize downtime caused by
premature equipment failures.
Linda
Southern-Heathcott
Colin
Dease
AKITA DRILLING | 2024 Annual Report 9
LETTER TO THE SHAREOWNERS
In closing, we extend our sincere appreciation to AKITA’s
employees for their adaptability, hard work, and dedication to
excellence. We also recognize the invaluable contributions of our
directors, whose guidance has fostered a strong and successful
company, as well as our First Nation, Métis, and Inuvialuit
partners. Lastly, we thank our shareholders for their continued
support and confidence in AKITA Drilling.
On behalf of the Board of Directors,
Linda Southern-Heathcott
Executive Chairman of the Board
Colin Dease
President and Chief Executive Officer
March 5, 2025
LETTER TO THE
SHAREOWNERS
AKITA DRILLING | 2024 Annual Report
10
MANAGEMENT’S DISCUSSION & ANALYSIS
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, 2024, is dated March 5, 2025, 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,
2024. The MD&A should be read in conjunction with the audited annual consolidated financial statements and related
notes for the year ended December 31, 2024, prepared in accordance with International Financial Reporting Standards
(“IFRS Accounting Standards”) as issued by the International 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 32 drilling rigs. AKITA provides contract drilling services
through two geographical segments: Canada and the United States (“US”). AKITA’s US fleet is supported out of its operations base
in Midland, Texas and is comprised of 13 high specification AC triple rigs, one high specification AC double rig and one DC triple rig,
primarily serving the Permian Basin, which is the most active basin in the US and is currently supporting approximately half of all US
land drilling.
With a fleet of 17 rigs, AKITA’s Canadian division operates in Alberta, British Columbia and Saskatchewan. AKITA’s Canadian division
primarily operates in the oil sands, heavy oil regions and in the Montney deep gas basin.
The Canadian division operates both wholly-owned rigs and rigs that are partially owned by AKITA and First Nation, 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. Together AKITA’s First Nation, Métis and Inuvialuit joint venture partners
hold equity interests in five of AKITA’s Canadian drilling rigs.
AKITA DRILLING | 2024 Annual Report 11
MANAGEMENT’S DISCUSSION & ANALYSIS
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 customized operator requests. Fostered over three decades of operation, AKITA has
established a leading safety culture and is committed to coaching and mentoring its personnel 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
For the Three Months Ended December 31,
For the Year Ended December 31,
$Thousands, except per share amounts
2024
2023
Change % Change
2024
2023
Change % Change
Revenue
62,857
47,317
15,540
33%
193,325
225,479 (32,154)
(14%)
Operating and maintenance expenses
45,008
38,228
6,780
18%
144,052 167,029 (22,977)
(14%)
Operating margin
17,849
9,089
8,760
96%
49,273
58,450
(9,177)
(16%)
Margin %
28%
19%
9%
47%
25%
26%
(1%)
(4%)
Net cash from operating activities
5,946
17,523 (11,577)
(66%)
30,264
35,567
(5,303)
(15%)
Adjusted funds flow from operations(1)
18,634
7,177
11,457
160%
44,714
45,522
(808)
(2%)
Per share
0.47
0.18
0.29
161%
1.13
1.15
(0.02)
(2%)
Net income (loss)
9,609
(1,166)
10,775
924%
12,863
18,415
(5,552)
(30%)
Per share
0.24
(0.03)
0.27
900%
0.32
0.46
(0.14)
(30%)
Capital expenditures
9,604
12,822
(3,218)
(25%)
28,043
24,592
3,451
14%
Weighted average shares outstanding
39,734
39,684
50
0%
39,730
39,659
71
0%
Total assets
268,763 263,640
5,123
2%
Total debt
50,000
70,000 (20,000)
(29%)
(1) See “Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
General Overview
For AKITA, 2024 activity was a mirror image of 2023. The Company began 2023 on a strong note but saw a decline in both activity and
results by the end of the year. In contrast, 2024 started slower in terms of activity, but showed significant improvement throughout
the year, culminating in a very strong fourth quarter, with 75% of the Company’s earnings for the year generated in the last quarter of
the year. AKITA ended the year with net earnings of $12,863,000 in 2024, compared to $18,415,000 in 2023, a decrease of 30%
year over year due to reduced activity in the US for most of the year, which was partially offset by stronger results in AKITA’s Canadian
division. Adjusted funds flow from operations of $44,714,000 in 2024 was slightly lower than adjusted funds flow from operations
of $45,522,000 in the prior year. Canadian activity increased 21% in 2024 when compared to 2023, which translated into a 37%
increase in adjusted operating margin in Canada. In the US, activity decreased year over year, dropping 21% in 2024 when compared
to 2023 which in turn reduced the Company’s operating margin 28% year over year. Capital spending for the year was 14% higher in
2024 than in 2023, mostly made up of routine capital items. The Company achieved its debt repayment target for 2024, reducing debt
by $20,000,000 and ending the year with a debt balance, excluding capitalized transaction costs, of $50,000,000. This marks the
second year of $20,000,000 or more of debt repayment, which has decreased the Company’s interest expense from $6,502,000 in
2023 to $4,511,000 in 2024.
AKITA DRILLING | 2024 Annual Report
12
MANAGEMENT’S DISCUSSION & ANALYSIS
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 international LNG (liquified natural gas) pricing. West Texas Intermediate (“WTI”) crude oil prices decreased in
the third quarter of 2024, ending the year at $70 USD/bbl, down 5% from $74 USD/bbl at the start of the year. Natural gas prices have
seen a more significant decrease in the year as well as more volatility, with the AECO decreasing 28% in the year from $2.47/GJ at the
start of 2024 to $1.78/GJ at the end of the year. This decreasing commodity price environment is having an impact on demand in the
industry, particularly in the US.
In the US, the total active rig count, which decreased over the first half of the year, remained relatively flat in the second half of 2024.
Over the last three years, the active rig count increased by 180 rigs in 2022, decreased by 150 rigs in 2023 and declined a further 28
rigs in 2024, ending the year at 573 active rigs. Several factors are influencing the active rig count in the US including decreasing prices
for WTI, and more significantly, declining natural gas prices. The drop in natural gas prices has severely impacted demand for drilling
rigs in gas basins, which has predominantly led to more competition in oil basins such as the Permian Basin. Also contributing to the
low active rig count in the US is the impact of recent major consolidation among large US oil and gas companies, which are growing
through consolidation rather than through increased drilling activity. The surplus of idle drilling rigs in the industry is having a negative
effect on day rates which have been under pressure since the rig count began to fall in 2023.
In Canada, industry activity in 2024 began the year in line with 2023, but started to outpace 2023 levels in the second quarter of
2024. The commencement of commercial operations of the Trans Mountain Pipeline expansion in the second quarter of 2024, which
increased the egress of Canadian crude oil to tidewater, along with the anticipated completion of LNG Canada’s export facility in 2025
in conjunction with the completion of the Coastal GasLink, has led to increased demand for drilling services in both oil and natural gas
in Canada during the year. While this increase in activity is positive, it has not yet resulted in significant upwards pricing pressure, as
there remains underutilized capacity in the industry for certain classes of drilling rigs.
Industry Overview
1) Source: U.S. Energy Information Administration
2) Source: Daily Oil Bulletin (“DOB”)
3) Source: Canadian Association of Energy Contractors (“CAOEC”)
4) Source: Baker Hughes North American Rotary Rig Count
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
130.00
110.00
90.00
70.00
50.00
30.00
10.00
WTI Prices ($USD/bbl) (1)
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
AECO Natural Gas Price ($CAD/GJ) (2)
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
275
250
225
200
175
150
125
Canada Active Rig Count (3)
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
850
800
750
700
650
600
550
500
US Active Rig Count (4)
2024
2023
2022
AKITA DRILLING | 2024 Annual Report 13
MANAGEMENT’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
2024
2023
Change % Change
2024
2023
Change % Change
Revenue Canada
24,024
11,768
12,256
104%
64,235
56,005
8,230
15%
Revenue from joint venture
drilling rigs
12,806
7,672
5,134
67%
45,991
35,662
10,329
29%
Flow through charges(1)
(2,674)
(860)
(1,814)
(211%)
(5,213)
(5,986)
773
13%
Adjusted revenue Canada(1)
34,156
18,580
15,576
84%
105,013
85,681
19,332
23%
Operating and maintenance
expenses Canada
16,383
8,935
7,448
83%
46,440
41,556
4,884
12%
Operating and maintenance
expenses from joint venture
drilling rigs
8,962
6,129
2,833
46%
32,212
27,144
5,068
19%
Flow through charges(1)
(2,674)
(860)
(1,814)
(211%)
(5,213)
(5,986)
773
13%
Adjusted operating and
maintenance
expenses Canada(1)
22,671
14,204
8,467
60%
73,439
62,714
10,725
17%
Adjusted operating
margin Canada(1)
11,485
4,376
7,109
162%
31,574
22,967
8,607
37%
Margin %(1)
34%
24%
10%
42%
30%
27%
3%
11%
Operating days
900
465
435
94%
2,719
2,239
480
21%
Adjusted revenue per
operating day(1)
37,951
39,957
(2,006)
(5%)
38,622
38,268
354
1%
Adjusted operating and
maintenance expenses
per operating day(1)
25,190
30,546
(5,356)
(18%)
27,010
28,010
(1,000)
(4%)
Adjusted operating margin
per operating day(1)
12,761
9,411
3,350
36%
11,612
10,258
1,354
13%
Utilization(1)
58%
25%
33%
132%
44%
31%
13%
42%
Rig count
17
20
(3)
(15%)
17
20
(3)
(15%)
(1)See “Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
Results in Canada improved for the second consecutive year in 2024, with adjusted operating margin increasing 37% to $31,574,000
in the year, from $22,967,000 in 2023. This increase was primarily driven by increased activity in the year with operating days
increasing 21% to 2,719 days in 2024 compared to 2,239 days in 2023. This increase in operating days was primarily driven by the
Company’s double rig category which made up 68% of the total increase, followed by AKITA’s single rigs, which made up 22% of the
increase, with the balance attributed to AKITA’s triple rigs. During 2024, AKITA’s Canadian fleet was 44% utilized which is equal to the
utilization for the industry as a whole.
Adjusted revenue per operating day was consistent year over year, with only a 1% change from 2023 into 2024. The Company secured
some moderate day rate increases in 2024, however, these rate increases were overshadowed by the higher adjusted revenue per day
the Company achieved in the fourth quarter of 2023, which drove up the 2023 average and was related to a contract on two rigs that
were commissioned and commenced operations, but which saw their drilling programs subsequently cancelled and resulting in the
reimbursement of costs incurred which drove up both revenue and costs in the fourth quarter of 2023.
AKITA DRILLING | 2024 Annual Report
14
MANAGEMENT’S DISCUSSION & ANALYSIS
Adjusted operating and maintenance expenses per day decreased by 4% to $27,010 in 2024 from $28,010 in 2023. The decrease in
operating and maintenance expense per day was attributable to fewer start-up costs in 2024, when compared to the fourth quarter of 2023.
With consistent adjusted revenue per operating day and decreasing adjusted operating and maintenance expense per operating day
the adjusted operating margin per operating day increased 13% year over year which also contributed to the overall increase in the
results in Canada.
AKITA’s Canadian division provided drilling services to 21 different customers in 2024 (2023 - 15 different customers), including five
customers that each provided more than 10% of AKITA’s Canadian revenue for the year (2023 – four customers).
United States
For the Three Months Ended December 31,
For the Year Ended December 31,
$Thousands except per day amounts
2024
2023
Change % Change
2024
2023
Change % Change
Revenue US
38,832
35,549
3,283
9%
129,090
169,474
(40,384)
(24%)
Flow through charges(1)
(3,440)
(4,183)
743
18%
(14,092)
(17,610)
3,518
20%
Adjusted revenue US(1)
35,392
31,366
4,026
13%
114,998
151,864
(36,866)
(24%)
Operating and maintenance
expenses US
28,625
29,293
(668)
(2%)
97,612
125,473
(27,861)
(22%)
Flow through charges(1)
(3,440)
(4,183)
743
18%
(14,092)
(17,610)
3,518
20%
Adjusted operating
and maintenance
expenses US(1)
25,185
25,110
75
0%
83,520
107,863
(24,343)
(23%)
Adjusted operating
margin US(1)
10,207
6,256
3,951
63%
31,478
44,001
(12,523)
(28%)
Margin %(1)
29%
20%
9%
45%
27%
29%
(2%)
(7%)
Operating days
969
812
157
19%
3,025
3,853
(828)
(21%)
Adjusted revenue per
operating day(1)
36,524
38,628
(2,104)
(5%)
38,016
39,414
(1,398)
(4%)
Adjusted operating and
maintenance expenses per
operating day(1)
25,991
30,924
(4,933)
(16%)
27,610
27,995
(385)
(1%)
Adjusted operating margin per
operating day(1)
10,533
7,704
2,829
37%
10,406
11,419
(1,013)
(9%)
Utilization(1)
70%
59%
11%
19%
55%
70%
(15%)
(21%)
Rig count
15
15
-
0%
15
15
-
0%
(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 with 11 of 15 rigs operating, which declined to 8 rigs in the second quarter, then increased
to 13 active rigs by year end. This recovery in AKITA’s US active rig count contrasted the US industry as a whole, which started the year
at 601 active rigs and declined throughout the year to end at 573 active rigs. AKITA’s increased rig count in the fourth quarter of 2024
was not enough to offset the activity losses over the first three quarters of the year, resulting in operating days falling to 3,025 in 2024
(55% utilization) from 3,853 operating days in 2023 (70% utilization). This reduction in activity was the key driver in the decrease in
the adjusted operating margin in the US, which fell 28% to $31,478,000 in 2024 from $44,001,000 in 2023.
Adjusted revenue per day decreased in 2024 to $38,016 from $39,414 in 2023, as reduction in the industry active rig count put pricing
pressure on contractors competing for fewer jobs. Slightly offsetting this decrease in adjusted revenue per day was a reduction in
adjusted operating and maintenance expense per operating day, which decreased to $27,610 in 2024 from $27,995 in 2023. A focus
on cost reduction throughout the year, combined with the impact of increased capital expenditures in 2023 and 2024, which reduced
premature failures of equipment and therefore decreased maintenance costs, enabled the Company to reduce costs despite the price
AKITA DRILLING | 2024 Annual Report 15
MANAGEMENT’S DISCUSSION & ANALYSIS
of the Company’s inputs increasing year over year. Adjusted operating and maintenance costs were positively impacted in 2023 by the
receipt of a $4.0 million Employee Retention Credit (“ERC”) from the IRS. 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 2023. Adjusting for this amount, adjusted operating and maintenance expense per day decreased
5% year over year.
Revenue in the US accounted for 52% of the Company’s total 2024 adjusted revenue, compared to 64% in 2023, due to a combination
of the Canadian division strengthening while activity weakened in the US division.
In the US, AKITA provided drilling services to 24 different customers in 2024 (2023 – 25 customers), including four customers that
provided more than 10% of AKITA’s US revenue for the year (2023 – two customers).
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 2025 is somewhat opaque with both oil and natural gas prices being at relative
lows when compared to the last three years.
Activity in Canada started the year stronger and strengthened further over the course of the year in 2024 compared to 2023. This trend
of demand for drilling services is expected to continue into 2025, with increasing activity. In November of 2024, CAOEC released its
2025 Drilling and Service Rig Forecast which estimated 6,604 wells to be drilled in 2025, up 448 from 2024 and for drilling operating
days to increase by 4,706 days in 2025 to 69,344. A positive factor in the Canadian market is LNG Canada’s export facility, which will
come online in 2025 and is expected to secure additional markets for Canadian natural gas, thereby increasing demand for drilling
services. The Canadian market may be impacted if tariffs are imposed on the export of Canadian oil and gas to the United States,
although the impact of such tariffs cannot be estimated at this time. The Company is still anticipating a stronger 2025 in Canada than
2024, as the momentum in the industry continues, with drilling for deep gas and oil sands activity expected to remain strong despite tariffs.
In the US, the active rig count ended 2024 at 573 rigs, down 6% from the 601 rigs active at the start of 2024. Market sentiment
suggests current activity levels are likely to persist through at least the first half of 2025. In 2024, large US operators focused on
growth through consolidation rather than drilling new wells. If this trend continues, the active rig count will likely remain flat in 2025.
There are some indications, however, that the active rig count in the US could begin to increase in the second half of 2025. First, the
drilled but uncompleted well count (“DUC”) continues to decline and a decreasing DUC count can be a positive leading indicator for
increased drilling demand. Additionally, there is increased investment in the takeaway capacity of 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, all will help get gas out of the Permian, and could lead to increased prices for natural
gas, and strengthen demand for drilling.
Although there is the potential for activity in 2025 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 weakest market cycles the industry experiences. The Company’s capital plans for 2025 are in line with 2024,
however, there is the potential for additional upgrade capital if the right opportunity warrants it.
AKITA DRILLING | 2024 Annual Report
16
MANAGEMENT’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 in late June or early July. Some areas are subject to
environmental orders which can prevent drilling activity on certain well leases over periods when authorities prioritize wildlife or habitat
protection. 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 as 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
2024
2023
Change
% Change
Depreciation and amortization expense
27.6
28.5
(0.9)
(3%)
The decrease in depreciation and amortization expense to $27,594,000 in 2024 from $28,510,000 in 2023 is due to a change in the
estimated useful life of certain rig assets that are lasting longer than in the past.
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 2024 and 2023, drilling rig depreciation accounted
for 98% of total depreciation expense.
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
2024
2023
Change
% Change
Selling and administrative expenses
17.0
16.1
0.9
6%
Selling and administrative expenses increased to $17,037,000 in 2024 from $16,120,000 in 2023 due to higher share-based
compensation, which increased $450,000 in 2024 and salary inflation.
Selling and administrative expenses increased to 9% of revenue in 2024, up from 7% in 2023. The single largest component of selling
and administrative expenses is salaries and benefits which accounted for 43% of such expenses in 2024, up from 41% in 2023.
AKITA DRILLING | 2024 Annual Report 17
MANAGEMENT’S DISCUSSION & ANALYSIS
Asset Impairment
The Company did not identify any changes in the indicators of asset impairment or any new indicators of asset impairment during 2024
or 2023. Accordingly, 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, 2024.
Equity Income from Joint Ventures
Equity income from joint ventures is comprised of the following:
$Millions
2024
2023
Change
% Change
Proportionate share of revenue from joint ventures
46.0
35.7
10.3
29%
Proportionate share of operating & maintenance
expenses from joint ventures
32.2
27.1
5.1
19%
Proportionate share of selling and administrative
expenses from joint ventures
0.5
0.4
0.1
25%
Equity income from joint ventures
13.3
8.2
5.1
62%
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. AKITA’s joint venture operations are in Canada and accounted for using
the equity method of accounting but represent the same revenue and expenses of AKITA’s wholly-owned rigs. 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 primarily 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
2024
2023
Change
% Change
Interest income
0.2
0.3
(0.1)
(33%)
Interest and financing expense
(4.5)
(6.5)
2.0
(31%)
Gain on sale of assets
0.2
2.2
(2.0)
(91%)
Unrealized gain (loss) on risk management contracts
(0.3)
0.1
(0.4)
(400%)
Net other gains
2.2
0.4
1.8
450%
Total other loss
(2.2)
(3.5)
1.3
(37%)
The Company recorded interest and financing expense of $4,512,000 for 2024, down from $6,502,000 in 2023. This decrease is due
to a lower average debt balance in 2024 of $59,562,000 compared to $80,500,000 in 2023 and to a decrease in the Company’s
interest expense, resulting from a decrease in interest rates, which averaged 7.03% in 2024 down from 7.99% in 2023.
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 Overnight Repo Rate (“CORRA”). 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, 2024 the Company recorded an unrealized loss of $311,000 compared to a gain of $95,000 in 2023.
AKITA DRILLING | 2024 Annual Report
18
MANAGEMENT’S DISCUSSION & ANALYSIS
During 2024, the Company realized a gain of $187,000 on the sale of idle equipment, compared to $2,199,000 in 2023 on the sale of
certain components, including the centre section of an idle rig in the US, as well as spare equipment in Canada. Net other gains in 2024
relates to the gain on the settlement of an insurance claim for $2,134,000, which the Company received payment for in December of
2024. In 2023 net other gains was primarily on the sale of fully depreciated assets.
Income Tax Expenses
$Millions, except income tax rate (%)
2024
2023
Change
% Change
Current tax expense
–
–
–
n/a
Deferred tax expense (recovery)
2.9
0.1
2.8
2800%
Total income tax expense (recovery)
2.9
0.1
2.8
2800%
Effective income tax rate
23.9%
23.7%
AKITA had an income tax expense of $2,910,000 in 2024, compared to an income tax expense of $130,000 in 2023. The increase in
deferred income tax expense relates to the increased profitability in the Company’s Canadian division. A net deferred tax asset has not
been recognized for $66 million (2023 – $67 million). This amount is primarily related to non-capital losses carried forward.
Total gross tax losses available to the Company are $380,893,000 with $357,469,000 in the US and $23,423,000 in Canada. The first
of these losses will begin to expire in 2031.
Net Income (Loss), Net Cash and Adjusted Funds Flow
$Millions
2024
2023
Change
% Change
Net income (loss)
12.9
18.4
(5.5)
(30%)
Net cash from operating activities
30.3
35.6
(5.3)
(15%)
Adjusted funds flow from operations(1)
44.7
45.5
(0.8)
(2%)
(1)See “Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
During 2024, the Company recorded net income of $12,863,000 (net income of $0.33 per Class A Non-Voting and Class B Common
share (basic and diluted) compared to net earnings of $18,415,000 (net earnings of $0.48 per Class A Non-Voting and Class B
Common share (basic and diluted)) in 2023. The decrease in net income was primarily attributable to lower activity in the US, while
other differences between 2024 and 2023 offset each other. The reduced interest expense in 2024 was counterbalanced by a higher
deferred tax expense, and the insurance gain in 2024 was comparable to the gain on sale of assets in 2023. As a result, the decline
in US activity remained the key factor driving the decrease in net income. Additionally, net cash from operating activities decreased to
$30,264,000 in 2024, down from $35,567,000 in 2023, due to the same factors affecting net income.
Adjusted funds flow from operations, which is not impacted by changes in non-cash working capital, decreased slightly in 2024 to
$44,714,000 from $45,522,000 in 2023. The decrease in funds flow from operations was less than the decrease in net income due
to the addback of deferred tax, which is a non-cash expense that was higher in 2024 ($2,910,000) than in 2023 ($130,000) and the
elimination of the gain on sale of assets in 2023 of $2,199,000.
AKITA DRILLING | 2024 Annual Report 19
MANAGEMENT’S DISCUSSION & ANALYSIS
Summary of Quarterly Results
The following table shows key selected quarterly financial information for the Company:
Three Months Ended
$Thousands, except per share(unaudited)
Mar. 31
Jun. 30
Sep. 30
Dec. 31
Annual Totals
2024
Revenue
46,304
38,336
45,828
62,857
193,325
Net income (loss)
2,627
(478)
1,106
9,608
12,863
Income (loss) per share (basic and diluted) ($)
0.07
(0.01)
0.03
0.23
0.32
Adjusted funds flow from operations(1)
11,260
6,387
8,345
18,722
44,714
Cash flow from operations
6,948
10,913
6,458
5,945
30,264
Capital expenditures
3,935
7,126
7,378
9,604
28,043
2023
Revenue
65,000
58,349
54,813
47,317
225,479
Net income (loss)
9,523
6,177
3,880
(1,165)
18,415
Income (loss) per share (basic and diluted) ($)
0.24
0.16
0.10
(0.04)
0.46
Adjusted funds flow from operations(1)
15,159
12,620
10,566
7,177
45,522
Cash flow from (used in) operations
(414)
16,150
2,308
17,523
35,567
Capital expenditures
2,504
4,700
4,566
12,822
24,592
2022
Revenue
44,986
42,960
53,526
59,524
200,996
Net Income (loss)
(2,933)
(4,252)
2,660
8,813
4,288
Loss per share (basic and diluted) ($)
(0.07)
(0.11)
0.07
0.22
0.11
Adjusted funds flow from operations(1)
4,996
4,716
8,957
16,144
34,813
Cash flow from operations
247
6,189
3,727
8,035
18,198
Capital expenditures
6,412
3,633
3,020
4,917
17,982
(1) See “Non-GAAP and Supplementary Financial Measures" near the end of this MD&A for further detail.
AKITA DRILLING | 2024 Annual Report
20
MANAGEMENT’S DISCUSSION & ANALYSIS
Key trends over the past 12 quarters, after giving consideration to the seasonal nature of AKITA’s operations, are as follows:
• The impact of the significant improvement in the profitability of the US operating segment can be seen beginning in the third quarter
of 2022 with higher activity and day rates in the US improving results for the Company as a whole and then slowing down in the
fourth quarter of 2023 as activity in the US dropped from 14 active rigs to 6 active rigs;
• Revenue in the first quarter of 2022 was split relatively equally between Canada and the United States. The majority of revenue
shifted to the US in the fourth quarter of 2022 and returned to an even split in the first quarter of 2024. In the fourth quarter of
2024, revenue was 51% from US operations and 49% from Canada when including AKITA’s share of revenue from joint ventures;
• The fourth quarter of 2024 was the most profitable quarter of the last twelve quarters with the highest net income as well as the
highest funds flow from operations; and
• The seasonal nature of the Company’s Canadian operations, which typically means cash from operations peaks in the second
quarter of the year, as activity in Canada slows down for breakup and the working capital that built in the first quarter is released,
can be seen in the cash from operations balances.
Three Year Annual Financial Summary
The following table highlights AKITA’s annual financial results for the last three years:
$Thousands, except per share
2024
2023
2022
Revenue
193,325
225,479
200,996
Net income
12,863
18,415
4,288
Income per share (basic)
0.33
0.46
0.11
Adjusted funds flow from operations(1)
44,714
45,522
34,813
Net cash from operating activities
30,264
35,567
18,198
Year-end working capital
22,559
27,130
31,121
Year-end shareholders' equity
171,505
155,962
137,851
Year-end total assets
268,763
263,640
268,281
(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, 2024, AKITA had $23,549,000 in working capital (working capital ratio of 1.64:1) with $7,032,000 of cash, compared
to a working capital of $27,130,000 (working capital ratio of 1.85:1) and $11,187,000 cash the previous year. In 2024, AKITA generated
$30,264,000 in cash from operating activities. Positive cash was also generated from joint venture distributions ($10,804,000) and
from proceeds on sales of assets ($446,000). During the same period, $28,043,000 of cash was used for capital expenditures and
$20,000,000 of cash was used for debt repayment. Accounts payable at year-end included $17,957,000 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 along with three
other Canadian banks. The operating loan facility totals $110,000,000. The credit facility expires in September of 2026. The interest
rate 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:
AKITA DRILLING | 2024 Annual Report 21
MANAGEMENT’S DISCUSSION & ANALYSIS
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, 2024, the Company was in compliance with its covenants with a Funded Debt(1) to EBITDA(1) Ratio of 0.94:1.00, and
an EBITDA(1) to Interest Expense(1) Ratio of 10.35:1.00.
The facility also includes a borrowing base calculation which is the sum of:
(i)
75% of Eligible Accounts Receivable(1); plus
(ii)
50% of the orderly liquidated value of all Eligible Rig Assets(1); less
(iii)
Priority Payables(1) of the Loan Parties.
At December 31, 2024, the Company’s borrowing base totalled $140,826,000.
The credit facility includes a $10,000,000 operating line of credit that is classified as current, given that the Company expects to settle
the balance within a normal operating cycle. The maturity date aligns with the total credit facility. At December 31, 2024 and December
31, 2023, the current portion of debt was 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 $50,000,000 from
this facility as at December 31, 2024 (December 31, 2023 - $70,000,000).
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 in order 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 elect to pay dividends
to Shareholders, 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 $28,043,000 in 2024 ($24,592,000 in 2023). Capital spending in 2024 was as follows: $16,139,000
(2023 - $13,360,000) for certifications and overhauls, $531,000 (2023 - $1,380,000) for drill pipe and drill collars, $10,667,000
(2023 - $8,910,000) for drilling rig equipment and upgrades, and $706,000 in other capital assets (2023 - $942,000).
During 2024, the Company sold ancillary assets for $446,000 (2023 - $2,788,000) that resulted in a gain of $187,000 (2023 –
gain of $2,199,000).
(1)See "Non-GAAP and Supplementary Financial Measures" near the end of the MD&A for further detail.
AKITA DRILLING | 2024 Annual Report
22
MANAGEMENT’S DISCUSSION & ANALYSIS
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 2024 and 2023 were made in the normal course of business with regular payment terms
and have been recorded at the paid amounts. In 2024, operating purchases totaled $1,483,000, and included sponsorship and
advertising of $350,000, operational costs of $1,050,000 and other miscellaneous purchases of $83,000. At December 31, 2024,
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 2024 were $350,000 (2023 - $350,000). 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.
$Thousands
2024
2023
Operating and maintenance expenses
5,837
5,727
Selling and administrative expenses
710
581
Year-end due to AKITA from joint venture partners
1,412
2,248
Year-end due to AKITA from joint ventures
658
3,470
Commitments and Contingencies
From time to time, the Company enters into drilling contracts with its customers that are for extended periods. At December 31, 2024,
however, 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. This sponsorship contract has been recurring since 2004.
At December 31, 2024, the Company had capital expenditure commitments of $2,486,000 (2023 – $5,109,000).
AKITA DRILLING | 2024 Annual Report 23
MANAGEMENT’S DISCUSSION & ANALYSIS
23
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, 2023
38,056,407
144,982
1,653,784
1,366
39,710,191
146,348
Stock options exercised
24,000
17
-
-
24,000
17
December 31, 2024
38,080,407
144,999
1,653,784
1,366
39,734,191
146,365
At March 5, 2025, 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.
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
AKITA DRILLING | 2024 Annual Report
24
MANAGEMENT’S DISCUSSION & ANALYSIS
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.
Tariff Risk
The impact of tariffs on Canadian exports into the United States,
including energy exports, as well as potential retaliatory tariffs on
goods imported into Canada from the United States could have a
material adverse impact on the Company.
Tariffs could negatively impact Canadian oil and gas companies
who rely on the US export market and lead to Canadian operators
curtailing their drilling programs. Further, supply costs incurred
by AKITA to conduct drilling operations could increase as a result
of proposed tariffs.
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 these
regions 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.
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.
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 $3,999,000 at December 31, 2024 (2023 - $4,091,000). 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 both 2024 and 2023, a key assumption is the
4.6% discount rate at year end.
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:
AKITA DRILLING | 2024 Annual Report 25
MANAGEMENT’S DISCUSSION & ANALYSIS
Dependence on Major Customers
AKITA earned 14% of its total revenue in 2024 from one major
customer. This was the only customer 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, including introduction of tariffs, 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 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, 2026 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
AKITA DRILLING | 2024 Annual Report
26
MANAGEMENT’S DISCUSSION & ANALYSIS
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:
(i)
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
(ii)
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.
Foreign Exchange and Foreign Operations Risk
AKITA’s operations in the United States increase the 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.
Cybersecurity
AKITA’s business is becoming increasingly reliant on information
technology for delivery ofservices 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.
AKITA DRILLING | 2024 Annual Report 27
MANAGEMENT’S DISCUSSION & ANALYSIS
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. 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.
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.
Energy Alternatives
AKITA’s management cannot predict the impact of changing
demand for crude oil and natural gas products. Fuel conservation
measures, alternative fuel requirements, 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.
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
AKITA DRILLING | 2024 Annual Report
28
MANAGEMENT’S DISCUSSION & ANALYSIS
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 necessary to support their
indemnification obligations. AKITA’s insurance or 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.
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.
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.
Risk Management
AKITA manages its risks by:
• maintaining a conservative balance sheet that includes a
low cost structure for the Company;
• having its risk management committee deliberate
periodically to assess, evaluate and develop a plan to deal
with the risk conditions for the Company;
• 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
AKITA DRILLING | 2024 Annual Report 29
MANAGEMENT’S DISCUSSION & ANALYSIS
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;
• improving the skills of its employees through
training programs;
• maintaining effective systems of internal control to
safeguard assets and ensure timely and accurate
reporting of financial results;
• 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, 2024, 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, 2024.
As of December 31, 2024, 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, 2024 as well as the year ended December 31, 2024.
There was no change in the Company’s internal control over financial reporting that occurred during the period that began on October
1, 2024 and ended December 31, 2024 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, 2024.
AKITA DRILLING | 2024 Annual Report
30
MANAGEMENT’S DISCUSSION & ANALYSIS
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.
For the Three Months Ended December 31,
For the Year Ended December 31,
$Thousands
2024
2023
2024
2023
Net cash from operating activities
5,946
17,523
30,264
35,567
Interest paid
996
1,243
4,316
6,292
Interest expense
(1,044)
(1,294)
(4,511)
(6,502)
Lease inducement
(569)
-
(569)
-
Post-employment benefits paid
79
79
315
322
Equity income from joint ventures
3,708
1,488
13,300
8,184
Unrealized gain (loss) on foreign exchange
(1,550)
391
(1,550)
391
Change in non-cash working capital
11,068
(12,253)
3,149
1,268
Adjusted funds flow from operations
18,634
7,177
44,714
45,522
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):
a)
all amounts deducted in the calculation of Net Income in respect of Interest Expense;
b)
all amounts deducted in the calculation of Net Income in respect of the provision for income taxes (in accordance with Generally
Accepted Accounting Principles);
AKITA DRILLING | 2024 Annual Report 31
MANAGEMENT’S DISCUSSION & ANALYSIS
c)
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;
d)
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;
e)
all cash distributions received in such period from persons which are not Guarantors;
f)
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;
g)
all amounts deducted in the calculation of Net Income in respect of share based compensation;
h)
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)
it is a valid and legally enforceable obligation of the applicable Account Debtor;
b)
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;
c)
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;
d)
such account does not relate to services not as of yet completed;
e)
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;
f)
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;
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;
AKITA DRILLING | 2024 Annual Report
32
MANAGEMENT’S DISCUSSION & ANALYSIS
h)
it is denominated in either Canadian Dollars or United States Dollars;
i)
it is subject to a Perfected Security Interest in favour of the Agent;
j)
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;
k)
such account is not in respect of a builders lien or similar holdbacks;
l)
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 income 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)
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;
b)
is not presented in the financial statements of the Company;
c)
is not a non-GAAP financial measure; and
d)
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.
AKITA DRILLING | 2024 Annual Report 33
MANAGEMENT’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, operating day rates, active rig count, supply issues and labour shortages), 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, the expansion of the
Company's presence in the Montney deep gas basin, the Company’s role in achieving energy transition targets, the impact of the LNG
Canada export facility coming online, the possibility that tariffs will be imposed on the export of Canadian oil and gas to the United
States, drilling for deep gas, oil sands activity, consolidation among large US drilling operators, and investment in the takeaway capacity
of natural gas capacity from the Permian Basin to the Gulf Coast.
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
AKITA DRILLING | 2024 Annual Report
34
MANAGEMENT’S DISCUSSION & ANALYSIS
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.
Upcoming Accounting Standard Changes
Certain new or amended standards or interpretations have been issued by the International Accounting Standards Board or the
International Financial Reporting Interpretations Committee. Two amendments became applicable for the current reporting period
and the Company had to change its accounting policies as a result. The amendments below were applied and did not have a material
impact on the consolidated financial statements:
• 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.
The following amendment has not yet been early adopted and is not expected to have a material impact on the consolidated financial
statements. It is effective for reporting periods beginning on or after January 1, 2025:
• IAS 21, “The Effects of Changes in Foreign Exchange Rates”, has been amended to add requirements to help entities in determining
whether a currency is exchangeable into another currency and the spot exchange rate to use when it is not.
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, 2026:
• IFRS 7, “Financial Instruments: Disclosures”, has been amended to add requirements for disclosure of contractual terms that could
change the timing or amount of contractual cash flows in the occurrence (or non-occurrence) of a contingent event that does not
relate directly to changes in basic lending risks and costs. This amendment applies to financial assets measured at amortized cost
or fair value through other comprehensive income (“ FVOCI”) and financial liabilities measured at amortized cost.
• IFRS 7, “Financial Instruments: Disclosures”, has been amended to add requirements for disclosure of the change in fair value of
equity instruments designated at FVOCI. The fair value gain or loss must be presented in OCI during the period and show separately
the fair value gain or loss relating to investments derecognized in the period and those held at the end of the period.
• IFRS 9, “Financial Instruments”, has been amended to add guidance on the derecognition of a financial liability settled through
electronic transfer. A financial liability that will be settled in cash using an electronic transfer payment system can be derecognized
before the settlement date if specified criteria are met.
• IFRS 9, “Financial Instruments”, has been amended to add guidance and clarification on contractual terms that are consistent with
a basic lending arrangement.
The following new standard has not yet been early adopted and is not expected to have a material impact on the consolidated financial
statements. It is effective for reporting periods beginning on or after January 1, 2027:
• IFRS 18, “Presentation and Disclosure in Financial Statements”, is the new standard in financial statement presentation and
disclosure with a focus on updates to the statement of profit or loss. It will replace IAS 1, Presentation of Financial Statements, and
retains many of the existing principles.
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 5, 2025. Copies of these documents including additional copies of the Annual Report for the year ended December 31,
2024 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.
35
36
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 information
throughout this Annual Report is consistent with the consolidated
financial statements except as noted.
MANAGEMENT’S
RESPONSIBILITY FOR
FINANCIAL
REPORTING
AKITA DRILLING | 2024 Annual Report
36
37
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
Darcy Reynolds
President and
Vice President, Finance
Chief Executive Officer
and Chief Financial Officer
March 5, 2025
MANAGEMENT’S RESPONSIBILITY 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.
AKITA DRILLING | 2024 Annual Report 37
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.
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, 2024 and 2023, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting 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, 2024 and 2023;
the consolidated statements of net income and comprehensive income 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.
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, 2024. These matters were
AKITA DRILLING | 2024 Annual Report
38
INDEPENDENT AUDITOR'S REPORT
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
Assessment of indicators of impairment 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, 2024, the total net book value
of PP&E, which mainly consists of drilling rig
assets, amounted to $198 million, of which
$58 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. As at December 31, 2024,
management concluded that no indicators of
impairment existed.
Management applies significant judgment in
assessing whether indicators of impairment exist
that would necessitate impairment testing. 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.
Our approach to addressing the matter included the
following procedures, among others:
Evaluated management’s assessment of
indicators of impairment, which included the
following:
Assessed the completeness of external or
internal factors that could be considered as
indicators of impairment of the CGUs.
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 or other market rates of
return by considering the current and past
performance of the CGUs, external market
data and evidence obtained in other areas
of the audit, as applicable.
AKITA DRILLING | 2024 Annual Report 39
INDEPENDENT AUDITOR'S REPORT
Key audit matter
How our audit addressed the key audit matter
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, 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
and will 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 on the other information that we obtained prior to the date of this
auditor’s report, 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. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
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
AKITA DRILLING | 2024 Annual Report
40
INDEPENDENT AUDITOR'S REPORT
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.
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.
AKITA DRILLING | 2024 Annual Report 41
INDEPENDENT AUDITOR'S REPORT
Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business units within the Company as a basis for forming an opinion on
the consolidated financial statements. We are responsible for the direction, supervision and review of
the audit work performed for purposes 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 Kory Wickenhauser.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Alberta
March 5, 2025
AKITA DRILLING | 2024 Annual Report
42
INDEPENDENT AUDITOR'S REPORT
AKITA DRILLING | 2024 Annual Report
PERFORMANCE
ENVIRONMENTAL
STEWARDSHIP
FOUNDATIONAL
VALUES
Leading the
Drilling
Industry
SAFETY
AKITA DRILLING | 2024 Annual Report 43
AKITA DRILLING | 2024 Annual Report
44
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Position
$ Thousands
As at December 31,
2024
As at December 31,
2023
ASSETS
Current Assets
Cash
$
7,032
$
11,187
Accounts receivable
Note 12
52,742
47,098
Prepaid expenses and other
227
812
60,001
59,097
Non-current Assets
Other long-term assets
1,271
1,420
Investments in joint ventures
Note 11
7,617
5,121
Right-of-use assets
Note 9
1,378
718
Property, plant and equipment
Note 10
198,496
197,284
TOTAL ASSETS
$
268,763
$
263,640
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
Note 12
$
35,499
$
30,695
Deferred revenue
324
627
Current portion of lease obligations
Note 15
629
645
36,452
31,967
Non-current Liabilities
Risk managment contracts
Note 12
507
196
Deferred income taxes
Note 7
3,623
719
Share-based compensation plans
Note 18
1,655
935
Employee Future Benefits
Note 19
3,999
4,091
Lease obligations
Note 15
1,438
228
Long-term debt
Note 14
49,583
69,542
Total Liabilities
97,257
107,678
SHAREHOLDERS' EQUITY
Class A and Class B shares
Note 17
146,365
146,348
Contributed surplus
6,561
6,064
Accumulated other comprehensive income
3,210
1,043
Retained earnings
15,370
2,507
Total Equity
171,506
155,962
TOTAL LIABILITIES AND EQUITY
$
268,763
$
263,640
The accompanying notes are an integral part of these financial statements.
Approved by the Board,
Director
Director
AKITA DRILLING | 2024 Annual Report 45
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Net Income (Loss) &
Comprehensive Income (Loss)
$Thousands, except per share amounts
For the Year Ended December 31,
2024
2023
REVENUE
Note 4
$
193,325
$
225,479
COSTS AND EXPENSES
Operating and maintenance
Note 6
144,052
167,029
Depreciation and amortization
Notes 9 &10
27,594
28,510
Selling and administrative
Note 6
17,037
16,120
Total Costs and Expenses
188,683
211,659
Revenue Less Costs and Expenses
4,642
13,820
EQUITY INCOME FROM JOINT VENTURES
Note 11
13,300
8,184
OTHER INCOME (LOSS)
Interest income
221
373
Interest and financing expense
Note 5
(4,511)
(6,502)
Unrealized gain (loss) on risk management contracts
Note 12
(311)
95
Gain on sale of assets
187
2,199
Net other gains
2,245
376
Total Other Loss
(2,169)
(3,459)
Income Before Income Taxes
15,773
18,545
Deferred income tax expense
Note 7
2,910
130
NET INCOME FOR THE YEAR ATTRIBUTABLE TO SHAREHOLDERS
12,863
18,415
OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not subsequently be reclassified to profit or loss:
Remeasurement of pension liability net of deferred tax
(21)
(176)
Items that may subsequently be reclassified to profit or loss:
Foreign currency translation adjustment
2,188
(541)
Total Other Comprehensive Income (Loss)
2,167
(717)
COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO SHAREHOLDERS
$
15,030
$
17,698
NET INCOME PER CLASS A AND CLASS B SHARE
Note 3
Basic
$
0.32
$
0.46
Diluted
$
0.32
$
0.46
The accompanying notes are an integral part of these financial statements.
AKITA DRILLING | 2024 Annual Report
46
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Shareholders’ Equity
Attributable to the Shareholders of the Company
$Thousands
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
FOR THE YEAR ENDED
DECEMBER 31, 2022
$144,940
$1,366
$146,306
$5,693
$1,760
$(15,908)
$137,851
Net income for the year
-
-
-
-
-
18,415
18,415
Foreign currency translation
adjustment
-
-
-
-
(541)
-
(541)
Remeasurement of pension
liability
-
-
-
-
(176)
-
(176)
Stock options exercised
42
-
42
(16)
-
-
26
Stock options expense
-
-
-
387
-
-
387
FOR THE YEAR ENDED
DECEMBER 31, 2023
$144,982
$1,366
$146,348
$6,064
$1,043
$2,507
$155,962
Net income for the year
-
-
-
-
-
12,863
12,863
Foreign currency translation
adjustment
-
-
-
-
2,188
-
2,188
Remeasurement of pension
liability
-
-
-
-
(21)
-
(21)
Stock options exercised
17
-
17
(6)
-
-
11
Stock options expense
-
-
-
503
-
-
503
FOR THE YEAR ENDED
DECEMBER 31, 2024
$144,999
$1,366
$146,365
$6,561
$3,210
$15,370
$171,506
The accompanying notes are an integral part of these financial statements.
AKITA DRILLING | 2024 Annual Report 47
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
$Thousands
For The Year Ended December 31,
2024
2023
OPERATING ACTIVITIES
Net income
$
12,863
$
18,415
Non-cash items included in net income:
Depreciation and amortization
Note 10
27,594
28,510
Deferred income tax expense
Note 7
2,910
130
Stock options expense
Note 18
503
387
Share-based compensation expense
Note 18
720
377
Gain on sale of assets
(187)
(2,199)
Gain on termination of lease
-
(3)
Unrealized (gain) loss on risk management contracts
Note 12
311
(95)
Change in non-cash working capital
Note 13
(3,149)
(1,268)
Unrealized gain (loss) on foreign exchange
1,550
(391)
Equity income from joint ventures
Note 11
(13,300)
(8,184)
Post-employment benefits paid
(315)
(322)
Lease Inducement
569
-
Interest expense
Note 5
4,511
6,502
Interest paid
(4,316)
(6,292)
Net Cash From Operating Activities
30,264
35,567
INVESTING ACTIVITIES
Capital expenditures
Note 10
(28,043)
(24,592)
Change in non-cash working capital related to capital
Note 13
2,591
3,481
Distributions from investments in joint ventures
Note 11
10,804
5,950
Change in long-term assets
114
(6)
Proceeds from sale of assets
446
2,788
Net Cash Used in Investing Activities
(14,088)
(12,379)
FINANCING ACTIVITIES
Change in debt
Note 14
(20,000)
(24,000)
Change in lease obligations
(705)
(913)
Proceeds from exercise of stock options
11
26
Loan commitment fee
(275)
(275)
Net Cash Used in Financing Activities
(20,969)
(25,162)
Effect of Foreign Exchange on Cash
638
(150)
Decrease in Cash
(4,155)
(2,124)
Cash, beginning of year
11,187
13,311
CASH, END OF YEAR
$
7,032
$
11,187
The accompanying notes are an integral part of these financial statements.
AKITA DRILLING | 2024 Annual Report
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES CONTENTS
49
BUSINESS AND ENVIRONMENT
1. General Information
49
2. Basis of Preparation
49
50
RESULTS FOR THE YEAR
3. Net Income per Share
50
4. Revenue
51
5. Interest and Financing Expense
52
6. Expenses by Nature
52
7. Income Taxes
52
8. Segmented Information
54
55
LONG-TERM ASSETS
9. Right-of-Use Assets
55
10. Property, Plant and Equipment
56
11. Investments in Joint Ventures
58
60
WORKING CAPITAL
12. Financial Instruments
60
13. Change in Non-Cash Working Capital 63
64
DEBT AND EQUITY
14. Debt
64
15. Lease Obligations
65
16. Capital Management
66
17. Share Capital
66
67
PERSONNEL
18. Share-Based Compensation Plans
67
19. Employee Future Benefits
70
72
OTHER NOTES
20. Commitments and Contingencies 72
21. Related Party Transactions
72
22. New and Upcoming Accounting
Standards
74
23. Subsequent Event
74
AKITA DRILLING | 2024 Annual Report
48
AKITA DRILLING | 2024 Annual Report 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended December 31, 2024 and December 31, 2023
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 32 drilling rigs (31.15 net of joint venture ownership).
The Company conducts certain rig operations via joint ventures with First Nations, Métis or Inuvialuit 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, 2024, have been prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards"). 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 5, 2025.
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.
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.
AKITA DRILLING | 2024 Annual Report
50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
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.
AKITA DRILLING | 2024 Annual Report 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31,
2024
2023
Net income ($Thousands)
$
12,863
$
18,415
Weighted average outstanding shares
39,729,731
39,658,520
Incremental shares for diluted income calculation
349,660
447,710
Weighted average outstanding shares for income per share - diluted
40,079,660
40,106,230
Income per share - basic
$
0.32
$
0.46
Income per share - diluted
$
0.32
$
0.46
4. Revenue
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. 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.
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:
For the Year Ended December 31,
$Thousands
2024
2023
Contract drilling services
$
124,320
$
124,119
Rig lease rental
69,005
101,360
Total revenue
$
193,325
$
225,479
Significant Customers
During 2024 one customer (2023 – two customers) 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.
AKITA DRILLING | 2024 Annual Report
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Interest and Financing Expense
The following table summarizes the components of interest and financing expense:
For the Year Ended December 31,
$Thousands
2024
2023
Interest expense
$
4,580
$
6,664
Interest expense, lease obligations
117
58
Interest expense, pension
195
210
Financing expense, risk management contracts
(381)
(430)
Total interest and financing expense
$
4,511
$
6,502
6. Expenses by Nature
The Company presents certain expenses in the consolidated Statements of Net Income and Comprehensive Income by function. The
following table presents those expenses by their nature:
For the Year Ended December 31,
$Thousands
2024
2023
Expenses
Salaries, wages and benefits
$
98,925
$
102,370
Materials and supplies
25,350
36,971
Repairs and maintenance
25,033
30,780
External services and facilities
11,781
13,028
Total expenses
$
161,089
$
183,149
Allocated to:
Operating and maintenance
$
144,052
$
167,029
Selling and administrative
17,037
16,120
Total expenses
$
161,089
$
183,149
7. Income Taxes
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.
AKITA DRILLING | 2024 Annual Report 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Income taxes are comprised of the following:
For the Year Ended December 31,
$Thousands
2024
2023
Current tax expense
$
-
$
-
Deferred tax expense
2,910
130
Total income tax expense
$
$ 2,910
$
130
The following table reconciles the income tax expense using a weighted average Canadian federal and provincial rate of 23.87%
(2023 – 23.70%) 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.
For the Year Ended December 31,
$Thousands
2024
2023
Income before income taxes
$
15,773
$
18,545
Expected income tax at the statutory rate
3,765
4,396
Add (deduct):
Change in income tax rates
2 ,536
1
Permanent differences
236
103
Jurisdictional rate difference
(63)
(216)
Change in unrecognized deferred tax asset
(3,509)
(4,060)
Return to provision adjustment
(30)
(25)
Other
(25)
(69)
Total income tax expense
$
2,910
$
130
The deferred tax balance consists of the following:
$Thousands
Property,
Plant and
Equipment
Defined
Benefit
Pension Plan
Benefits
Non-Capital
Losses
Other
Total
Balance as at December 31, 2022
$ 38,535
$ (1,009)
$ (27,384)
$ (9,498)
$ 644
Charged (credited) to net loss
1,569
19
(972)
(486)
130
Charged to OCI
-
(55)
-
-
(55)
Balance as at December 31, 2023
40,104
(1,045)
(28,356)
(9,984)
719
Charged (credited) to net income
(509)
21
3,894
(496)
2,910
Charged to OCI
-
(6)
-
-
(6)
Balance as at December 31, 2024
$ 39,595
$ (1,030)
$ (24,462)
$ (10,480)
$ 3,623
A net deferred tax asset has not been recognized for $66 million (2023 – $67 million). This amount is primarily related to non-capital
losses carried forward.
AKITA DRILLING | 2024 Annual Report
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Total gross tax losses available to the Company are $380,893,000 with $357,469,000 in the US and $23,423,000 in Canada. The first
of these losses will begin to expire in 2031.
On June 20, 2024, the Federal Government of Canada enacted the Global Minimum Tax Act (GMTA), which includes the Pillar Two
model rules. These rules apply to Multinational Enterprise (MNE) groups for taxation years beginning after December 31, 2023. The
rules consist of an Income Inclusion Rule (IIR) and a Qualified Domestic Minimum Top-up Tax (QDMTT). An undertaxed profit rule (UTPR)
was proposed in August 2024 but has not yet been enacted.
The Company alone does not meet the revenue threshold of 750 million Euro under the GMTA, however as a result of the voting
control ownership, the Company is subject to the GMTA as part of a broader MNE group with affiliated entities. Accordingly, the Company has
determined the impact of GMTA for countries in which the Company operates to be immaterial for the fiscal year ended December 31, 2024.
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.
8. Segmented Information
The Company has two operating segments, Canada and the United States, providing contract drilling services primarily to the oil
and gas industry and from time to time, other forms of drilling related to potash mining and the development of storage caverns.
The Company determines its operating segments based on geography. Results for the Company’s operating segments are regularly
reviewed by the Chief Operating Decision Maker, to allocate resources and assess performance. All intercompany amounts between
the two segments are eliminated upon consolidation.
Geographical information is presented in the following tables:
For the Year Ended December 31, 2024
For the Year Ended December 31, 2023
$Thousands
Canada
US
Total
Canada
US
Total
Revenue
$
64,235
$
129,090
$
193,325
$
56,005
$
169,474
$
225,479
Revenue less costs and
expenses
$
(3,446)
$
8,088
$
4,642
$
(6,554)
$
20,374
$
13,820
Capital Expenditures
$
9,987
$
18,056
$
28,043
$
10,531
$
14,061
$
24,592
As at December 31, 2024
As at December 31, 2023
$Thousands
Canada
US
Total
Canada
US
Total
Property, plant and equipment
$
57,827
$
140,669
$
198,496
$
57, 284
$
140,000
$
197,284
AKITA DRILLING | 2024 Annual Report 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 2022
$
559
$
673
$
283
$
1,515
Additions
-
388
-
388
Disposals
-
(78)
(304)
(382)
Amortization expense
(291)
(533)
21
(803)
Balance as at December 31, 2023
268
450
-
718
Additions
409
875
-
1,284
Amortization expense
(214)
(410)
-
(624)
Balance as at December 31, 2024
$
463
$
915
$
-
$
1,378
AKITA DRILLING | 2024 Annual Report
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
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.
AKITA DRILLING | 2024 Annual Report 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Asset Impairment
The determination of indicators of asset impairment 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.
Depreciation Methods
The depreciation methodologies for the Company’s major PP&E classes are as follows:
Equipment Class
Depreciation Method
Depreciation Rates
Drilling rigs
Straight-line
10 to 20 years
Major inspection and overhaul expenditures
Straight-line
3 to 10 years
Drill pipe and other ancillary drilling equipment
Straight-line
2 to 8 years
Furniture, fixtures and equipment
Straight-line
10 years
Buildings
Straight-line
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.
Impairment of Assets
The Company did not identify any changes in the indicators of asset impairment or any new indicators of asset impairment as at
December 31, 2024. 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, 2024.
AKITA DRILLING | 2024 Annual Report
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment Continuity
Cost
$Thousands
Land and
Buildings
Drilling Rigs
Other
Total
Balance as at December 31, 2022
$
7,135
$
590,350
$
9,700
$
607,185
Additions
-
24,109
483
24,592
Disposals
-
(20,376)
-
(20,376)
Balance as at December 31, 2023
7,135
594,083
10,183
611,401
Additions
198
27,706
139
28,043
Disposals
(139)
(5,803)
(83)
(6,025)
Balance as at December 31, 2024
$
7,194
$
615,986
$
10,239
$
633,419
Accumulated Depreciation
$Thousands
Land and
Buildings
Drilling Rigs
Other
Total
Balance as at December 31, 2022
$
2,655
$
394,842
$
9,138
$
406,635
Disposals
-
(19,798)
-
(19,798)
Depreciation expense
195
26,648
437
27,280
Balance as at December 31, 2023
2,850
401,692
9,575
414,117
Disposals
(123)
(5,606)
(83)
(5,812)
Depreciation expense
199
26,078
341
26,618
Balance as at December 31, 2024
$
2,926
$
422,164
$
9,833
$
434,923
Net Book Value
$Thousands
Land and
Buildings
Drilling Rigs
Other
Total
As at December 31, 2022
$
4,480
$
195,508
$
562
$
200,550
As at December 31, 2023
$
4,285
$
192,391
$
608
$
197,284
As at December 31, 2024
$
4,268
$
193,822
$
406
$
198,496
At December 31, 2024, the Company had $4,594,000 in PP&E that was not being depreciated, as these assets were under construction
(December 31, 2023 – $2,948,000).
In addition to depreciation on its PP&E, the Company had ROU asset and loan fees amortization expense of $976,000 for the year
ended December 31, 2024 (2023 - $1,230,000).
11. Investments in Joint Ventures
The Company conducts certain rig operations via joint ventures with First Nations, Métis or Inuvialuit partners whereby rig assets are
jointly owned. Currently, there are eight different First Nations, Métis or Inuvialuit 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
Inuvialuit partner varies between rigs and groups and ranges from 5% to 50% per group per rig. All joint ventures operate in Canada.
AKITA DRILLING | 2024 Annual Report 59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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:
Active Joint Ventures
AKITA
Ownership Interest
AKITA Wood Buffalo Joint Venture 25
85%
AKITA Wood Buffalo Joint Venture 26
85%
AKITA Wood Buffalo Joint Venture 27
85%
AKITA Wood Buffalo Joint Venture 28
70%
AKITA Mistiyapew Aski Joint Venture 56
90%
Continuity of Investments in Joint Ventures
$Thousands
Investments in
Joint Ventures
Balance as at December 31, 2022
$ 2,887
Net income for the year ended December 31, 2023
8,184
Distributions for the year ended December 31, 2023
(5,950)
Balance as at December 31, 2023
5,121
Net income for the year ended December 31, 2024
13,300
Distributions for the year ended December 31, 2024
(10,804)
Balance as at December 31, 2024
$ 7,617
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 financial statements of the joint ventures which include both the Company’s and joint venture partners’ interests:
As at December 31, 2024
As at December 31, 2023
$Thousands
AKITA %
JV Partner %
Total
AKITA %
JV Partner %
Total
Cash
$
824
$
186
$
1,010
$
3,775
$
861
$
4,636
Other current assets
10,131
2,258
12,389
6,443
1,067
7,510
Non-current assets
55
-
55
55
-
55
Total assets
11,010
2,444
13,454
10,273
1,928
12,201
Current liabilities
(3,393)
(823)
(4,216)
(5,152)
(825)
(5,977)
Net assets
$
7,617
$
1,621
$
9,238
$
5,121
$
1,103
$
6,224
AKITA DRILLING | 2024 Annual Report
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2024
For the Year Ended December 31, 2023
$Thousands
AKITA %
JV Partner %
Total
AKITA %
JV Partner %
Total
Revenue
$
45,991
$
9,779
$
55,770
$
35,662
$
7,611
$
43,273
Operating and maintenance
expenses
32,212
6,822
$
39,034
27,144
5,637
32,781
Selling and administrative
expenses
479
91
570
334
60
394
Net income and comprehensive
income
$
13,300
$
2,866
$
16,166
$
8,184
$
1,914
$
10,098
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.
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, 2024, 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, 2024, 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
AKITA DRILLING | 2024 Annual Report 61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, 2024, 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, 2024, 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
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 as presented in the
following table:
As at December 31,
$Thousands
2024
2023
Within 30 days
$
42,483
$
27,465
31 to 60 days
8,015
15,125
61 to 90 days
2,719
3,738
Over 90 days
165
1,420
Estimated credit losses
(640)
(650)
Total accounts receivable
$
52,742
$
47,098
AKITA DRILLING | 2024 Annual Report
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, 2024, this risk was limited by a positive working capital balance of $23.5 million and
$60.0 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. In such a case, the Company would lose the ability to draw on the facility and the facility would become due. The
Company maintains a positive working relationship with the banks in its syndicated facility and has the ability to apply for covenant
relief if a breach of the covenants is anticipated.
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
$
-
$
49,583
$
49,583
Bank credit facility - interest
2,742
2,004
4,746
Total
$
2,742
$
51,587
$
54,329
Maturity information regarding the Company’s long-term lease obligations is as follows:
$Thousands
Less than 1 Year
1-3 Years
4-5 Years
Total
Lease obligations
$
629
$
1,000
$
438
$
2,067
Lease obligations - interest
158
165
38
361
Total
$
787
$
1,165
$
476
$
2,428
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. As at December 31,
2024, the Company had no outstanding 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
AKITA DRILLING | 2024 Annual Report 63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 3.94% while the floating rate is indexed to the Canadian Overnight Repo Rate Average
(“CORRA”). 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, 2024, the Company recorded an unrealized loss of $311,000. The fair
value measurement of the risk management contract has a fair value hierarchy of Level 2.
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:
For the Year Ended December 31,
$Thousands
2024
2023
Trade payables
$
15,696
$
16,815
Statutory liabilities
1,531
970
Accrued expenses
17,957
12,595
Post-employment benefits
315
315
Total accounts payable and accrued liabilities
$
35,499
$
30,695
13. Change in Non-Cash Working Capital
For the Year Ended December 31,
$Thousands
2024
2023
Change in non-cash working capital:
Accounts receivable
$
(5,644)
$
(230)
Prepaid expenses and other
585
(787)
Accounts payable and accrued liabilities
4,804
1,235
Deferred revenue
(303)
421
Change in non-cash working capital
$
(558)
$
2,213
Pertaining to:
Operating activities
$
(3,149)
$
(1,268)
Investing activities
2,591
3,481
Change in non-cash working capital
$
(558)
$
2,213
(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.
AKITA DRILLING | 2024 Annual Report
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Debt and Equity
14. Debt
Operating Loan Facility
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 2026. 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 FundedDebt(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, 2024, the Company was in compliance with its covenants with a Funded Debt(1) to EBITDA(1) Ratio of 0.94:1.00, and
an EBITDA(1) to Interest Expense(1) Ratio of 10.35:1.00.
The facility also includes a borrowing base calculation which is the sum of:
(i)
75% of Eligible Accounts Receivable(1); plus
(ii)
50% of the orderly liquidation value of all Eligible Rig Assets(1); less
(iii)
Priority Payables(1) of the Loan Parties.
At December 31, 2024, the Company’s borrowing base totalled $140,826,000.
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, 2024, the current
portion of debt was nil (December 31, 2023 – 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 $50,000,000 in total from this facility as at December 31, 2024 (December 31, 2023 - $70,000,000).
(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.
AKITA DRILLING | 2024 Annual Report 65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continuity of Debt
For The Year Ended December 31,
$Thousands
2024
2023
Balance as at January 1
$
69,542
$
93,514
Drawn on credit facility
-
-
Repayment of debt
(20,000)
(24,000)
Net deferred loan fees
41
28
Balance as at December 31
$
49,583
$
69,542
$Thousands
2024
2023
Debt allocated to:
Current portion
$
-
$
-
Long-term portion
49,583
69,542
Balance as at December 31
$
49,583
$
69,542
15. Lease Obligations
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 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%.
AKITA DRILLING | 2024 Annual Report
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continuity of Lease Obligations
$Thousands
Land and
Property
Office
Equipment
and Software
Vehicles
Total
Balance as at December 31, 2022
$
790
$
718
$
285
$
1,793
Change in lease obligations
(491)
(451)
19
(923)
Lease additions
-
388
-
388
Lease terminations
-
(81)
(304)
(385)
Balance as at December 31, 2023
299
574
-
873
Change in lease obligations
(256)
(449)
-
(705)
Lease additions
978
921
-
1,899
Balance as at December 31, 2024
$
1,021
$
1,046
$
-
$
2,067
$Thousands
Land and
Property
Office
Equipment
and Software
Vehicles
Total
Current portion
$
241
$
388
$
-
$
629
Long-term portion
780
658
-
1,438
Balance as at December 31, 2024
$
1,021
$
1,046
$
-
$
2,067
Lease Expense
The Company recorded $117,000 in interest expense related to its lease obligations for the year ended December 31, 2024 (2023 - $58,000).
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
AKITA DRILLING | 2024 Annual Report 67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The shares outstanding are:
Number of shares
Class A Non-Voting
Class B Common
Total
Shares outstanding at December 31, 2023
38,056,407
1,653,784
39,710,191
Stock options exercised
24,000
-
24,000
Shares outstanding at December 31, 2024
38,080,407
1,653,784
39,734,191
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.
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.
AKITA DRILLING | 2024 Annual Report
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes stock options reserved, granted and available for future issuance:
Number of options
As at December 31,
2024
As at December 31,
2023
Reserved under the current stock option plan
6,500,000
6,500,000
Balance at beginning of year
3,118,500
3,633,500
Expired
10,000
-
Granted
(595,000)
(515,000)
Available for future issuance
2,533,500
3,118,500
The following table is a summary of the Company’s stock option plan:
2024
2023
Number of
Options
Weighted
Average Exercise
Price
Number of
Options
Weighted
Average Exercise
Price
Options outstanding at January 1
1,877,500
$
1.59
1,422,500
$
1.63
Granted
595,000
$
1.62
515,000
$
1.36
Exercised
(24,000)
$
0.44
(60,000)
$
0.44
Expired
(10,000)
$
4.78
-
-
Options outstanding at December 31
2,438,500
$
1.63
1,877,500
$
1.59
Options exercisable at December 31
1,395,500
$
1.67
971,000
$
$ 1.85
The following table summarizes the outstanding stock options at December 31:
2024
2023
Vesting
Period
(Years)
Exercise
Price
Number
Outstanding
Remaining
Contractual
Life (Years)
Number
Exercisable
Number
Outstanding
Remaining
Contractual
Life (Years)
Number
Exercisable
5
$ 5.62
37,500
3.7
37,500
42,500
4.7
42,500
5
$ 3.93
187,500
4.2
187,500
197,500
5.2
197,500
5
$ 0.44
238,500
3.5
238,500
262,500
4.5
198,000
5
$ 1.01
430,000
4.3
344,000
430,000
5.3
258,000
5
$ 1.69
430,000
6.0
258,000
430,000
7.0
172,000
5
$ 1.36
515,000
7.0
206,000
515,000
8.0
103,000
5
$ 1.62
595,000
8.0
119,000
Weighted average
contractual life
5.9
6.3
AKITA DRILLING | 2024 Annual Report 69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred Share Units
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.
A summary of the Company’s DSU plan is presented in the following table:
2024
2023
Number of
Deferred
Share Units
Fair Value
($000's)
Number of
Deferred
Share Units
Fair Value
($000's)
DSUs outstanding as at January 1
341,815
$ 468
258,526
$ 447
Granted
74,074
120
88,235
120
Redeemed
-
-
(4,946)
(7)
Change in fair value
77
(92)
DSUs outstanding as at December 31
415,889
$ 665
341,815
$ 468
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:
2024
2023
Number of
Performance
Share Units
Fair Value
($000's)
Number of
Performance
Share Units
Fair Value
($000's)
PSUs outstanding as at January 1
340,921
$ 467
68,862
$ 119
Granted
277,778
450
272,059
370
Change in fair value
73
(22)
PSUs outstanding as at December 31
618,699
$ 990
340,921
$ 467
The total long-term share-based compensation plan liability is $1,655,000 (December 31, 2023 - $935,000).
AKITA DRILLING | 2024 Annual Report
70
NOTES 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, 2024, no SARs have been granted (December 31, 2023 – 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:
For the Year Ended December 31,
$Thousands
2024
2023
Stock option expense
$
503
$
387
DSU expense
197
29
PSU expense
523
348
Total share-based compensation expense
$
1,223
$
764
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.
2024
2023
Risk-free interest rate
3.16%
3.36%
Expected volatility
86%
91%
Dividends yield rate
0.00%
0.00%
Option life
5.4 years
5.4 years
Weighted average share price
$
1.62
$
1.36
Forfeiture rate
0.00%
0.00%
Fair value of options
$
1.15
$
1.00
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.
AKITA DRILLING | 2024 Annual Report 71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 13, 2025, and was utilized in measuring the December 31, 2024 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
2024
2023
Actuarial present value of defined benefit obligation as at January 1
$
4,406
$
4,279
Interest cost
195
210
Benefits paid
(315)
(315)
Unrealized actuarial loss
28
232
Actuarial present value of defined benefit obligation as at December 31
$
4,314
$
4,406
$Thousands
2024
2023
Pension liability allocated to:
Accounts payable and accrued liabilities
$
315
$
315
Non-current liabilities
3,999
4,091
Pension liability outstanding as at December 31
$
4,314
$
4,406
Key Assumptions
For the Year Ended December 31
2024
2023
Discount rate at beginning of the year
4.6%
5.1%
AKITA DRILLING | 2024 Annual Report
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company’s pension expense is recorded in selling and administrative expenses and interest expense and is comprised of the following:
For the Year Ended December 31,
$Thousands
2024
2023
Defined benefit pension plan
Interest cost
$
195
$
210
Service cost
-
-
Expense for defined benefit pension plan
195
210
Expense for defined contribution pension plans
3,685
3,631
Total expense
$
3,880
$
3,841
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 $3,999,000 at December 31, 2024 (December 31, 2023
- $4,091,000). 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, 2024, a key assumption is the discount rate of 4.6% (2023 – 4.6%). From the perspective of a
sensitivity analysis, a 1% decrease in the discount rate would result in a $444,000 increase in the defined benefit obligation while a
1% increase in the discount rate would result in a $379,000 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 $81,000. Except for the impact
on the discount rate used in the pension assumptions, recent changes in the global 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, 2024,
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. This sponsorship contract has been recurring since 2004.
At December 31, 2024, the Company had capital expenditure commitments of $2,486,000 (2023 – $5,109,000).
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.
AKITA DRILLING | 2024 Annual Report 73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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:
For the Year Ended December 31,
$Thousands
2024
2023
Revenue (computer services, rent)
$
111
$
87
Purchases:
Sponsorship and advertising (Note 20)
$
350
$
350
Selling and administrative
$
83
$
113
Operating
$
1,050
$
518
Year-end accounts payable
$
52
$
58
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:
For the Year Ended December 31,
$Thousands
2024
2023
Operating costs
$
5,837
$
5,727
Selling and administrative costs
$
710
$
581
$Thousands
As at December 31, 2024
As at December 31, 2023
Due to AKITA from joint venture partners
$
1,412
$
2,248
Due to AKITA from joint ventures
$
658
$
3,470
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:
For the Year Ended December 31,
$Thousands
2024
2023
Salaries, director's fees and other short-term benefits
$
2,075
$
1,415
Post-employment benefits
$
72
$
59
Share-based payments
$
949
$
840
AKITA DRILLING | 2024 Annual Report
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22. New and Upcoming Accounting Standards
Certain new or amended standards or interpretations have been issued by the International Accounting Standards Board or the
International Financial Reporting Interpretations Committee. Two amendments became applicable for the current reporting period
and the Company had to change its accounting policies as a result. The amendments below were applied and did not have a material
impact on the consolidated financial statements:
• 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.
The following amendment has not yet been early adopted and is not expected to have a material impact on the consolidated financial
statements. It is effective for reporting periods beginning on or after January 1, 2025:
• IAS 21, “The Effects of Changes in Foreign Exchange Rates”, has been amended to add requirements to help entities in determining
whether a currency is exchangeable into another currency and the spot exchange rate to use when it is not.
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, 2026:
• IFRS 7, “Financial Instruments: Disclosures”, has been amended to add requirements for disclosure of contractual terms that could
change the timing or amount of contractual cash flows in the occurrence (or non-occurrence) of a contingent event that does not
relate directly to changes in basic lending risks and costs. This amendment applies to financial assets measured at amortized cost
or FVOCI and financial liabilities measured at amortized cost.
• IFRS 7, “Financial Instruments: Disclosures”, has been amended to add requirements for disclosure of the change in fair value of
equity instruments designated at FVOCI. The fair value gain or loss must be presented in OCI during the period and show separately
the fair value gain or loss relating to investments derecognized in the period and those held at the end of the period.
• IFRS 9, “Financial Instruments”, has been amended to add guidance on the derecognition of a financial liability settled through
electronic transfer. A financial liability that will be settled in cash using an electronic transfer payment system can be derecognized
before the settlement date if specified criteria are met.
• IFRS 9, “Financial Instruments”, has been amended to add guidance and clarification on contractual terms that are consistent with
a basic lending arrangement.
The following new standard has not yet been early adopted and is not expected to have a material impact on the consolidated financial
statements. It is effective for reporting periods beginning on or after January 1, 2027:
• IFRS 18, “Presentation and Disclosure in Financial Statements”, is the new standard in financial statement presentation and
disclosure with a focus on updates to the statement of profit or loss. It will replace IAS 1, Presentation of Financial Statements, and
retains many of the existing principles.
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
23. Subsequent Event
On February 1, 2025, the President of the United States issued executive orders to impose new tariffs on goods being imported into
the United States from Canada, Mexico and China. These tariffs were implemented on March 3, 2025 and could negatively impact the
Canadian economy, customer spendiing, inflation, the Canadian dollar and the Company's financial results.
AKITA DRILLING | 2024 Annual Report 75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AKITA DRILLING | 2024 Annual Report
76
10 YEAR FINANCIAL REVIEW
10 YEAR FINANCIAL REVIEW
$Thousands (except per share)
Annual
Ranking
2024
2023
2022
Summary of Operations
Revenue
3
$
193,325
$
225,479
$
200,996
Income (loss) before income taxes
2
$
15,773
$
18,545
$
3,539
Income taxes expense (recovery)
2
$
2,910
$
130
$
(749)
Net income (loss)
2
$
12,863
$
18,415
$
4,288
As a percentage of averageshareholders’ equity
2
7.5%
11.8%
3.1%
Earnings (loss) per Class A and Class B share (basic)
2
$
0.32
$
0.46
$
0.11
Funds flow from operations
2
$
44,714
$
45,522
$
34,813
As a percentage of averageshareholders’ equity
2
26.1%
29.2%
25.3%
Financial Position at Year End
1
25.3%
Working capital (deficiency)
4
$
23,459
$
27,130
$
31,121
Current ratio
6
1.65
1.85
2.02
Total assets
3
$
268,763
$
263,640
$
268,281
Shareholders’ equity
6
$
171,506
$
155,962
$
137,851
per share
6
$
4.32
$
3.93
$
3.48
Other
Capital expenditures (net)
1
$
28,043
$
24,592
$
17,982
Depreciation and amortization
9
$
26,594
$
28,510
$
30,263
Dividends paid
6
$
-
$
-
$
-
per share
6
$
-
$
-
$
-
AKITA DRILLING | 2024 Annual Report 77
10 YEAR FINANCIAL REVIEW
2021
2020
2019
2018
2017
2016
2015
$
110,088
$
119,664 $
175,890
$
118,361
$
71,198
$
61,061
$
112,488
$
(21,782)
$
(102,701) $
(24,679)
$
(12,228)
$
(53,230)
$
7,535
$
(44,544)
$
(792)
$
(9,427) $
(4,804)
$
3,651
$
(14,053)
$
2,206
$
(10,579)
$
(20,990)
$
(93,274) $
(19,875)
$
(15,939)
$
(39,177)
$
5,329
$
(33,965)
(16.0%)
(61.3%)
(8.1%)
(5.9%)
(22.5%)
2.4%
(14.2%)
$
(0.53)
$
(2.03) $
(0.50)
$
(0.65)
$
(2.18)
$
0.30
$
(1.89)
$
7,454
$
10,322 $
12,925
$
14,306
$
6,607
$
34,500
$
38,510
5.7%
6.8%
5.3%
5.3%
3.8%
15.7%
16.0%
$
6,496
$
8,683 $
4,032
$
11,166
$
15,528
$
34,907
$
16,002
1.27
1.56
1.14
1.31
2.02
4.49
2.45
$
247,574
$
251,521 $
369,116
$
403,641
$
207,497
$
257,907
$
254,516
$
131,485
$
152,266 $
245,134
$
271,728
$
174,455
$
219,646
$
220,200
$
3.32
$
3.84 $
6.19
$
6.86
$
9.72
$
12.24
$
12.27
$
16,416
$
7,593 $
15,238
$
17,546
$
20,348
$
13,193
$
17,960
$
28,838
$
32,681 $
36,763
$
26,614
$
27,126
$
23,959
$
36,748
$
-
$
-
$
10,101
$
7,942
$
6,100
$
6,100
$
6,101
$
-
$
-
$
0.17
$
0.34
$
0.34
$
0.34
$
0.34
AKITA DRILLING | 2024 Annual Report
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CORPORATE INFORMATION
Directors
Loraine M. Charlton
Corporate Director
Calgary, Alberta
Douglas A. Dafoe
Corporate Director
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
D. Neil Yeates
Corporate Director
Ottawa, Ontario
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
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 S.W.,
Calgary, Alberta T2P 2Z1
403.292.7979
HEAD OFFICE
AKITA Drilling Ltd., 1000, 333 - 7th Ave SW
Calgary, Alberta T2P 2Z1 Canada
www.akita-drilling.com