Management’s Discussion & Analysis
Management’s Discussion and Analysis
Fourth Quarter and Year-End Report for the three and twelve-month
periods ended December 31, 2024 and 2023
The following Management’s Discussion and Analysis (“MD&A”) of the financial condition, results of operations, and cash flow of PHX Energy Services Corp. (“PHX Energy” or the
“Corporation”) should be read in conjunction with the Corporation’s annual audited consolidated financial statements for the years ended December 31, 2024 and 2023 and the
accompanying notes contained therein as well as other sections contained within the Corporation’s 2024 annual report. Readers can also obtain additional information on the
Corporation including its most recently filed Annual Information Circular and Annual Information Form (“AIF”) on SEDAR+ at www.sedarplus.ca. This MD&A has been prepared
taking into consideration information available up to and including February 25, 2025.
PHX Energy’s audited annual financial statements for the years ended December 31, 2024 and 2023 have been prepared in accordance with IFRS Accounting Standards, as issued
by the International Accounting Standards Board. The MD&A and audited annual financial statements were reviewed by PHX Energy’s Audit Committee and approved by PHX
Energy’s Board of Directors (the “Board”) on February 25, 2025.
This MD&A contains Forward-Looking Information and Non-GAAP and Other Financial Measures, including Non-GAAP Financial Measures and Ratios, Capital Management
Measures and Supplementary Financial Measures. Please refer to the “Non-GAAP and Other Financial Measures” section of this MD&A for applicable definitions and reconciliations.
Please refer to the “Cautionary Statement Regarding Forward-Looking Information and Statements” section of this MD&A.
Industry data cited throughout this MD&A is sourced from Baker Hughes North American rig counts (https://rigcount.bakerhughes.com/na-rig-count) and custom reports from
Geologic Systems for Canadian industry operating days.
Fourth Quarter Highlights
For the three-month period ended December 31, 2024, PHX Energy generated consolidated revenue of $178.7
million, the highest level of fourth quarter revenue on record and the highest level of quarterly revenue in the
Corporation’s history. Consolidated revenue in the 2024-quarter included $10 million of motor rental revenue and
$5.3 million of revenue generated from the sale of motor equipment and parts (2023 - $10.3 million and $0.9 million,
respectively).
PHX Energy’s US division revenue in the fourth quarter of 2024 was $132.3 million, 8 percent higher than the $122.1
million generated in the fourth quarter of 2023 and the highest level of US quarterly revenue on record. US division
revenue in the 2024-quarter represented 74 percent of consolidated revenue (2023 – 74 percent).
PHX Energy’s Canadian division reported $46.3 million of quarterly revenue, 7 percent higher compared to $43.3
million in the 2023-quarter and the highest level of fourth quarter revenue for the Canadian division since 2014.
In the fourth quarter of 2024, adjusted EBITDA(1) was $29.6 million, 17 percent of consolidated revenue(1) as
compared to $35.4 million, 21 percent of consolidated revenue, in the same 2023-quarter. Included in the 2024-
quarter’s adjusted EBITDA is a $2.2 million write-down of inventory to its net realizable value at the end of the 2024-
period. Additionally, adjusted EBITDA in the 2024-quarter included $2.2 million in cash-settled share-based
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-1-
PHX Energy Services Corp. | 2024 Annual Report
compensation expense (2023 - $4.6 million). Adjusted EBITDA excluding cash-settled share-based compensation
expense (1) in the fourth quarter of 2024 was $31.8 million, 18 percent of consolidated revenue(1) (2023 - $40 million,
24 percent of consolidated revenue). Despite higher revenue generated in the 2024-quarter, profitability declined
mainly due to generally higher equipment repair expenses, weaker activity in the Corporation’s high margin RSS and
motor rental revenue streams in the US, and lower net gain on disposition of drilling equipment realized in the 2024-
quarter.
Earnings in the 2024 three-month period were $14.1 million, $0.30 per share, as compared to $33.1 million, $0.68
per share, in the same 2023-period. Earnings in the 2024-period included a provision for income tax of $1.7 million
while earnings in the 2023-period included a $9.5 million recovery of income taxes that resulted primarily from the
recognition and utilization of previously unrecognized deferred tax assets in the Canadian jurisdiction. Additionally,
as a result of fixed asset additions throughout 2024, depreciation and amortization expenses on drilling and other
equipment increased by 18 percent to $11.8 million (pre-tax) in the 2024-quarter from $10.1 million (pre-tax) in the
corresponding 2023-quarter.
In the 2024 three-month period, the Corporation generated excess cash flow(2) of $17.3 million (2023 - $22.3 million),
after deducting net capital expenditures(2) of $5.7 million.
For the three-month period ended December 31, 2024, PHX Energy purchased and canceled 493,000 common
shares for $4.9 million through its current Normal Course Issuer Bid (“NCIB”).
In the fourth quarter of 2024, PHX Energy paid $9.2 million in dividends which is 26 percent more than the dividend
amount paid in the same 2023-quarter. On December 13, 2024, the Corporation declared a dividend of $0.20 per
share or $9.1 million, paid on January 15, 2025 to shareholders of record on December 31, 2024.
Year End Highlights
For the year ended December 31, 2024, the Corporation generated annual consolidated revenue of $659.7 million
which is the highest annual revenue in the Corporation’s history (2023 - $656.3 million). Consolidated revenue in the
2024-year included $38.4 million of motor rental revenue (2023 - $47 million) and $11.2 million of revenue generated
from the sale of motor equipment and parts (2023 – $11 million).
The Corporation’s US division achieved annual revenue of $479.5 million, only 3 percent lower than the record
$496.5 million set in 2023. US division revenue in the 2024-year represented 73 percent of consolidated revenue
(2023 – 76 percent).
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-2-
Management’s Discussion & Analysis
PHX Energy’s Canadian division generated annual revenue of $180.2 million (2023 - $159.8 million), the highest
level achieved since 2014.
For the year-ended December 31, 2024, adjusted EBITDA(1) was $123.7 million, 19 percent of consolidated revenue
and the second highest level in the Corporation’s history, as compared to the record $150.7 million, 23 percent of
consolidated revenue in 2023. Included in the 2024-year’s adjusted EBITDA is $24.6 million of net gain on disposition
of drilling equipment, a decrease compared to $31.3 million in 2023, and a $2.2 million write-down of inventory to its
net realizable value at the end of 2024. Apart from the lower net gain on disposition of drilling equipment and write-
down of inventory, the decline in profitability in the 2024-year was primarily due to generally increased equipment
repair costs, weaker activity in the Corporation’s high margin RSS and motor rental revenue streams in the US, and
lower margins realized from the sale of motor equipment and parts. For the year-ended December 31, 2024, the
Corporation recognized cash-settled share-based compensation expense of $11.8 million (2023 - $13.5 million).
Adjusted EBITDA excluding cash-settled share-based compensation expense(1) in the 2024-year was $135.5 million,
21 percent of consolidated revenue (2023 - $164.2 million, 25 percent of consolidated revenue).
In the 2024-year, earnings were $54.6 million, $1.16 per share as compared to $98.6 million, $1.96 per share in
2023. For the year-ended December 31, 2024, the Corporation recorded a tax provision of $15.7 million, an increase
compared to $5.1 million in 2023. Additionally, depreciation and amortization expenses in the 2024 twelve-month
period increased by 15 percent to $44.8 million (pre-tax) from $38.9 million (pre-tax) in 2023.
For the year ended December 31, 2024, PHX Energy generated excess cash flow(2) of $47.6 million, after deducting
net capital expenditures(2) of $46.5 million.
In the 2024 twelve-month period, through its previous and current NCIB, the Corporation purchased and canceled
2,141,232 common shares for $20.6 million.
Since the second quarter of 2017 to December 31, 2024, a total of 16.3 million common shares have been purchased
and cancelled under PHX Energy’s various NCIB’s. This represents 28 percent of common shares outstanding as of
June 30, 2017. It is the Corporation’s intention to continue the current strategy of leveraging the NCIB as a tool to
further reward shareholders through its Return of Capital Strategy (‘ROCS”).
PHX Energy paid $37.6 million in dividends in the 2024-year which is 24 percent higher than the dividend amount
paid in 2023.
The Board previously approved a preliminary 2025 capital expenditure budget of $50 million. With $2 million of the
2024 capital expenditure budget carried forward into 2025 and an additional $3 million in capital expenditures
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
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PHX Energy Services Corp. | 2024 Annual Report
expected, the Corporation now anticipates spending $55 million in capital expenditures during 2025, which was
recently approved by the Board.
As at December 31, 2024, the Corporation had working capital(2) of $84.5 million and net debt(2) of $2.7 million.
Financial Highlights
(Stated in thousands of dollars except per share amounts, percentages and shares outstanding)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
% Change
2024
2023
% Change
Operating Results
Revenue
178,676
165,332
8
659,663
656,341
1
Earnings
14,098
33,134
(57)
54,622
98,580
(45)
Earnings per share – diluted
0.30
0.68
(56)
1.16
1.96
(41)
Adjusted EBITDA (1)
29,638
35,388
(16)
123,734
150,717
(18)
Adjusted EBITDA per share – diluted (1)
0.63
0.70
(10)
2.63
2.86
(8)
Adjusted EBITDA as a percentage of
revenue (1)
17%
21%
19%
23%
Cash Flow
Cash flows from operating activities
17,676
36,754
(52)
96,898
96,723
-
Funds from operations (2)
24,305
28,167
(14)
99,695
119,317
(16)
Funds from operations per share –
diluted (3)
0.51
0.56
(9)
2.12
2.26
(6)
Dividends paid per share (3)
0.20
0.15
33
0.80
0.60
33
Dividends paid
9,183
7,277
26
37,570
30,189
24
Capital expenditures (3)
15,714
15,474
2
83,277
64,932
28
Excess cash flow (2)
17,263
22,347
(23)
47,569
92,813
(49)
Financial Position, December 31,
Working capital (2)
84,545
93,915
(10)
Net debt (Net cash) (2)
2,664
(8,869)
n.m.
Shareholders’ equity
222,205
209,969
6
Common shares outstanding
45,506,773 47,260,472
(4)
n.m. – not meaningful
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-4-
Management’s Discussion & Analysis
Non-GAAP and Other Financial Measures
Throughout this MD&A, PHX Energy uses certain measures to analyze financial performance, financial position, and cash flow.
These Non-GAAP and Other Specified Financial Measures do not have standardized meanings prescribed under Canadian
generally accepted accounting principles (“GAAP”) and include Non-GAAP Financial Measures and Ratios, Capital
Management Measures and Supplementary Financial Measures (collectively referred to as “Non-GAAP and Other Financial
Measures”). These Non-GAAP and Other Specified Financial Measures include, but are not limited to, adjusted EBITDA,
adjusted EBITDA per share, adjusted EBITDA excluding cash-settled share-based compensation expense, adjusted EBITDA
as a percentage of revenue, gross profit as a percentage of revenue excluding depreciation and amortization, selling, general
and administrative (“SG&A”) costs excluding share-based compensation as a percentage of revenue, funds from operations,
funds from operations per share, excess cash flow, net capital expenditures, net debt (net cash), working capital, and remaining
distributable balance under ROCS. Management believes that these measures provide supplemental financial information that
is useful in the evaluation of the Corporation’s operations and may be used by other oil and natural gas service companies.
Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined
in accordance with GAAP as an indicator of PHX Energy’s performance. The Corporation’s method of calculating these
measures may differ from that of other organizations, and accordingly, such measures may not be comparable. Please refer
to the “Non-GAAP and Other Financial Measures” section of this MD&A for applicable definitions, rationale for use, method of
calculation and reconciliations where applicable.
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PHX Energy Services Corp. | 2024 Annual Report
Outlook
In the first two months of 2025, our US division is operating at robust activity levels. With our unique suite of
technology and strong reputation, we believe our US operations will continue to produce strong financial results as
we continue to focus on increased RSS utilization and our proprietary Real Time RSS Communication technology.
In addition, we anticipate a slight uptick in the US rig count which will also be beneficial for growth in the year ahead.
In 2025 we will continue to dedicate resources towards our Atlas motor rental business and believe we will see
growth as we expand our fleet capacity further beyond the demand within our full-service division. Additionally, the
division’s reputation will become more established as more operators experience the reliability and power
advantages of our Atlas motors. In the sales division of our Atlas business, we foresee incremental increases in
revenue in line with our customers’ 2024 fleet expansion as their part requirements will increase. Although the timing
of orders for parts is difficult to predict as it is based on customers’ activity levels and service cycles.
Thus far in the first quarter of 2025, our Canadian operations have seen higher activity levels and the first quarter is
typically the strongest for this division. With this promising start to the year, we are cautiously optimistic that our
Canadian operations will continue to produce strong results in 2025, especially with the addition of owned RSS
technology and the associated Real Time RSS Communication technology. We have held an enviable market share
position in Canada for numerous years and believe we will be able to maintain this position while also increasing the
high margin RSS portion of activity as in the first quarter we have already seen more demand.
In 2025, we will strive to improve our profitability through our high margin businesses and internal efficiencies.
Although, the potential of tariffs and changes to the global trade environment could impact our supply chain and
demand for services. We are monitoring the situation closely and our team is developing contingency plans where
possible in our supply chain to reduce the impact of tariffs that may be enacted.
We will remain committed to our ROCS to reward shareholders, leveraging our dividend and NCIB programs. We
have paid $184 million in dividends since 2011 which equates to $4.93 per share. Under our NCIB programs, 28
percent of common shares outstanding as at June 30, 2017 have been purchased and cancelled. It is our intention
to continue the current strategy of leveraging the NCIB as a tool to further reward shareholders and there are
approximately 2.3 million shares remaining for purchase prior to its expiry in August of this year.
We foresee generating improved excess cash flow in the 2025-year and therefore anticipate distributions made under
ROCS will remain within the 70 percent of excess cash flow target.
Michael Buker, President
February 25, 2025
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Management’s Discussion & Analysis
About PHX Energy Services Corp.
PHX Energy is a growth-oriented, public oil and natural gas services company. The Corporation, through its directional drilling
subsidiary entities provides horizontal and directional drilling services and technologies to oil and natural gas exploration and
development companies principally in Canada and the US. In connection with the services it provides, PHX Energy engineers,
develops and manufactures leading-edge technologies. In recent years, PHX Energy has developed various new technologies
that have positioned the Corporation as a technology leader in the horizontal and directional drilling services sector.
PHX Energy’s Canadian directional drilling operations are conducted through Phoenix Technology Services LP. The
Corporation maintains its corporate head office, research and development, Canadian sales, service and operational centers
in Calgary, Alberta. In addition, PHX Energy has a facility in Estevan, Saskatchewan. PHX Energy’s US operations, conducted
through the Corporation’s wholly-owned subsidiary, Phoenix Technology Services USA Inc., is headquartered in Houston,
Texas. Phoenix USA has sales and service facilities in Houston, Texas; Midland, Texas; Casper, Wyoming; and Oklahoma
City, Oklahoma. Internationally, PHX Energy has an administrative office in Nicosia, Cyprus and also supplies technology to the
Middle East regions. At the end of 2024, the Corporation has substantially completed the wind up of its operations in Albania.
As at December 31, 2024, PHX Energy had 924 full-time employees (2023 – 920) and the Corporation utilized over 139
additional field consultants in 2024 (2023 – over 175).
The common shares of PHX Energy trade on the Toronto Stock Exchange under the symbol PHX.
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PHX Energy Services Corp. | 2024 Annual Report
Overall Performance
In the fourth quarter of 2024, PHX Energy reported its highest level of quarterly revenue in the Corporation’s history, generating
consolidated revenue of $178.7 million (2023-quarter - $165.3 million). With increased capacity in its premium technology fleet
and continued strong demand for the Corporation’s unique technology offering, activity in both the US and Canadian divisions
outperformed industry activity trends, which helped drive the 8 percent gain in revenue.
For the three-month period ended December 31, 2024, the Corporation’s US division’s revenue increased by 8 percent to a
record $132.3 million compared to $122.1 million in the same 2023-quarter. The US industry’s rig count declined by 6 percent
compared to the fourth quarter of 2023. In comparison, PHX Energy’s US operating days(3) saw a modest increase of 8 percent
to 4,438 days from 4,114 in the 2023-quarter. The US division’s average revenue per day(3) for directional drilling services
slightly decreased by 2 percent quarter-over-quarter. Without the impact of foreign exchange, the average revenue per day for
directional drilling services was down 6 percent. Softer industry activity levels in the 2024-period had a more direct impact on
the Corporation’s US motor rental activity and partly caused the US motor rental revenue to decrease to $9.2 million from $9.9
million in the same period in 2023. In the 2024-quarter, the US division generated $5.3 million of revenue from motor equipment
and parts sold (2023-quarter - $0.9 million). Revenue from the Corporation’s US division in the 2024-quarter represented 74
percent of consolidated revenue (2023 – 74 percent).
The Corporation’s Canadian division generated its highest level of fourth quarter revenue since 2014. Canadian division
revenue in the 2024 three-month period grew to $46.3 million, a 7 percent increase from $43.3 million in the same 2023-period.
The Canadian segment recorded 3,369 operating days in the 2024-quarter, a 6 percent increase from the 3,164 operating
days realized in the comparable 2023-quarter which is slightly above the Canadian industry drilling activity’s 4 percent gain
quarter-over-quarter. Average revenue per day(3) realized by the Canadian division was flat at $13,538 in the 2024-quarter, as
compared to $13,522 in the corresponding 2023-quarter and the Corporation’s Canadian motor rental division generated $0.8
million of revenue in the 2024-period (2023 - $0.5 million).
For the three-month period ended December 31, 2024, earnings were $14.1 million (2023 - $33.1 million), adjusted EBITDA(1)
was $29.6 million (2023 - $35.4 million), and adjusted EBITDA represented 17 percent of consolidated revenue(1) (2023 – 21
percent). In the 2024-quarter, the Corporation recorded a tax provision of $1.7 million whereas in the 2023-quarter earnings
there was a $9.5 million recovery of income taxes that primarily resulted from the recognition and utilization of previously
unrecognized deferred tax assets in the Canadian jurisdiction. Additionally, as a result of fixed asset additions throughout 2024,
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-8-
Management’s Discussion & Analysis
depreciation and amortization expenses on drilling and other equipment increased by 18 percent to $11.8 million (pre-tax) in
the 2024-quarter from $10.1 million (pre-tax) in the corresponding 2023-quarter. Included in the 2024 three-month period
adjusted EBITDA is cash-settled share-based compensation expense of $2.2 million (2023 - $4.6 million). For the three-month
period ended December 31, 2024, adjusted EBITDA excluding cash-settled share-based compensation expense was $31.8
million (2023 - $40 million). Despite higher revenue generated in the 2024-quarter, profitability declined mainly due to generally
higher equipment repair expenses, weaker activity in the Corporation’s high margin RSS and motor rental revenue streams in
the US, and lower net gain on disposition of drilling equipment. In the 2024 three-month period, the Corporation also recognized
a $2.2 million write-down of inventory to its net realizable value.
In all four quarters of 2024, PHX Energy realized strong quarterly revenue which either exceeded or was slightly below the
record-breaking quarters seen in 2023. Particularly, the record revenue achieved in the fourth quarter of 2024 resulted in the
2024 annual revenue surpassing the annual revenue realized in 2023. For the year ended December 31, 2024, the
Corporation’s consolidated revenue increased by 1 percent to $659.7 million from $656.3 million in 2023.
Earnings for the 2024-year were $54.6 million (2023 - $98.6 million) and adjusted EBITDA(1) was $123.7 million, 19 percent of
consolidated revenue (2023 - $150.7 million, 23 percent of consolidated revenue). In the 2024-year, the Corporation recorded
a tax provision of $15.7 million, an increase compared to $5.1 million in 2023. Additionally, depreciation and amortization
expenses in the 2024 twelve-month period increased by 15 percent to $44.8 million (pre-tax) from $38.9 million (pre-tax) in
2023. Included in the 2024-year’s earnings and adjusted EBITDA is $24.6 million (pre-tax) of net gain on disposition of drilling
equipment, a decrease compared to $31.3 million (pre-tax) in 2023. Apart from the lower net gain on disposition of drilling
equipment realized, the decline in profitability in the 2024-year was partly due to generally higher equipment repair expenses,
weaker activity in the Corporation’s high margin RSS and motor rental revenue streams in the US, and higher costs of motor
equipment and parts sold. In the 2024-year, the Corporation also recognized a $2.2 million write-down of inventory to its net
realizable value.
Included in the 2024 twelve-month period adjusted EBITDA is cash-settled share-based compensation expense of $11.8 million
(2023 - $13.5 million). Adjusted EBITDA excluding cash-settled share-based compensation expense(1) in the 2024-year was
$135.5 million, 21 percent of consolidated revenue (2023 - $164.2 million, 25 percent of consolidated revenue).
As at December 31, 2024, the Corporation had working capital(2) of $84.5 million and net debt(2) of $2.7 million. The Corporation
also has CAD $83.6 million and USD $16 million available to be drawn from its credit facilities.
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
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PHX Energy Services Corp. | 2024 Annual Report
Dividends and ROCS
On December 13, 2024, the Corporation declared a dividend of $0.20 per share payable to shareholders of record on
December 31, 2024. An aggregate of $9.1 million was paid on January 15, 2025.
The Corporation remains committed to enhancing shareholder returns through its Return of Capital Strategy (“ROCS”) which
targets up to 70 percent of annual excess cash flow to be used for shareholder returns and includes multiple options including
the dividend program and the NCIB. For the year ended December 31, 2024, excess cash flow declined primarily due to higher
capital expenditures and lower proceeds on disposition of drilling equipment, however, Management continued to prioritize
shareholder returns while protecting its financial position and over 70 percent of excess cash flow was distributed for
shareholder returns under ROCS. The Corporation maintained its current level of dividends, paying $37.6 million in dividends
to shareholders, and continued NCIB purchases, spending $20.6 million to repurchase shares under the immediately preceding
and current NCIB as it believed the stock price was opportunistic. As a result, the remaining distributable balance under
ROCS(2) in the 2024-year was negative $24.9 million. The Corporation will target the level of excess cash flow to be used for
shareholder returns to stay within the 70 percent threshold in 2025.
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Excess cash flow
17,263
22,347
47,569
92,813
70% of excess cash flow
12,084
15,643
33,298
64,969
Deduct:
Dividends paid to shareholders
(9,183)
(7,277)
(37,570)
(30,189)
Repurchase of shares under the NCIB
(4,859)
(11,264)
(20,614)
(30,366)
Remaining distributable balance under ROCS
(1,958)
(2,898)
(24,886)
4,414
Normal Course Issuer Bid
During the third quarter of 2024, the TSX approved the renewal of PHX Energy’s NCIB to purchase for cancellation, from time-
to-time, up to a maximum of 3,363,845 common shares, representing 10 percent of the Corporation’s public float of Common
Shares as at August 7, 2024. The NCIB commenced on August 16, 2024 and will terminate on August 15, 2025. Purchases of
common shares are to be made on the open market through the facilities of the TSX and through other alternative Canadian
trading platforms. The price which PHX Energy is to pay for any common shares purchased is to be at the prevailing market
price at the time of such purchase.
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-10-
Management’s Discussion & Analysis
Pursuant to the immediately preceding and current NCIB, 2,141,232 common shares were purchased by the Corporation for
$20.6 million including incremental transaction costs, and cancelled for the year ended December 31, 2024 (2023 – 4,032,600
shares, $30.4 million). Of the 2,141,232 common shares purchased and cancelled, 1,069,121 common shares were purchased
under the immediately preceding NCIB and 1,072,111 common shares were purchased under the current NCIB.
It is the Corporation’s intention to continue the current strategy of leveraging the NCIB as a tool to further reward shareholders
under ROCS especially during times of market industry weaknesses.
Capital Spending
For the year ended December 31, 2024, the Corporation spent $83.3 million in capital expenditures, of which $73.4 million was
spent on growing the Corporation’s fleet of drilling equipment, $5.3 million was spent to replace retired assets, and $4.6 million
was spent to replace equipment lost downhole during drilling operations. With proceeds on disposition of drilling and other
equipment of $36.7 million, the Corporation’s net capital expenditures(2) for the 2024-year were $46.5 million. Capital
expenditures in the 2024-year were primarily directed towards Atlas High Performance motors (“Atlas”), Velocity Real-Time
systems (“Velocity”), and Rotary Steerable Systems (“RSS”), both PowerDrive Orbit and iCruise. PHX Energy funded capital
spending primarily using proceeds on disposition of drilling equipment, cash flows from operating activities, and its credit
facilities when required.
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Growth capital expenditures
13,580
7,026
73,378
34,382
Maintenance capital expenditures from asset
retirements
-
3,066
5,289
14,609
Maintenance capital expenditures to replace downhole
equipment losses
2,134
5,382
4,610
15,941
Total capital expenditures
15,714
15,474
83,277
64,932
Deduct:
Proceeds on disposition of drilling equipment
(10,057)
(10,997)
(36,741)
(43,686)
Net capital expenditures
5,657
4,477
46,536
21,246
As at December 31, 2024, the Corporation had capital commitments to purchase drilling and other equipment for $44 million,
$26.8 million of which is growth capital allocated as follows: $9 million for performance drilling motors, $8.1 million for Velocity
systems, $7 million for RSS systems, and $2.7 million for other equipment. Equipment on order as at December 31, 2024 is
expected to be delivered within the first half of 2025.
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-11-
PHX Energy Services Corp. | 2024 Annual Report
The Board approved a preliminary 2025 capital expenditure program of $50 million. With $2 million of the 2024 capital
expenditure budget carried forward into 2025 and an additional $3 million in capital expenditures expected, the Corporation
now anticipates spending $55 million in capital expenditures during 2025. Of the total expenditures, approximately half is
anticipated to be spent on growth including additional RSS systems and Real Time RSS Communications technology. The
remaining half is anticipated to be spent to maintain capacity in the fleet of drilling and other equipment and replace equipment
lost downhole during drilling operations.
The Corporation currently possesses approximately 896 Atlas motors, comprised of various configurations including its 5.25",
5.76", 6.63", 7.12", 7.25", 8.12", 9.00", 9.62", and 12.00” Atlas motors, and 135 Velocity systems. The Corporation also
possesses the largest independent RSS fleet in North America with 89 RSS tools and the only fleet currently comprised of
both the PowerDrive Orbit and iCruise systems.
Key Drivers of the Corporation’s Business
PHX Energy considers the following to be the key drivers of its business:
World demand for natural gas and oil commodities directly affect oil and natural gas prices and drilling activity levels.
These in turn have a direct impact on the Corporation’s customers’ level of cash flows and their ability to fund capital
drilling programs with the use of cash flow, debt or equity financing, ultimately impacting PHX Energy’s activity levels.
New drilling technologies must be continually developed for the Corporation to further expand and meet the ongoing
demands from its customers, oil and natural gas producing companies, for greater operating efficiencies.
Superior customer service and satisfaction must be delivered and achieved consistently in order to retain business.
The Corporation must attract, train and retain key personnel in order to ensure future growth.
Key Performance Measures
There are several performance measures that are used by the Corporation to assess its performance relative to its strategies
and goals, the most significant of which are:
Adjusted EBITDA(1) and adjusted EBITDA as a percentage of revenue(1);
gross profit;
net debt (net cash) (2);
excess cash flow (2);
the reliability of the Corporation’s equipment and ability to provide high quality services in the field;
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-12-
Management’s Discussion & Analysis
market share retention and growth; and,
health and safety performance targets.
Industry Activity and Statistics
In 2024, oil commodity price volatility continued with gains made in the first half of the year starting to retract in the second
half. The average Western Texas Intermediate (“WTI”) price was 2 percent lower in 2024 at approximately USD $76 per barrel
for the year (2023 – USD $78). The average price of Western Canadian Select (“WCS”) was flat in 2024 at USD $61 per barrel
in 2024 (2023 – USD $60). The average differential between WTI and WCS was slightly lower compared to the prior year and
was USD $15.42 per barrel in 2024 (2023 - $17.93).
(Source: Alberta Government Economic Dashboard – https://economicdashboard.alberta.ca/OilPrice).
WTI and WCS Crude Oil and WCS Differential ($US/bbl)
Source: Alberta Government Economic Dashboard – https://economicdashboard.alberta.ca/OilPrice
Natural gas commodity prices weakened significantly in 2024. The Henry Hub spot price averaged USD $2.19 per gigajoule in
2024 (2023 – USD $2.53) while AECO-C spot averaged CAD $1.40 per gigajoule in 2024 (2023 – CAD $2.64) (Source: EIA
Natural Gas data, https://www.eia.gov/dnav/ng/hist/rngwhhdA.htm; Peters & Co Limited, Energy Update 01-23-2025).
-40
-20
0
20
40
60
80
100
Jan-23
Feb-23
Mar-23
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
Apr-24
May-24
Jun-24
Jul-24
Aug-24
Sep-24
Oct-24
Nov-24
Dec-24
WCS Price Differential
WTI
WCS
-13-
PHX Energy Services Corp. | 2024 Annual Report
US Industry
US Active Drilling Rig Count
Baker Hughes, North American Rotary Rig Count, New Report, https://rigcount.bakerhughes.com/na-rig-count
The US rig count in 2024 declined 13 percent annually to an average of 599 rigs operating per day in the 2024-year, as
compared to an average of 687 rigs in 2023. The Permian basin remained the most active area in the US representing
approximately half of all the rigs operating nationally. The Permian basin was slightly sheltered from the overall trend and the
rig count only contracted 8 percent, averaging 308 active rigs per day (2023 – 335 active rigs per day). Horizontal and
directional drilling continued to represent 97 percent of active rigs (2023 – 97 percent). (Source: Baker Hughes, North American Rotary
Rig Count, New Report, https://rigcount.bakerhughes.com/na-rig-count).
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
35 Yr Range
2015
2022
2023
2024
-14-
Management’s Discussion & Analysis
Canadian Industry
WCSB Active Drilling Rig Count
Source: Baker Hughes, North American Rotary Rig Count, New Report, https://rigcount.bakerhughes.com/na-rig-count
The Canadian market’s activity in 2024 was relatively flat compared to the previous year, with an average of 187 active rigs
per day. This level of activity is 6 percent more than the 177 rigs operating on average in 2023 and is 23 percent greater than
the 5-year average of 152 active rigs. Horizontal and directional drilling continues to be the norm in the industry, and combined,
horizontal and directional wells represented 99 percent of the total 2024 industry drilling days (2023 – 98 percent). (Source: Daily
Oil Bulletin, hz-dir days 231231 and Baker Hughes, North American Rotary Rig Count, New Report, https://rigcount.bakerhughes.com/na-rig-count).
0
100
200
300
400
500
600
700
800
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
30 Yr. Max-Min Range
2015
2022
2023
2024
-15-
PHX Energy Services Corp. | 2024 Annual Report
Results of Operations
Three-Month Period and Year Ended December 31, 2024
Revenue
The Corporation generates revenue primarily through the provision of directional drilling services which includes providing
equipment, personnel, and operational support for drilling a well. Additionally, the Corporation generates revenue through the
rental and sale of drilling motors and associated parts, particularly Atlas.
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
% Change
2024
2023
% Change
Directional drilling services
163,392
154,125
6
609,994
598,339
2
Motor rental
9,966
10,332
(4)
38,436
47,009
(18)
Sale of motor equipment and parts
5,318
875
n.m.
11,233
10,993
2
Total revenue
178,676
165,332
8
659,663
656,341
1
n.m. – not meaningful
For the three-month period and year ended December 31, 2024, PHX Energy achieved its highest level of quarterly and annual
revenue in its history. Consolidated revenue in the fourth quarter of 2024 increased by 8 percent to $178.7 million compared
to $165.3 million in the corresponding 2023-quarter and annual consolidated revenue increased by 1 percent to $659.7 million
compared to $656.3 million in 2023.
In the fourth quarter of 2024, both PHX Energy’s US and Canadian divisions’ activity outperformed industry activity trends. The
average number of horizontal and directional rigs operating per day in the US declined by 6 percent to 571 in the 2024 three-
month period from 608 in the corresponding 2023-period. In Canada, industry horizontal and directional drilling activity (as
measured by drilling days) was 16,498 days in the 2024-quarter, a 4 percent increase from 15,895 days in the same 2023-
quarter. In comparison, the Corporation’s US and Canadian operating days(3) grew by 8 percent and 6 percent respectively in
the 2024 three-month period. PHX Energy’s consolidated operating days increased by 7 percent to 7,807 days in the 2024-
quarter from 7,277 days in the 2023-quarter.
For the year-ended December 31, 2024, PHX Energy recorded 29,877 consolidated operating days(3) which is 2 percent more
than the 29,192 days in the 2023-year. The US rig count declined by 13 percent whereas the Canadian industry horizontal and
directional drilling activity (as measured by drilling days) increased by 5 percent year-over-year. In comparison, in the 2024
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-16-
Management’s Discussion & Analysis
twelve-month period, Phoenix USA operating days declined by 4 percent and PHX Energy’s Canadian operating days grew by
12 percent. In both the 2024 and 2023-year, the Corporation’s RSS activity represented 20 to 25 percent of its US activity and
2 to 4 percent of its Canadian activity.
Average consolidated revenue per day(3) for directional drilling services period-over-period held relatively consistent with a
marginal decline of 1 percent to $20,930 in the 2024-quarter (2023 – $21,178) and virtually no change at $20,418 in the 2024-
year (2023 – $20,497).
Partially due to the softer US rig count, revenue generated by the Corporation’s Atlas motor rental division declined by 4 percent
to $10 million in the 2024-quarter (2023 - $10.3 million) and 18 percent to $38.4 million in the 2024-year (2023 - $47 million).
Additionally, the US division’s motor rental activities were also negatively impacted by constraints on the servicing facility’s
capacity which delayed turnaround times.
For the three-month period and year ended December 31, 2024, revenue of $5.3 million and $11.2 million, respectively, were
generated from the sale of Atlas motors and parts (2023 – $0.9 million and $11 million, respectively). In the 2024-quarter, there
was a large customer order for motors as they added to their fleet capacity whereas in the corresponding 2023-quarter, revenue
was mainly generated through the sale of parts to maintain these fleets. Due to the sporadic and cyclical nature of the
customers’ ordering frequency, it is expected that revenue from this line of business will fluctuate between periods.
Operating Costs and Expenses
(Stated in thousands of dollars except percentages)
Three-month periods ended December 31,
Years ended December 31,
2024
2023 % Change
2024
2023
% Change
Direct costs
148,003
129,240
15
535,169
506,236
6
Depreciation & amortization drilling and other
equipment (included in direct costs)
11,846
10,056
18
44,822
38,861
15
Depreciation & amortization right-of-use asset
(included in direct costs)
867
841
3
3,787
2,898
31
Gross profit as a percentage of revenue excluding
depreciation & amortization (1)
24%
28%
26%
29%
Direct costs are comprised of field and shop expenses, costs of motors and parts sold, and include depreciation and
amortization of the Corporation’s equipment and right-of-use assets. For the three-month period and year ended December
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-17-
PHX Energy Services Corp. | 2024 Annual Report
31, 2024, direct costs increased by 15 percent to $148 million (2023 - $129.2 million) and 6 percent to $535.2 million (2023 -
$506.2 million), respectively.
For the 2024 three and twelve-month periods, the Corporation’s depreciation and amortization on drilling and other equipment
increased by 18 percent and 15 percent, respectively, mainly as a result of the additions to fixed assets throughout 2024. Apart
from higher depreciation and amortization expenses on drilling and other equipment, higher direct costs in both 2024-periods
primarily resulted from greater equipment repair expenses and increased costs of motor equipment and parts sold. Direct costs
in both 2024-periods also included $2.2 million of write-down of inventory to its net realizable value.
For the three-month period and year ended December 31, 2024, gross profit as a percentage of revenue excluding depreciation
and amortization(1) was 24 percent and 26 percent, respectively, compared to 28 percent and 29 percent in the corresponding
2023-periods. The decrease in profitability in both 2024 periods is largely attributable to weaker activity in the Corporation’s
high-margin motor rental business in the US, rising equipment servicing costs, and lower margins realized from the sale of
motor equipment and parts.
In both 2024-periods, greater equipment repair expenses primarily resulted from rising costs of materials and services, aging
fleet, increasing demands from customers on components, and higher RSS-related repair and rental costs which partly resulted
from the diversification and enhancement of the RSS fleet and its related ancillary technologies. With the softer US industry
activity in 2024 and extremely competitive Canadian market, the pricing environment has been inelastic which has not allowed
the Corporation to implement increases to recuperate these costs, thus these costs impacted overall profitability. The
Corporation currently has ongoing research and development (“R&D”) initiatives aimed at reducing costs to maintain
equipment, and Management believes these will aid in improving profitability once implemented successfully.
(Stated in thousands of dollars except percentages)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
% Change
2024
2023
% Change
Selling, general and administrative (“SG&A”) costs
17,567
18,004
(2)
68,294
68,915
(1)
Cash-settled share-based compensation
(included in SG&A costs)
2,190
4,572
(52)
11,774
13,470
(13)
Equity-settled share-based compensation
(included in SG&A costs)
59
60
(2)
480
491
(2)
SG&A costs excluding share-based compensation as
a percentage of revenue(1)
9%
8%
8%
8%
For the three-month period and year ended December 31, 2024, SG&A costs were $17.6 million and $68.3 million, respectively,
as compared to $18 million and $68.9 million in the corresponding 2023-periods. In the 2024-quarter, the decrease in SG&A
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-18-
Management’s Discussion & Analysis
costs of 2 percent was mainly due to lower cash-settled share-based compensation expense during the period compared to
the 2023-quarter. In the 2024-year, SG&A costs decreased slightly by 1 percent as increases in personnel-related costs were
offset by decreases in compensation expenses related to cash-settled share-based awards.
Cash-settled share-based compensation relates to the Corporation’s retention awards and is measured at fair value. For the
three-month period and year ended December 31, 2024, the related compensation expense recognized by PHX Energy was
$2.2 million (2023 - $4.6 million) and $11.8 million (2023 - $13.5 million), respectively. Changes in cash-settled share-based
compensation expense in the 2024-periods were mainly driven by fluctuations in the Corporation’s share price and the number
of awards granted in the period. There were 1,599,094 retention awards outstanding as at December 31, 2024 (2023 –
2,160,151). SG&A costs excluding share-based compensation as a percentage of revenue(1) for the 2024 three-month period
marginally increased to 9 percent (2023 – 8 percent) and in the twelve-month period was flat at 8 percent (2023 – 8 percent).
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
% Change
2024
2023
% Change
Research and development expense
1,333
1,393
(4)
5,337
5,210
2
For the three-month period and year ended December 31, 2024, PHX Energy’s R&D expenditures of $1.3 million and $5.3
million, respectively, were largely comparable to the $1.4 million and $5.2 million spent in the corresponding 2023-periods. The
Corporation’s R&D department remains focused on improving the design of existing technologies to further enhance reliability,
reduce costs to operate, and continue displacing certain equipment rentals.
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
% Change
2024
2023
% Change
Finance expense
527
448
18
1,948
2,422
(20)
Finance expense lease liabilities
512
551
(7)
2,213
2,245
(1)
Finance expenses mainly relate to interest charges on the Corporation’s credit facilities. For the three-month period and year
ended December 31, 2024, finance expenses increased to $0.5 million (2023 - $0.4 million) and decreased to $1.9 million
(2023 - $2.4 million), respectively. The increase in finance expenses in the 2024-quarter was primarily due to higher drawings
on the credit facilities in the period. In the 2024-year, finance expenses decreased mainly due to lower amounts of loans and
borrowings outstanding for the most part of the 2024-year compared to 2023. Additionally, variable interest rates on the
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-19-
PHX Energy Services Corp. | 2024 Annual Report
Corporation’s operating and syndicated facilities decreased during the 2024 twelve-month period as compared to the
corresponding 2023-period.
Finance expense lease liabilities relate to interest expense incurred on lease liabilities. For the three and twelve-month periods
ended December 31, 2024, finance expense lease liabilities stayed consistent at $0.5 million and $2.2 million, respectively
(2023 - $0.6 million and $2.2 million, respectively), as no new significant leases were entered into both periods.
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Net gain on disposition of drilling equipment
6,021
7,444
24,648
31,347
Foreign exchange gains (losses)
(946)
533
(1,070)
1,107
Provision for bad debts
-
-
-
(117)
Other income
5,075
7,977
23,578
32,337
For the three-month period and year ended December 31, 2024, the Corporation recognized other income of $5.1 million and
$23.6 million, respectively (2023 - $8 million and $32.3 million, respectively). In both periods, other income was mainly
comprised of net gain on disposition of drilling equipment. The recognized gain is net of losses, which typically result from
asset retirements that were made before the end of the equipment’s useful life. In the 2024-quarter and year, fewer instances
of high dollar valued downhole equipment losses occurred as compared to the corresponding 2023-periods resulting in lower
levels of net gain on disposition of drilling equipment recognized. Fewer instances of high dollar valued downhole equipment
losses can be attributed to operators generally improving their drilling practices and continuous improvements in the
Corporation’s technology design to avoid such instances.
Foreign exchange losses of $0.9 million and $1.1 million in the three and twelve-month periods of 2024, respectively (2023 –
gains of $0.5 million and $1.1 million, respectively), were primarily due to the settlement of CAD-denominated intercompany
receivables in the US.
(Stated in thousands of dollars except percentages)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Provision for (Recovery of) income taxes
1,711
(9,460)
15,658
5,070
Effective tax rates (3)
11%
n.m.
22%
5%
n.m. – not meaningful
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-20-
Management’s Discussion & Analysis
For the three-month period and year ended December 31, 2024, the Corporation reported a provision for income tax of $1.7 million
(2023 – recovery of income taxes of $9.5 million), and $15.7 million (2023 - $5.1 million), respectively. In the 2024-quarter, PHX
Energy’s effective tax rate(3) was 11 percent which is lower than the combined US federal and state corporate income tax rate of
24.5 percent and the combined Canadian federal and provincial corporate income tax rate of 23 percent mainly due to the recovery
of income taxes relating to prior periods. In the 2024-year, PHX Energy’s effective tax rate(3) of 22 percent is relatively in line with
the combined US federal and state corporate income tax rate of 24.5 percent and the combined Canadian federal and provincial
corporate income tax rate of 23 percent. Recovery of income taxes in the 2023-quarter and lower provision for income taxes in
the 2023-year were primarily attributable to the recognition and utilization of previously unrecognized deferred tax assets in the
Canadian jurisdiction.
(Stated in thousands of dollars except per share amounts and percentages)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
% Change
2024
2023
% Change
Operating Results
Earnings
14,098
33,134
(57)
54,622
98,580
(45)
Earnings per share – diluted
0.30
0.68
(56)
1.16
1.96
(41)
Adjusted EBITDA (1)
29,638
35,388
(16)
123,734
150,717
(18)
Adjusted EBITDA per share – diluted (1)
0.63
0.70
(10)
2.63
2.86
(8)
Adjusted EBITDA as a percentage of revenue (1)
17%
21%
19%
23%
For the three-month period and year ended December 31, 2024, the Corporation’s earnings decreased by 57 percent to $14.1
million (2023 - $33.1 million) and by 45 percent to $54.6 million (2023 - $98.6 million), respectively. Earnings in the 2024 three
and twelve-months period included a provision for income tax of $1.7 million and $15.7 million, respectively, while earnings in
the 2023 three and twelve-month periods included a $9.5 million of recovery of income taxes and $5.1 million of provision for
income taxes, respectively. Recovery of income taxes in the 2023-quarter and lower provision for income taxes in the 2023-year
were primarily attributable to the recognition and utilization of previously unrecognized deferred tax assets in the Canadian
jurisdiction. Additionally, as a result of fixed asset additions throughout 2024, depreciation and amortization expenses on
drilling and other equipment increased to $11.8 million (pre-tax) in the 2024-quarter and $44.8 million (pre-tax) in the 2024-
year (2023-quarter - $10.1 million, 2023-year - $38.9 million).
In the fourth quarter of 2024, adjusted EBITDA decreased by 16 percent to $29.6 million, 17 percent of revenue, from $35.4
million, 21 percent of revenue in the corresponding 2023-quarter. In the 2024-year, adjusted EBITDA decreased by 18 percent
to $123.7 million, 19 percent of revenue, from $150.7 million, 23 percent of revenue in 2023. The decrease in profitability in
both 2024-periods were primarily driven by increasing equipment repair costs, weaker RSS and motor rental activity in the US,
(1) Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-21-
PHX Energy Services Corp. | 2024 Annual Report
lower margins from the sale of motor equipment and parts, as well as fewer instances of high dollar valued downhole equipment
losses. Additionally, the Corporation recognized a $2.2 million write-down of inventory to its net realizable value in both 2024-
periods.
Segmented Information
The Corporation reports two operating segments on a geographical basis throughout the Gulf Coast, Northeast and Rocky
Mountain regions of the US and throughout the Western Canadian Sedimentary Basin (refer to the “Changes in Material
Accounting Policies” section of this MD&A for the change in operating segments). Revenue generated through the
Corporation’s technology partnership and sales and lease agreement for the Middle East and North Africa (“MENA”) regions
are included in the US division’s results.
United States
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
% Change
2024
2023
% Change
Directional drilling services
117,811
111,350
6
431,675
440,385
(2)
Motor rental
9,213
9,853
(6)
36,557
45,145
(19)
Sale of motor equipment and parts
5,318
875
n.m.
11,233
10,993
2
Total revenue
132,342
122,078
8
479,465
496,523
(3)
Direct costs
108,155
93,240
16
384,878
380,020
1
Gross profit
24,187
28,838
(16)
94,587
116,503
(19)
Expenses:
Selling, general and administrative
expenses
8,283
9,326
(11)
30,746
30,042
2
Research and development
expenses
-
-
-
-
-
Finance expense
-
-
-
-
-
Finance expense lease liability
200
223
(10)
943
929
2
Other income
(2,548)
(5,292)
(52)
(16,286)
(26,992)
(40)
Reportable segment profit
before income taxes
18,252
24,581
(26)
79,184
112,524
(30)
n.m. – not meaningful
In 2024, PHX Energy’s US operations were resilient to the weak industry activity as a result of its strong operational
performance and the reputation of its premium technologies. In the 2024 three-month period, the US division generated its
highest level of quarterly revenue in its history, $132.3 million, 8 percent higher than the $122.1 million generated in the fourth
-22-
Management’s Discussion & Analysis
quarter of 2023. For the year ended December 31, 2024, the Corporation’s US division’s revenue was $479.5 million, only 3
percent lower than the record $496.5 million set in 2023.
In the fourth quarter of 2024, the average number of active horizontal and directional rigs per day in the US industry declined
by 6 percent to 571 compared to an average of 608 rigs per day in the 2023-quarter. In comparison, the Corporation’s US
operating days(3) increased by 8 percent to 4,438 days from 4,114 days in the 2023-quarter. The US division’s RSS activity
represented 22 percent of its operating days which is lower compared to 26 percent represented in the 2023-quarter. For the
year ended December 31, 2024, the average number of horizontal and directional rigs running on a daily basis in the US
industry decreased by 13 percent to 585 rigs from 671 rigs in 2023. In comparison, the US segment’s operating days were
16,667 in the 2024-year compared to 17,347 in 2023; a decrease of 4 percent. The US division’s RSS activity represented 21
percent of its annual operating days which is slightly lower compared to 22 percent represented in the 2023-year.
In 2024, the Corporation continued to focus on differentiating its RSS fleet with R&D efforts directed towards its proprietary
Real Time RSS Communications technologies. With this unique advantage, the Corporation expects the percentage of activity
represented by the high margin RSS business line to grow further.
Horizontal and directional drilling continued to represent the majority of rigs running on a daily basis during the fourth quarter
and year ended 2024. During the 2024-year, Phoenix USA was active in the Permian, Eagleford, Scoop/Stack, Marcellus,
Utica, and Bakken basins. Additionally, Phoenix USA was involved with carbon capture and gas storage projects in Indiana,
Michigan, Louisiana and Texas.
For the three-month period ended December 31, 2024, the US division’s average revenue per day(3) for directional drilling
services declined slightly by 2 percent to $26,546 from $27,069 in the 2023-quarter. For the year ended December 31, 2024,
average revenue per day for directional drilling services grew slightly by 2 percent to $25,901 from $25,387 in 2023. Omitting
the impact of foreign exchange, the average revenue per day for directional drilling services decreased by 6 percent in the
2024-quarter and 1 percent in the 2024-year. The strong US dollar favorably affected the average revenue per day in both
2024-periods. Without the impact of foreign exchange, average revenue per day for directional drilling services declined in
both 2024-periods primarily due to the decrease in RSS activity as a percentage of its operating days.
Unlike the Corporation’s US directional drilling activity, the US division’s motor rental activities were more directly impacted by
the softened rig count. For the three-month period and year ended December 31, 2024, US motor rental revenue declined by
6 percent and 19 percent, respectively, to $9.2 million in the 2024-quarter and $36.6 million in the 2024-year (2023 - $9.9
million and $45.1 million, respectively). Aside from the slowdown in industry activity, the US division’s motor rental activities
were also negatively impacted by constraints on the servicing facility’s capacity which delayed turnaround times. The
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-23-
PHX Energy Services Corp. | 2024 Annual Report
Corporation continues to see the potential for growth for this business line and will be adding resources to support this division
and its operations.
In the 2024 three and twelve-month periods, PHX Energy’s US operations generated $5.3 million and $11.2 million of revenue
from the sale of motors and parts compared to $0.9 million and $11 million in the respective 2023-periods. In the 2024-quarter,
there was a large customer order for motors as they added capacity to their fleet whereas in the corresponding 2023-quarter,
revenue was mainly generated through the sale of parts. Due to the sporadic and cyclical nature of the customers’ ordering
frequency, it is expected that revenue from this line of business will fluctuate between periods.
For the three-month period ended December 31, 2024, the US segment’s reportable segment income before tax decreased
by 26 percent to $18.3 million from $24.6 million in the same 2023-period. In the 2024-year, the US segment’s reportable
segment income before tax declined by 30 percent to $79.2 million from $112.5 million in 2023. Lower profitability in both 2024-
periods primarily resulted from higher depreciation expenses, decreases in the US division’s high margin RSS and motor rental
activities, greater equipment repair expenses, higher costs of motor equipment and parts sold, and fewer instances of high
dollar valued downhole equipment losses.
-24-
Management’s Discussion & Analysis
Canada
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
% Change
2024
2023
% Change
Directional drilling services
45,581
42,775
7
178,319
157,954
13
Motor rental
753
479
57
1,879
1,864
1
Total revenue
46,334
43,254
7
180,198
159,818
13
Direct costs
39,848
36,001
11
150,291
126,216
19
Gross profit
6,486
7,253
(11)
29,907
33,602
(11)
Expenses:
Selling, general and administrative
expenses
4,248
2,535
68
15,548
11,303
38
Research and development
expenses
-
-
-
-
-
-
Finance expense
-
-
-
-
-
-
Finance expense lease liability
293
306
(4)
1,193
1,241
(4)
Other income
(2,527)
(2,686)
(6)
(7,292)
(5,345)
36
Reportable segment profit
before income taxes
4,472
7,098
(37)
20,458
26,403
(23)
For the three-month period and year ended December 31, 2024, PHX Energy’s Canadian operations generated revenue of
$46.3 million (2023 - $43.3 million) and $180.2 million (2023 - $159.8 million), respectively, the highest level of fourth quarter
and annual revenue since 2014.
In the 2024 three-month period, PHX Energy’s Canadian segment’s operating days(3) grew by 6 percent to 3,369 days from
3,164 days in the same 2023-quarter and its RSS operating days accounted for 5 percent of its activity in the 2024-period
(2023 – 2 percent). In comparison, industry horizontal and directional drilling activity, as measured by drilling days, increased
by 4 percent to 16,498 in the fourth quarter of 2024 from 15,895 in the 2023-quarter. For the year ended December 31, 2024,
there were 62,759 horizontal and directional drilling days realized in the Canadian industry, compared to the 59,809 days
realized in 2023, a 5 percent increase. In comparison, the Canadian segment’s activity improved by 12 percent from 11,845
operating days in 2023 to 13,210 days in 2024. Additionally, the Canadian division’s RSS operating days in the 2024-year
increased to 4 percent of the segment’s activity from 2 percent in 2023. In both 2024-periods, revenue growth was driven by
the successful expansion of the Corporation’s client base and increased RSS activity. During the 2024-year, the Corporation
was active in the Duvernay, Montney, Glauconite, Frobisher, Cardium, Viking, Bakken, Torquay, Colony, Ellerslie, Charlie
Lake, Cummings, Sparky, Clearwater, and Scallion basins.
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-25-
PHX Energy Services Corp. | 2024 Annual Report
The Canadian division’s average revenue per day(3) for directional drilling services was flat at $13,538 in the 2024-quarter, as
compared to $13,522 in the corresponding 2023-quarter and increased slightly by 1 percent to $13,500 in the 2024-year from
$13,336 in 2023.
PHX Energy’s Canadian reportable segment profits decreased by 37 percent to $4.5 million in the 2024-quarter (2023 - $7.1
million) and 23 percent to $20.5 million in the 2024-year (2023 - $26.4 million). The decline in profitability in both 2024-periods
were mainly due to higher depreciation expenses, rising personnel-related costs, greater equipment repairs, and increased
RSS-related equipment rentals. In the second half of 2024, the Canadian division took delivery of additional PowerDrive Orbit
RSS systems and with the additional capacity in its owned RSS fleet, the Corporation expects to reduce equipment rentals
and improve RSS profitability in the upcoming year.
Liquidity
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Cash flows from operating activities
17,676
36,754
96,898
96,723
Funds from operations(2)
24,305
28,167
99,695
119,317
Dec. 31, ‘24
Dec. 31, ‘23
Working capital(2)
84,545
93,915
Net debt (Net cash)(2)
2,664
(8,869)
Cash flow from operating activities decreased to $17.7 million in the 2024 fourth quarter (2023-quarter - $36.8 million), and
were relatively flat at $96.9 million in the twelve-month period (2023 - $96.7 million). The decrease in the 2024 three-month
period was primarily due to the lower levels of earnings and higher levels of trade and other receivables at the end of the 2024-
period. For the three-month period and year ended December 31, 2024, funds from operations(2) were $24.3 million and $99.7
million, respectively, as compared to $28.2 million and $119.3 million in the comparable 2023-periods. The decrease in funds
from operations in both 2024-periods primarily resulted from declined levels of profitability.
As at December 31, 2024, the Corporation had working capital(2) of $84.5 million, a decrease of $9.4 million from the $93.9
million reported at December 31, 2023. The decrease in working capital at December 31, 2024 was primarily due to higher
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-26-
Management’s Discussion & Analysis
levels of trade and other payables and lower levels of current tax assets at the end of the 2024-year. Net debt(2) as at December
31, 2024 was $2.7 million as compared to net cash(2) of $8.9 million at the end of 2023. The change from net cash to net debt
was due to higher levels of drawings that were used to fund acquisitions of drilling and other equipment and NCIB repurchases
in the year.
Cash Flow, Dividends, and ROCS
In December 2020, PHX Energy reinstated its quarterly dividend program. In November 2022, PHX Energy’s Board approved
a refinement of its shareholder return strategy in the form of ROCS which targets up to 70 percent of annual excess cash flow(2)
to be used for shareholder returns, including the base dividend program, share buy backs and potential special dividends. The
Board will continually review the dividend program and its ROCS and take into consideration, without limitation, the
Corporation’s financial performance, forecasted activity levels and the industry outlook, among other factors. The actual
amount of future quarterly dividends, if any, remains subject to the approval of and declaration by the Board. The Board reviews
the Corporation’s dividend policy in conjunction with their review of quarterly financial and operating results. The Corporation’s
ability to maintain the current level of dividends to its shareholders is dependent upon the realization of cash flow from operating
activities, among other considerations, and if the Corporation does not meet its budgeted cash flow from operating activities,
dividends to shareholders may be reduced or suspended entirely.
For the three-month period and year ended December 31, 2024, dividend payments of $9.2 million and $37.6 million,
respectively, were financed from the Corporation’s funds from operations(2) (2023 - $7.3 million and $30.2 million, respectively).
On December 13, 2024, the Corporation declared a dividend of $0.20 per common share payable to shareholders of record
on December 31, 2024. An aggregate of $9.1 million was paid on January 15, 2025.
During the third quarter of 2024, the TSX approved the renewal of PHX Energy’s NCIB to purchase for cancellation, from time-
to-time, up to a maximum of 3,363,845 common shares, representing 10 percent of the Corporation’s public float of Common
Shares as at August 7, 2024. The NCIB commenced on August 16, 2024 and will terminate on August 15, 2025. Purchases of
common shares are to be made on the open market through the facilities of the TSX and through other alternative Canadian
trading platforms. The price which PHX Energy is to pay for any common shares purchased is to be at the prevailing market
price at the time of such purchase.
Pursuant to the previous and current NCIB, 2,141,232 common shares were purchased and cancelled by the Corporation for
$20.6 million including incremental transaction costs for the year ended December 31, 2024 (2023 - 4,032,600 common shares
$30.4 million).
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
-27-
PHX Energy Services Corp. | 2024 Annual Report
Investing Activities
Net cash used in investing activities for the year ended December 31, 2024 was $49.2 million as compared to $20.3 million in
2023. During 2024, the Corporation spent $73.4 million (2023 - $34.4 million) to grow the Corporation’s fleet of drilling
equipment, $5.3 million (2023 - $14.6 million) was used to maintain capacity in the Corporation’s fleet of drilling and other
equipment, and $4.6 million (2023 - $15.9 million) was spent to replace equipment lost downhole during drilling operations.
With proceeds on disposition of drilling and other equipment of $36.7 million (2023 - $43.7 million), the Corporation’s net capital
expenditures for 2024 were $46.5 million (2023 - $21.2 million).
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Growth capital expenditures
13,580
7,026
73,378
34,382
Maintenance capital expenditures from asset
retirements
-
3,066
5,289
14,609
Maintenance capital expenditures to replace downhole
equipment losses
2,134
5,382
4,610
15,941
Total capital expenditures
15,714
15,474
83,277
64,932
Deduct:
Proceeds on disposition of drilling equipment
(10,057)
(10,997)
(36,741)
(43,686)
Net capital expenditures
5,657
4,477
46,536
21,246
The 2024-year capital expenditures comprised of:
$31 million in RSS;
$27 million in downhole performance drilling motors;
$20.3 million in MWD systems and spare components; and
$5 million in machinery and equipment and other assets.
The capital expenditure program undertaken in the year was primarily financed from proceeds on disposition of drilling
equipment, cash flows from operating activities, and the Corporation’s credit facilities when required.
The change in non-cash working capital balances of $0.4 million (use of cash) relates to the net change in the Corporation’s
trade payables that are associated with the acquisition of capital assets. This compares to $1.7 million source of cash in 2023.
-28-
Management’s Discussion & Analysis
Capital Expenditures
In 2024, the Corporation continued to grow its fleet of high-performance technologies, including its Atlas motors, Velocity
systems, and RSS. Capital expenditures in the 2024-year were the highest in PHX Energy’s history.
Financing Activities
For the year ended December 31, 2024, net cash used in financing activities was $51.1 million as compared to $77.9 million
in 2023. In the 2024-year:
dividends of $37.6 million were paid to shareholders;
2,141,232 common shares were repurchased and cancelled under the NCIB for $20.6 million;
payments of $3.4 million were made towards lease liabilities;
$9.1 million net drawings were made from the Corporation’s syndicated credit facility; and
387,533 common shares were issued from treasury for proceeds of $1.3 million upon the exercise of share
options.
$8.1
$12.2
$25.0
30.5
9.9
$17.8
$23.1
$48.5
$34.4
$73.4
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2020
2021
2022
2023
2024
Maintenance Capital
Growth Capital
Net Capital Expenditures
$46.7 million
Net Capital Expenditures
$22.9 million
Net Capital Expenditures
$46.1 million
Net Capital Expenditures
$18.5 million
Net Capital Expenditures
$21.2 million
$7.4
$12.4
$27.5
$43.7
$36.7
Proceeds from Dispostion of Drilling Equipment
-29-
PHX Energy Services Corp. | 2024 Annual Report
Capital Resources
As of December 31, 2024, the Corporation had CAD $11.1 million drawn on its Canadian credit facilities, USD $4 million drawn
on its US operating facility, and a cash balance of $14.2 million. As at December 31, 2024, the Corporation had CAD $83.6
million and USD $16 million available from its credit facilities. The credit facilities are secured by substantially all of the
Corporation’s assets and mature in December 2026.
As at December 31, 2024, the Corporation was in compliance with all its financial covenants as follows:
Ratio
Covenant
As at December 31, 2024
Debt to covenant EBITDA(i)
<3.0x
0.14
Interest coverage ratio(i)
>3.0x
60.66
(i) Definitions for these terms are included in the credit agreement filed on SEDAR+ under the heading "Material Contracts – Credit Agreements”.
Under the syndicated credit agreement, in any given period, the Corporation’s distributions (as defined therein) cannot exceed
its maximum aggregate amount of distributions limit as defined in the Corporation’s syndicated credit agreement. Distributions
include, without limitation, dividends declared and paid, cash used for common shares purchased by the independent trustee
in the open market and held in trust for potential settlement of outstanding retention awards, as well as cash used for common
shares repurchased and cancelled under the NCIB.
Cash Requirements for Capital Expenditures
Historically, the Corporation has financed its capital expenditures and acquisitions through cash flows from operating activities,
proceeds on disposition of drilling equipment, debt and equity. With $2 million of the 2024 capital expenditure budget carried
forward into 2025, an additional $3 million of capital expenditures expected, and the previously approved preliminary 2025
capital expenditure program of $50 million, the Corporation now anticipates spending $55 million in capital expenditures during
2025, which was recently approved by the Board. Of the total expenditures, approximately half is targeted to be spent on
growth and approximately half is expected to be allocated to maintain capacity in the existing fleet of drilling and other
equipment and replace equipment lost downhole during drilling operations. The amount expected to be allocated towards
replacing equipment lost downhole could increase, should more downhole equipment losses occur throughout the year.
These planned expenditures are expected to be financed from cash flow from operating activities, proceeds on disposition of
drilling equipment, cash and cash equivalents, and the Corporation’s credit facilities, if necessary. However, if a sustained
period of market uncertainty, threat of trade wars, and financial market volatility persists in 2025, the Corporation's activity
levels, cash flows and access to credit may be negatively impacted, and the expenditure level would be reduced accordingly
-30-
Management’s Discussion & Analysis
where possible. Conversely, if future growth opportunities present themselves, the Corporation would look at expanding this
planned capital expenditure amount.
As at December 31, 2024, the Corporation has commitments to purchase drilling and other equipment for $44 million. Delivery
is expected to occur within the first half of 2025.
Off-Balance Sheet Arrangements
The Corporation had no material off-balance sheet arrangements as at December 31, 2024 and 2023.
Proposed Transactions
The Corporation regularly reviews and evaluates possible strategic material business or asset acquisitions or capital asset
divestitures in the normal course of its operations.
Critical Accounting Estimates and Judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimates are revised and in any future periods affected.
Assumptions and estimation uncertainties that have a significant risk of material adjustment in the context of these financial
statements include the following:
key assumptions used in the valuation of drilling and other equipment;
estimated useful lives of drilling and other equipment and intangible assets;
recognition of deferred tax assets based on estimates of the availability of future taxable profit against which carry-
forward tax losses can be used;
assumptions used in the valuation of investments;
estimates and assumptions used in the valuation of inventory;
-31-
PHX Energy Services Corp. | 2024 Annual Report
estimate used in the valuation of accounts receivable;
valuation of equity-settled and cash-settled share-based payments; and,
key assumptions used in the estimate of leases including valuation of right of use assets and lease liabilities.
Climate change policy and Environmental, Social and Governance (“ESG”) culture policies are evolving at regional, national
and international levels. Political and economic events may significantly affect the scope and timing of ESG policies and climate
change measures. The Canadian Securities Administrators (“CSA”) have issued a proposed National Instrument 51-107
Disclosure of Climate-Related Matters. The Canadian Sustainability Standards Board (“CSSB”) have published Canadian
Sustainability Disclosure Standard (“CSDS”), CSDS 1 and CSDS 2 in the current period, adoption is voluntary until mandated
by provincial regulators. The CSA is currently developing a revised climate-related disclosure policy, which will provide the
regulatory framework for issuers.
Significant judgement is required to assess when impairment indicators exist, and impairment testing is required. The
assessment of impairment indicators is based on management’s judgment of whether there are internal and external factors
that would indicate that a cash generating unit ("CGU") and specifically the non-financial assets within the CGU, are impaired.
These factors include revenue and earnings before interest, taxes, depreciation and amortization forecasts, expected industry
activity levels, commodity price developments and market capitalization. The determination of a CGU is also based on
management’s judgment and is an assessment of the smallest group of assets that generate cash inflows independently of
other assets.
-32-
Management’s Discussion & Analysis
Changes in Accounting Policies
PHX Energy’s material accounting policies are described in Note 3 of the Corporation’s annual consolidated financial
statements for the years ended December 31, 2024 and 2023.
Management has determined that the previously disclosed international segment no longer meets the definition of a reportable
segment. The international segment was formerly comprised of PHX Energy’s Russia and Albania divisions. The Russian
division was disposed of on June 30, 2022. As a result of the internal realignment, the results of the Albania division are no
longer regularly reviewed by the Corporation’s chief operating decision makers. The results of the Albania division also do not
exceed the quantitative thresholds in IFRS 8, Operating Segments, and the wind down of active operations has been
substantially completed in the current period. Accordingly, the results of the international segment are no longer presented
separately and are included within the Canada segment. The comparative segment disclosures have been restated to align
with the reportable segment presentation adopted in the current periods.
During the third quarter of 2024, the International Accounting Standards Board issued a decision regarding the disclosure
requirements under IFRS 8 segment reporting. Management has made updates in the current and comparative periods to the
disclosures under Note 16 – Operating Segments of its annual consolidated financial statements for the years ended December
31, 2024 and 2023 to align with the decision, providing further detail relating to the segmentation of income statement items.
Significant changes include the allocation of finance expense lease liability and other income to the reportable segments and
disclosure of specified amounts used in arriving at reportable segment profit (loss) before income taxes.
Financial Instruments
Credit Risk
The Corporation held cash of $14.2 million at December 31, 2024 (2023 – $16.4 million). The cash is held with financial
institution counterparts, which are rated A+ or higher, based on S&P Global ratings.
The Corporation is exposed to normal credit risks of its customers that exist within the oil and natural gas exploration and
development industry. The Corporation’s credit risk associated with these customers can be directly impacted by a decline in
economic conditions, which would impair the customers’ ability to satisfy their obligations to the Corporation. During the year
ended December 31, 2024, one customer comprised 15 percent of the total revenue (2023 - 14 percent of revenue). The
customer’s revenue is reported within the US operating segment.
-33-
PHX Energy Services Corp. | 2024 Annual Report
As at December 31, 2024, the aging of trade and other receivables that were not impaired was as follows:
(Stated in thousands of dollars)
2024
Neither past due nor impaired
$
93,747
Past due 1-30 days
30,770
Past due 31-60 days
7,915
Past due 61-90 days
459
Past due over 90 days
698
$
133,589
The Corporation’s standard customer payment terms are 30 days after job completion or invoice issuance date, after which,
the balance becomes past due. The Corporation will assess for impairment once the receivable becomes past due. All accounts
receivable balances that are past due for more than 90 days and were not impaired represented less than one percent or
approximately $0.7 million of total receivables on the statement of financial position at December 31, 2024. Management
believes that the unimpaired amounts that are past due are still collectible in full, based on historic payment behavior and
extensive analysis of customer credit risk. Management has provided an allowance of $0.1 million for all amounts it considers
uncollectable at December 31, 2024 (2023 - $0.1 million).
The Corporation has a credit management program to assist in managing this risk, which consists of conducting financial and
other assessments to establish and monitor a customer’s creditworthiness. The Corporation monitors and manages its credit
risk on an ongoing basis.
Liquidity Risk
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation
has financial liabilities, thus, is exposed to liquidity risk. The Corporation’s approach to managing liquidity risk is to ensure that
it always has sufficient cash and credit facilities to meet its obligations when due. Management typically forecasts cash flows
for a period of twelve months to identify financing requirements. These requirements are then addressed through a combination
of demand credit facilities and access to capital markets. The Corporation believes that future cash flows generated by the
operations and access to additional liquidity through capital and banking markets will be adequate to meet its financial
obligations.
-34-
Management’s Discussion & Analysis
The following table reflects the Corporation’s anticipated payment of contractual obligations as at December 31, 2024:
(Stated in thousands of dollars)
2025
2026
2027
2028
2029 and after
Drilling and other equipment
purchase commitments
43,973
-
-
-
-
Trade and other payables
116,668
-
-
-
-
Other non-current liabilities
-
2,771
570
-
-
Dividends payable
9,102
-
-
-
-
Bank loan interest and principal (i)
2,500
16,534
-
-
-
Lease payments (ii)
6,772
6,387
6,107
5,480
4,304
179,015
25,692
6,677
5,480
4,304
(i) Bank loan interest has been estimated using interest rates in effect at December 31, 2024.
(ii) Lease payment amounts are gross and undiscounted contractual cash flows and include low value and short-term leases.
Fair Values of Financial Instruments
The Corporation has designated its trade and other payables, dividends payable, and loans and borrowings as non-derivative
financial liabilities carried at amortized cost. Trade and other receivables are designated as non-derivative financial assets
measured at amortized cost. The Corporation’s carrying values of these items, excluding loans and borrowings, approximate
their fair value due to the relatively short periods to maturity of the instruments. Loans and borrowings bears interest at a
floating market rate indicative of current spreads and accordingly the fair value approximate the carrying value.
Equity investments in a company are designated as non-derivative financial assets measured at Fair Value Through Other
Comprehensive Income as the investment is not held-for-trading and fair value changes are not reflective of the Corporation’s
operations. The investment asset is carried at fair value on the Consolidated Statement of Financial Position. Fair value is
considered level 3 under the fair value hierarchy and requires management to assess information available, which may include
private placements, available financial statement information and other available market data.
Interest Rate Risk
Interest rate risk is created by fluctuations in the fair values of financial instruments due to changes in the market interest rates.
The Corporation has access to variable interest long-term debt which exposes it to fluctuations in cash interest payment
amounts.
A one percent change in interest rates would have increased or decreased the Corporation’s profit by $0.1 million for the year
ended December 31, 2024.
Foreign Exchange Risk
Foreign exchange risk is created by fluctuations in the fair values of financial instruments due to changes in foreign exchange
rates. Due to operations of the Corporation’s subsidiaries in the US, the Corporation has an exposure to foreign currency
-35-
PHX Energy Services Corp. | 2024 Annual Report
exchange rates. The carrying values of Canadian dollar and US dollar denominated monetary assets and liabilities and
earnings are subject to foreign exchange risk. For the year ended December 31, 2024, foreign currency translation gains of
$14.5 million (2023 – $4.8 million loss) that resulted from fluctuations in the CAD-USD exchange rates was recognized in other
comprehensive income. For the year ended December 31, 2024, foreign exchange losses of $1.1 million (2023 - $1.1 million
gain) were recognized as part of earnings. The Corporation reviews options with respect to managing its foreign exchange risk
periodically.
The following chart represents the Corporation’s exposure to foreign currency risk:
(Stated in thousands of dollars)
As at December 31, 2024
CAD
USD
Cash and cash equivalents
-
968
Trade and other payables
-
(3,073)
Intercompany payables
(2,800)
-
Statement of financial position exposure
(2,800)
(2,105)
As at December 31, 2023
CAD
USD
Cash and cash equivalents
-
756
Trade and other payables
-
(2,651)
Intercompany receivables
(1,948)
-
Statement of financial position exposure
(1,948)
(1,895)
The following significant exchange rates compared to the Canadian dollar applied during the year ended December 31:
Average Rate
December 31, Close Rate
2024
2023
2024
2023
USD
1.3700
1.3495
1.4384
1.3243
A strengthening of the Canadian dollar and US dollar against all other currencies as at December 31 would have affected the
measurement of financial instruments denominated in a foreign currency and affected profit or loss by the amounts shown
below. The analysis assumes that all other variables remain constant.
(Stated in thousands of dollars)
Gain (Loss)
2024
2023
CAD (10% strengthening)
$
(195)
$
(132)
USD (10% strengthening)
(303)
(251)
-36-
Management’s Discussion & Analysis
Business Risk Factors
The Corporation’s operations are subject to certain factors that are beyond its control. A significant portion of the Corporation’s
operating costs are variable in nature and, as a result, the impact of a significant decline in demand for the Corporation’s goods
and services on its financial results is somewhat lessened. Management has identified herein certain key risks and
uncertainties associated with PHX Energy’s business that could impact financial results. More detailed disclosure of these risk
factors and additional risk factors that could affect the Corporation and its results are included under the heading “Risk Factors”
in the Corporation’s most recently filed AIF, which is available under the Corporation’s profile at www.sedarplus.ca. Material
risks include, but are not limited to:
Capital Requirements
If the Corporation’s revenues decline because of continued and sustained weakness and volatility in industry activity levels, it
may be required to reduce its planned capital expenditures. In addition, continued sector, global and political volatility and
resulting uncertain levels of industry activity, exposes the Corporation to additional capital risk. There can be no assurance
that debt or equity financing, or cash generated by operations will be available, or sufficient, to meet these capital expenditure
requirements or for other corporate purposes, or if debt or equity financing is available, that it will be on terms acceptable to
the Corporation. Additionally, the failure to obtain adequate financing on a timely basis could cause the Corporation to miss
certain strategic opportunities and reduce or terminate certain of its operations. The volatile conditions in the oil and natural
gas industry have negatively impacted the ability of, and the cost to, companies involved in the oil and natural gas industry to
access additional financing. The inability of the Corporation to access sufficient and acceptable capital for its operations in a
timely manner could have a material adverse effect on the Corporation's business, financial condition, results of operations
and prospects.
Inflation, Cost Management and High Interest Rates
Recently Canada, the US and other countries have experienced high levels of inflation, supply chain disruptions, inflationary
cost pressures, equipment limitations, escalating supply costs, volatile commodity prices, and additional government
intervention through stimulus spending and additional regulations. These factors have increased the operating costs of the
Corporation. If the Corporation is unable to manage costs it could impact future capital expenditure plans and have a material
adverse effect on its financial performance and cash flows.
In addition, over the last several years, many central banks including the Bank of Canada and US Federal Reserve raised
interest rates in an attempt to combat inflation. While interest rates have begun to fall, higher interest rates over the last several
years have impacted the Corporation borrowing costs. The increased borrowing costs may impact the Corporation’s business
plans, which could have a material adverse effect on its financial performance and cash flows. Elevated interest rates could
also result in a recession in Canada, the US or other countries. A recession may have a negative impact on demand for crude
oil and natural gas, causing a decrease in commodity prices. A decrease in commodity prices could reduce the overall activity
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PHX Energy Services Corp. | 2024 Annual Report
level in the industry. It is unknown how long inflation will continue to impact the economies of Canada and the US and how
inflation and rising interest rates will impact oil and natural gas demand and commodity prices.
Adverse Economic Conditions
The demand for energy, including crude oil and natural gas, is generally linked to broad-based economic activities. If there
was a slowdown in economic growth, an economic downturn or recession, or other adverse economic or political development
in the US, Europe, or Asia, there could be a significant adverse effect on global financial markets and commodity prices. In
addition, hostilities in the Middle East, Ukraine, and South China Sea and the occurrence or threat of terrorist attacks in the
US or other countries could adversely affect the global economy. Global or national health concerns, including the outbreak of
pandemic or contagious diseases may adversely affect the Corporation by (i) reducing global economic activity thereby
resulting in lower demand for crude oil and liquids and natural gas, and therefore demand for the Corporation’s services, (ii)
impairing its supply chain, for example, by limiting the manufacturing of materials or the supply of goods and services used in
the Corporation’s operations, and (iii) affecting the health of its workforce, rendering employees unable to work or travel. These
and other factors disclosed elsewhere in the continuous disclosure of the Corporation that affect the supply and demand for
crude oil and natural gas, and the Corporation’s business and industry, could ultimately have an adverse impact on the
Corporation’s financial condition, financial performance, and cash flows.
Volatility of Commodity Prices and Industry Activity
Activity levels in the oil and natural gas industry are highly dependent on commodity prices. Commodity prices may fluctuate
for a variety of reasons that are beyond the Corporation and its customers control, including market uncertainties over the
supply and demand of these commodities due to the current state of the world economies, actions of the Organization of
Petroleum Exporting Countries ("OPEC"), political uncertainties, sanctions or tariffs imposed on certain oil producing nations
by other countries, the Russian Ukrainian war and conflicts in the Middle East, other adverse economic or political development
in the United States, Europe, or Asia. Additionally, the occurrence or threat of terrorist attacks in the United States or other
countries could adversely affect the global economy. Commodity prices have historically been, and continue to be, volatile.
The Corporation expects this volatility to continue. The Corporation makes activity assumptions based on commodity price
assumptions that are used for planning purposes. Accordingly, if commodity prices and consequently industry activity levels
are below the expectations, the Corporations capital plans and financial results are likely to be adversely affected. Significant
or extended price declines could have a material adverse effect upon its financial condition, results of operations and cash
flows of the Corporation.
Demand for Services – Globally
The demand, pricing and terms for PHX Energy’s contract horizontal and directional drilling technologies and services depends
largely upon the level of industry activity for natural gas and oil exploration and development in those jurisdictions in which the
Corporation operates. Industry conditions are influenced by numerous factors over which the Corporation has no control,
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Management’s Discussion & Analysis
including: oil and natural gas prices, markets and storage levels; expectations about future oil and natural gas prices and
production; the cost of exploring for, producing and delivering oil and natural gas; the expected rates of declining current
production; the discovery of new oil and natural gas reserves; available pipeline and transportation capacity availability of
liquefied natural gas; worldwide weather conditions; significant regional or global scale health epidemics; macro-economic and
geopolitical factors, military conflict, sovereign debt crises, regulatory and other economic conditions, including tariffs;
alternative fuel requirements; increasing consumer demand for alternatives to oil and natural gas; technological advances in
fuel economy and energy generation devices; and the ability of oil and natural gas companies to raise equity capital or debt
financing.
The level of activity in the global oil and natural gas exploration and production industry remains volatile. Any prolonged
volatility and substantial reduction in oil and natural gas prices would likely affect oil and natural gas production levels and
therefore continue to affect the currently reduced demand for services to oil and natural gas customers. Sustained low oil or
natural gas prices or Canadian, US and international industry activity would continue to have a material adverse effect on the
Corporation’s business, financial condition, results of operations and cash flows. The business and activities of the Corporation
are directly affected by fluctuations in the levels of exploration, development and production activity carried on by its customers.
Foreign Operations
The Corporation regularly assess its foreign operations risk. Any change in government policies could have a significant impact
on business, especially in the US as it represents a large portion of the Corporation’s market an operations. Risks of foreign
operations include, but are not necessarily limited to foreign currency exchange rate fluctuations, changes of laws affecting
foreign ownership, government participation, taxation, royalties, duties, inflation, repatriation of earnings, social unrest or civil
war, corruption, acts of terrorism, extortion or armed conflict and uncertain political and economic conditions resulting in
unfavourable government actions such as unfavourable legislation or regulation. There are no assurances that the economic
and political conditions in the countries in which the Corporation operates will continue as they are at the present time. While
the impact of these factors cannot be accurately predicted, if any of the risks materialize, they could have a material adverse
effect on the Corporation's business, financial condition, results of operations and cash flows.
US Operations
The majority of the Corporation’s operations are conducted in the US, as over the last ten years it has expanded its presence
in this market by: (a) increasing sales and marketing initiatives; (b) retaining additional personnel; (c) developing and deploying
new technologies that provide competitive advantages in the US market; and (d) increasing the amount of equipment located
in the US. As a result, the Corporation is increasingly subject to the prevailing market conditions of the oil and natural gas
services industries in the US. The Corporation's reliance on the market for these industries means that it is subject to downturns
in the US economy, adverse weather patterns in the US (such as hurricanes and tropical storms), US regulatory changes,
protectionist actions by US legislators and other political developments, all of which could have an adverse impact on the
Corporation's operations and financial results.
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PHX Energy Services Corp. | 2024 Annual Report
While growth of US Operations enhances the Corporation's ability to access opportunities in the US, it also increases its
exposure to risks such as those listed above, civil liability exposure, and evolving political dynamics in the US, including
increasing protectionist sentiment, the renegotiation of trade agreements, and efforts to reduce regulation in many US
industries. As a result, the competitive position of the Corporation may become increasingly uncertain and challenging in
relation to the US.
Global Trade & Supply Chain
The recent election of President Trump in the US may result in legislative and regulatory changes that could have an adverse
effect on the Corporation and its financial condition. In particular, there is uncertainty regarding US tariffs and support for
existing treaty and trade relationships, including with Canada. Implementation by the US government of new legislative or
regulatory policies could impose additional costs on the Corporation and its supply chain, impact the Corporation’s customers’
operations, effect industry activity or otherwise negatively impact the Corporation, which may have a material adverse effect
on the Corporation’s business, financial condition and operations. In addition, this uncertainty may adversely impact: (i) the
ability of companies to transact business with companies such as the Corporation; (ii) the Corporation’s profitability; (iii)
regulation affecting the Canadian oil and gas industry; (iv) global stock markets (including the TSX; and (v) general global
economic conditions. All of these factors are outside of the Corporation’s control but may nonetheless lead the Corporation to
adjust its strategy in order to compete effectively in global markets.
In early February 2025, the US announced a 25 percent broad-based tariff on goods exported out of Canada into the US, other
than energy products (including oil and natural gas), which would be subject to a 10 percent tariff. In response, the Canadian
government announced that it would impose a 25 percent tariff on $155 billion of goods imported from the US. The US also
announced a 25 percent tariff on goods imported from Mexico, a 10 percent tariff on goods imported from China and a 25
percent tariff on steel and aluminum products from all countries. Representatives of the US government have also publicly
stated that they are considering imposing tariffs on goods imported from other countries. Prior to the US tariffs on Canadian
and Mexican goods becoming effecting, they were paused for a month pending further negotiations. If enacted, these tariffs,
and any changes to these tariffs or imposition of any new tariffs, taxes or import or export restrictions or prohibitions, could
have a material adverse effect on the Canadian and US economy, the Canadian and US oil and natural gas industry, the
Corporation and its customers and supply chain.
Furthermore, there is a risk that the tariffs imposed by the US on other countries will trigger a broader global trade war which
could have a material adverse effect on the Canadian, US and global economies, and by extension the Canadian oil and
natural gas industry and the Corporation. The steps taken by governments to implement additional or new tariffs have the
potential to disrupt existing supply chains, impose additional costs on the Corporation's business, and could lead to other
countries attempting to retaliate by imposing tariffs, which would make the Corporation's equipment more expensive to
manufacture and maintain.
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Management’s Discussion & Analysis
The extent of these measures and the impact of these policies is unknown especially in light that Parliament remains prorogued
until March 2025. The timing and implementation of new tariffs is uncertain. To the extent implemented, any new tariffs would
be expected to have an adverse effect on the Corporation’s business, as the Corporation has a large presence in the US.
Third Party Credit Risk
The Corporation may be exposed to third party credit risk through its contractual arrangements with its customers and other
parties. As a result of challenging and often volatile oil and natural gas market conditions and other market factors the
Corporation may face heightened counterparty credit risk as a substantial portion of the Corporation’s dealings are with entities
involved in the oil and natural gas industry. The Corporation’s credit risk associated with its customers can be directly impacted
by a sustained decline in commodity prices and associated economic conditions, which would impair a customer’s ability to
satisfy their obligations to the Corporation and therefore could materially adversely effect the Corporation’s business, financial
condition, results of operations, receivable and prospects. While the Corporation has a credit management program to assist
in managing the risk in collecting its receivables, collection of such receivables may be impacted by unfavourable industry
conditions including fluctuations in the level of commodity prices. To the extent that any of the Corporation's customers go
bankrupt, become insolvent or make a proposal or institute any proceedings relating to bankruptcy or insolvency, it could result
in the Corporation being unable to collect all or a portion of any money owing from such customers. Any of these factors could
have a material adverse affect on the Corporation's business, financial condition, results of operations, receivables and cash
flow.
Workforce Availability and Key Personnel
The success of the Corporation will be dependent upon the recruitment and retention of a skilled workforce and key personnel.
Losing the services of key personnel, or a substantial portion of its workforce as a whole, could result in failure to successfully
implement business plans and have a material adverse effect on the business and operations of the Corporation. The
Corporation does not have any key personnel insurance in place. The contributions of the existing management team and
other key personnel to the immediate and near-term operations of the Corporation are likely to be of central importance. In
addition, certain of PHX Energy’s current employees have significant institutional knowledge that must be transferred to other
employees prior to their departure from the Corporation. If PHX Energy is unable to: (i) retain current employees; (ii)
successfully complete effective knowledge transfers; and/or (iii) recruit new employees with the requisite knowledge and
experience, the Corporation could be negatively impacted. In addition, the Corporation could experience increased costs to
retain and recruit these professionals. Competition for qualified personnel in certain sectors of the oil and natural gas services
industry is intense and there can be no assurance that the Corporation will be able to continue to attract and retain all personnel
necessary for the development and operation of its business. The unexpected loss of one or more of the Corporation's key
personnel, or the inability to retain or recruit skilled personnel could have a material adverse effect on the Corporation's
business, financial condition, results of operations and cash flows. Investors must rely upon the ability, expertise, judgement,
discretion, integrity and good faith of the management of the Corporation.
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PHX Energy Services Corp. | 2024 Annual Report
Availability, Quality and Cost of Equipment and Development of New
Technology
The industry in which the Corporation operates is categorized by rapid and significant technological advancements and
introductions of new products and services utilizing new technologies. PHX Energy currently owns its horizontal and directional
drilling equipment which it develops and manufactures internally or in some cases purchases from various suppliers in the oil
and natural gas drilling service industry, including certain competitors. Additionally, the Corporation purchases equipment and
materials for the manufacturing of its own technology from various suppliers in the oil and natural gas drilling service industry.
The ability of the Corporation to compete and expand its business is dependent upon it having access at a reasonable cost to
certain industry-leading equipment, specialized components and drilling equipment and supplies, which are at least technically
equivalent to those offered by competitors as well as upon its ability to develop or acquire new competitive technology. Failure
by the Corporation to do so could have a material adverse affect on the Corporation's business, financial condition, results of
operations and cash flows. There can be no assurance that the sources for equipment and materials used by the Corporation
will be maintained or available at acceptable cost. If such equipment or materials are not available, and are not available from
any other source, the Corporation's ability to compete may be impaired. If the Corporation is unable to continue to offer
advanced and industry leading technologies to its customers, or is unsuccessful in implementing certain technologies, its
business and results of operations could also be adversely affected. Additionally, there can be no assurance that the
Corporation will be able to respond to the competitive pressures of those companies with greater financial and technical
resources and implement new technologies on a timely basis, at an acceptable cost, or at all.
In the future the Corporation may seek patents or other similar protections in respect of particular tools, equipment and
technology, however, the Corporation may not be successful in such efforts. Competitors may also develop similar tools,
equipment and technology to those of the Corporation thereby adversely affecting the Corporation's competitive advantage in
one or more of their businesses. Additionally, there can be no assurance that certain tools, equipment or technology developed
by the Corporation, may not be the subject of future patent infringement claims or other similar matters which could result in
litigation, the requirement to pay licensing fees or other adverse results that could have a material adverse affect on the
Corporation's business, financial condition, results of operations and cash flows.
Environmental Risks
All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental
regulation pursuant to a variety of federal, provincial, state and local laws and regulations. Environmental legislation provides
for, among other things, the initiation and approval of new oil and natural gas projects, and restrictions and prohibitions on the
spill, release or emission of various substances produced in association with oil and natural gas industry operations, and
required notification and corrective action measures for incidents. In addition, such legislation sets out the requirements with
respect to oilfield waste handling and storage, habitat protection and the satisfactory operation, maintenance, abandonment
and reclamation of well and facility sites. New environmental legislation at the federal, state, and provincial levels may increase
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Management’s Discussion & Analysis
uncertainty among oil and natural gas industry participants as the new laws are implemented, and the effects of the new rules
and standards are felt in the oil and natural gas industry.
Compliance with environmental legislation can require significant expenditures and a breach of applicable environmental
legislation may result in the imposition of fines and penalties, some of which may be material, revocations of permits to conduct
business, expenditures for remediation or other corrective measures, and/or claims for liability for property damage, exposure
to hazardous materials, exposure to hazardous waste, nuisance or personal injuries. Such claims or sanctions and related
costs could cause the Corporation to incur substantial costs or losses and could have a material adverse effect on the
Corporation’s business, financial condition, prospects, and results of operations. Environmental legislation is evolving in a
manner expected to result in stricter standards and enforcement, larger fines and liabilities, and potentially increased capital
expenditures and operating costs.
Implementation of strategies for reducing greenhouse gases (“GHG”) could have a material impact on the nature of oil and
natural gas operations, including those of the Corporation and the Corporation’s customers. Given the evolving nature of
regulations related to climate change and the control of GHG and the possible resulting requirements, it is not possible to
predict either the nature of those requirements or the impact on the Corporation and its operations and financial condition.
The unauthorized discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to
governments and third parties and may require the Corporation to incur costs to remedy such discharge. Some environmental
laws and regulations may impose strict liability, joint and several liability, or both. In some situations, the Corporation could be
exposed to liability as a result of its conduct that was lawful at the time it occurred or the conduct of, or conditions caused by,
third parties without regard to whether the Corporation caused or contributed to the conditions. Although the Corporation
believes that it will be in material compliance with current applicable environmental legislation, no assurance can be given that
environmental compliance requirements will not have a material adverse effect on the Corporation’s business, financial
condition, results of operations and prospects. Additionally, failure to comply with government, industry or the Corporation’s
own environmental, health and safety laws and regulations, or failure to comply with the Corporation’s compliance or reporting
requirements, could tarnish its reputation for safety and quality and have a material adverse effect on its competitive position.
In addition, customers maintain their own compliance and reporting requirements, and if the Corporation does not perform in
accordance with their requirements, it could lose business from its customers, many of whom have an increased focus on
environmental and safety issues.
New Anti-greenwashing Rules Introduce Risk Into Making Certain
Environmental-related Disclosures
On June 20, 2024, Bill C-59 received royal assent, thereby enacting certain changes to the Competition Act to address
"greenwashing", meaning false, misleading, or deceptive environmental claims made for the purpose of promoting a product
or a business interest. Under the new rules, certain environmental claims that companies commonly make, including those
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PHX Energy Services Corp. | 2024 Annual Report
related to sustainability and forward-looking environmental-related goals, may be problematic. How the new rules will be
interpreted and applied is currently unclear. In June 2025, new private rights of action will come into effect, meaning that any
person will be able to bring a complaint directly to the Competition Tribunal for an alleged violation of the new greenwashing
provisions. The Competition Bureau has published draft guidance regarding how it will apply the new greenwashing provisions,
however the guidance, even once finalized, is not and will not be binding on private parties nor the Competition Tribunal.
Companies found to have made representations that violate the rules, intentionally or inadvertently, could be subject to an
administrative penalty for the greater of $10 million for the first order and $15 million dollars for any subsequent order, and 3
percent of the corporation's annual worldwide gross revenues.
Climate Change
Global climate issues continue to attract public and scientific attention. Numerous reports, including reports from the United
Nations (“UN”) Intergovernmental Panel on Climate Change, have engendered concern about the impacts of human activity,
especially fossil fuel combustion, on global climate issues. In turn, increasing public, government, and investor attention is
being paid to global climate issues and to emissions of GHG. The majority of countries, including Canada and the US, have
agreed to reduce their carbon emissions in accordance with the Paris Agreement. At the 2021 Climate Change Conference,
Canada and the US made several pledges regarding reducing their nation’s GHG emissions and at the 2024 United Nations
Climate Change Conference both Canada and the US reaffirmed their commitments to transition away from fossil fuels and
further cutting emissions. However the current US administration has initiated the US withdrawal from the Paris Climate Pact
in early 2025. As discussed below, the Corporation faces both transition risks and physical risks associated with climate change
and climate change policy and regulations.
Transition Risks
Foreign and domestic governments continue to evaluate and implement policy, legislation, and regulations focused on
restricting GHG emissions and promoting adaptation to climate change and the transition to a low-carbon economy. It is not
possible to predict what measures foreign and domestic governments may implement in this regard, nor is it possible to predict
the requirements that such measures may impose or when such measures may be implemented. However, international
multilateral agreements, the obligations adopted thereunder and legal challenges concerning the adequacy of climate-related
policy brought against foreign and domestic governments may accelerate the implementation of such measures. Given the
evolving nature of climate change policy and the control of GHG emissions and resulting requirements, including emission
caps, carbon taxes and carbon pricing schemes implemented by varying levels of government, it is expected that current and
future climate change regulations will have the effect of increasing the Corporation’s operating expenses, and, in the long-
term, potentially reducing the demand for oil, natural gas and related products, which may result in a decrease in the demand
for the Corporation’s services.
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Management’s Discussion & Analysis
Given the elevated long-term risks associated with environmental policy development, regulatory changes, public and private
legal challenges, or other market developments related to climate change, there have also been efforts in recent years affecting
the financial community, including investment advisors, sovereign wealth funds, banks, public pension funds, universities and
other institutional investors, promoting direct engagement and dialogue with companies in their portfolios on climate change
action (including exercising their voting rights on matters relating to climate change) and increased capital allocation to
investments in low-carbon assets and businesses while decreasing the carbon intensity of their portfolios through, among other
measures, divestments of companies with high exposure to GHG-intensive operations and products. Certain stakeholders
have also pressured insurance providers and commercial and investment banks to reduce or stop financing and providing
insurance coverage to oil and natural gas and related infrastructure businesses and projects. The impact of such efforts may
adversely affect the Corporation’s operations, the demand for and price of the Corporation’s securities and may negatively
impact the Corporation’s cost of capital and access to capital markets.
Emissions, carbon and other regulations impacting climate and climate-related matters are constantly evolving. With respect
to environmental, social, governance and climate reporting, in June 2023 the ISSB issued two new international sustainability
disclosure standards, IFRS S1 and S2, with the aim to develop sustainability disclosure standards that are globally consistent,
comparable and reliable; in December 2024 the CSSB finalized substantially similar new Canadian Standards, CSDS1 and
CSDS2. The CSA which had previously published for comment Proposed National Instrument 51-107 – Disclosure of Climate
Related Matters, intends to incorporate the Canadian Standards into new climate-related disclosure requirements for reporting
issuers in Canada. The US Securities and Exchange Commission has also adopted extensive climate-related disclosure and
ESG rules.
If the Corporation is not able to meet future climate-related reporting requirements of regulators or current and future
expectations of investors, insurance providers, or other stakeholders, its business and ability to attract and retain skilled
employees, obtain regulatory permits, licences, registrations, approvals, and authorizations from various governmental
authorities, and raise capital, may be adversely affected.
Physical Risks
The potential physical risks resulting from climate change are long-term in nature and associated with a high degree of
uncertainty regarding timing, scope, and severity of potential impacts. Many experts believe global climate change could
increase extreme variability in weather patterns such as increased frequency of severe weather, rising mean temperature and
sea levels, and long-term changes in precipitation patterns. Extreme hot and cold weather, heavy snowfall, heavy rainfall,
drought, hurricanes, flooding and wildfires may negatively impact the Corporation’s operations. Extreme weather also
increases the risk of personnel injury as a result of dangerous working conditions. Particularly in the US, certain of the
Corporation's assets and facilities are in areas prone to sever weather patterns which may lead to significant downtime and/or
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PHX Energy Services Corp. | 2024 Annual Report
damage to such assets and facilities or cause disruptions to the production and transport of the Corporation's products or the
delivery of goods and services in its supply chain.
Alternatives to and Changing Demand for Petroleum & Petroleum Based
Products
Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas
and technological advances in fuel economy and renewable energy generation systems could reduce the demand for oil and
natural gas. Recently, certain jurisdictions have implemented policies or incentives to decrease the use of fossil fuels and
encourage the use of renewable fuel alternatives, which may lessen the demand for petroleum and petroleum based products
and put downward pressure on commodity prices. Advancements in energy efficient products have a similar affect on the
demand for oil and natural gas products. The Corporation cannot predict the impact of changing demand for oil and natural
gas products, and any major changes may have a material adverse effect the Corporation’s customers and therefore in turn
have a material adverse effect on the Corporation’s business, financial condition, results of operations and cash flow.
Competition
The oilfield services industry is highly competitive and PHX Energy's major competitors are principally large multinational
companies, many of which are substantially larger than PHX Energy, with significantly greater resources available for marketing
and research and development programs. In certain aspects of its business, PHX Energy also competes with a number of
other small companies, which, like PHX Energy, have certain competitive advantages such as low overhead costs and
specialized regional strengths. PHX Energy's ability to generate revenues and earnings depends on its ability to obtain
contracts and to perform services within projected times and costs. There can be no assurance that competitors will not
substantially increase the resources devoted to the development and marketing of products and services that compete with
those of the Corporation or that new competitors will not enter the various markets in which the Corporation is active. As a
result of competition, the Corporation may be unable to continue to provide its present level of services or to acquire additional
business opportunities, which could have a material adverse affect on the Corporation's business, financial condition, results
of operations and cash flows.
Reduced levels of activity in the oil and natural gas industry can intensify competition and result in reduced pricing pressure
for services, reduced day rates and corresponding lower revenue to the Corporation. Variations in the exploration and
development budgets of oil and natural gas companies which are directly affected by fluctuations in energy prices, the cyclical
nature and competitiveness of the oil and natural gas industry and governmental regulation, will have an affect upon the
Corporation's ability to generate revenue and earnings. Other factors that could affect competition include additional transition
to alternative sources of energy, political and economic factors and other factors outside of PHX Energy's control.
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Management’s Discussion & Analysis
Oil and Natural Gas Industry Risk & Insurance
PHX Energy's operations are subject to the risks normally incident to the exploration, development and operation of oil and
natural gas properties and the drilling of oil and natural gas wells, including, without limitation, encountering unexpected
formations or pressures, equipment defects, malfunction, failures, blow-outs, loss of well control, sour natural gas leaks, the
release of contaminants into the environment, cratering, fires, explosions, or other acts of nature, any of which could result in
work stoppages, personal injuries, loss of life or damage to or destruction of equipment, facilities and property of PHX Energy
and others, and the imposition of fines and penalties pursuant to environmental legislation. These risks and hazards could
expose PHX Energy to substantial liability. PHX Energy maintains insurance coverage that it believes to be adequate and
customary in the industry, such as all risk property insurance covering property, contractors equipment, fire; marine cargo
insurance; commercial general liability insurance covering third party bodily injury and property damage; and automobile
insurance. While PHX Energy maintains such insurance, it may not be adequate to cover all the costs and risk of loss arising
from PHX Energy’s operations, all potential liabilities, potential quantum of liabilities due to cover limits, exclusions or
uninsurable events. In addition, such insurance may not be available in the future at reasonable or commercially justifiable
rates, as a result, PHX Energy may elect not to obtain insurance to address specific risks. Further, there can be no assurance
that insurance will continue to be available to PHX Energy at all. In the event of any of the foregoing occurring, the Corporation’s
overall risk exposure could increase and PHX Energy could incur significant costs that could have a material adverse effect
upon its financial condition, results of operations and cash flows.
The Corporation's insurance policies are generally renewed on an annual basis and, depending on factors such as market
conditions, the premiums, policy limits and/or deductibles for certain insurance policies can vary substantially. In some
instances, certain insurance may become unavailable or available only for reduced amounts of coverage. Significantly
increased premiums could lead the Corporation to decide to reduce or possibly eliminate, coverage.
Seasonality
In general, the level of activity of the Canadian and certain parts of the US oilfield service industry is influenced by seasonable
weather patterns. Wet weather and the spring thaw may make the ground unstable, which prevents, delays or makes
operations more difficult. Consequently, municipalities and provincial or state transportation departments may enforce road
bans that restrict the movement of rigs and other heavy equipment, thereby reducing activity levels. Additionally, certain oil
and natural gas producing areas, located where the ground consists of swampy terrain known as muskeg, are inaccessible
except during winter months. In addition, extreme cold weather, heavy snowfall and heavy rainfall may restrict access to areas
where the Corporation’s customers' rig sites are located. Seasonal factors and unexpected weather patterns may lead to
declines in activity and a corresponding decrease in the demand for the Corporation’s technology or services for a period of
time.
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PHX Energy Services Corp. | 2024 Annual Report
Political Uncertainty & Geopolitical Risk
The Corporation's results may be adversely impacted by political, legal, or regulatory developments in Canada, the US and
elsewhere that affect local operations and local and international markets. Changes in government, government policy or
regulations, sanctions, changes in law or interpretation of settled law, third-party opposition to industrial activity generally or
projects specifically, and the duration of regulatory reviews could impact the Corporation's existing or future operations and
plans. Additionally, changes in environmental regulations, assessment processes or other laws, and increasing and expanding
stakeholder consultation (including Indigenous stakeholders), may increase the cost of compliance or reduce or delay available
business opportunities of both the Corporation and its customers and adversely impact the Corporation's results.
In particular, the recent election of President Trump in the US may result in legislative and regulatory changes that could have
an adverse effect on the Corporation and its financial condition. In particular, there is uncertainty regarding US tariffs and
support for existing treaty and trade relationships, including with Canada. Implementation of new legislative or regulatory
policies by the US government could impose additional costs on the Corporation, decrease industry activity which would impact
demand for the Corporation’s services or otherwise negatively impact the Corporation, which could have a material adverse
impact on the Canadian economy, the Canadian oil and natural gas industry and the Corporation.
Other government and political factors that could adversely affect the Corporation's financial results include increases in taxes
and changes in trade policies and agreements. Further, the adoption of regulations mandating efficiency standards, or the use
of alternative fuels or uncompetitive fuel components could affect the Corporation's operations. Many governments are
providing tax advantages and other subsidies to support alternative energy sources or are mandating the use of specific fuels
or technologies. Governments and others are also promoting research into new technologies to reduce the cost and increase
the scalability of alternative energy sources, and the success of these initiatives may decrease demand for the Corporation's
services and technologies.
A change in federal, provincial, state or municipal governments in Canada and the US may have an impact on the directions
taken by such governments on matters that may impact the oil and natural gas industry including the balance between
economic development and environmental policy. In Canada particularly, federal and certain provincial governments have
been active in recent years in their support for and opposition to major infrastructure projects in Canada leading to investment
uncertainty, increased awareness of, and challenges to interprovincial and international infrastructure projects. Disputes and
uncertainty over jurisdiction between Canada and the provinces and over the scope of environmental related legislation have
created significant barriers to major infrastructure projects in Canada, which has had an adverse impact on the Corporation’s
customers’ business plans and consequently could impact industry activity levels.
The oil and natural gas industry has become an increasingly politically polarizing topic in domestically in North America and
internationally, resulting in a rise in civil disobedience surrounding oil and natural gas development - particularly with respect
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Management’s Discussion & Analysis
to infrastructure projects. Protests, blockades and demonstrations have the potential to delay and disrupt the Corporation's
activities and those of its customers.
Changing Investor Sentiment
A number of factors, including the concerns of effects of the use of fossil fuels on climate change, the impact of oil and natural
gas operations on the environment, environmental damage relating to spills of petroleum products during production and
transportation, Indigenous rights and gender balance, have affected certain investors' sentiments toward the oil and natural
gas industry and certain corporations generally. As a result of these concerns, some institutional, retail and public investors
have announced that they are no longer willing to fund or invest in oil and natural gas industry properties or companies, or are
reducing the amount thereof over time. In addition, certain institutional investors are requesting that issuers develop and
implement more robust environmental, social and governance policies and practices. Developing and implementing such
policies and practices can involve significant costs and require a significant time commitment from the Board, Management
and employees of the Corporation. Failing to implement the policies and practices as requested by institutional investors may
result in such investors reducing their investment in the Corporation, or not investing in the Corporation at all. Any reduction in
the investor base willing to invest in the oil and natural gas industry and more specifically, the Corporation, may limit the
Corporation’s access to capital, thereby increasing the cost of capital, and decreasing the price and liquidity of the Corporation’s
securities even if the Corporation’s operating results, underlying asset values or prospects have not changed. Additionally,
these factors, as well as other related factors, may cause a decrease in the value of the Corporation’s assets which may result
in an impairment charge.
Dividends
The amount of future cash dividends paid by the Corporation or other forms of shareholder returns, if any, will be subject to
the discretion of the Board and may vary depending on a variety of factors and conditions existing from time-to-time, including,
among other things, fluctuations in commodity prices, capital expenditure requirements, debt service requirements and debt
levels, operating costs, the ROCS, foreign exchange rates, limits on distributions under the Corporation’s credit facility, and
the satisfaction of the liquidity and solvency tests imposed by applicable corporate law for the declaration and payment of
dividends. Depending on these and various other factors, many of which will be beyond the control of the Corporation, the
dividend policy and ROCS of the Corporation may change from time-to-time and, future cash dividends could be reduced or
suspended entirely.
The market value of the Corporation’s common shares may deteriorate if cash dividends are reduced or suspended.
Furthermore, the future treatment of dividends for tax purposes will be subject to the nature and composition of dividends paid
by the Corporation and potential legislative and regulatory changes. Dividends may be reduced during periods of lower funds
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PHX Energy Services Corp. | 2024 Annual Report
from operations(2), which result from lower commodity prices and reduced customer services demands and any decision by
the Corporation to finance capital expenditures using funds from operations.
To the extent that external sources of capital become limited or unavailable, the ability of the Corporation to make its necessary
capital investments in its business will be impaired. To the extent that the Corporation is required to use funds from operations
to finance capital expenditures or invest in or further expand its asset base, the cash available for dividends may be reduced.
Unpredictability and Volatility of Common Share Price
The trading price of securities of oilfield services issuers is subject to substantial volatility. This volatility is often based on
factors both related and unrelated to the financial performance of issuers. A publicly traded corporation will not necessarily
trade at values determined by reference to the underlying value of its business. The prices at which the Common Shares will
trade cannot be predicted. The market price of the Common Shares could be subject to significant fluctuations in response to
variations in quarterly operating results and other factors.
In addition, the securities markets have experienced significant market wide and sectoral price and volume fluctuations from
time-to-time that often have been unrelated or disproportionate to the operating performance of particular issuers. Factors
unrelated to the Corporation's performance could include macroeconomic developments nationally, within North America or
globally, domestic and global commodity prices, and changing perceptions of the oilfield services industry or oil and natural
gas market. Such fluctuations could have a material adverse effect on the market price of the Common Shares. In recent years,
the volatility of commodities prices has increased due in part to the implementation of computerized trading and the decrease
of discretionary commodity trading. In addition, the volatility, trading volume and share price of issuers have been impacted by
increasing investment levels in passive funds that track major indices, as such funds that only purchase securities included in
such indices. In addition, in certain jurisdictions, institutions, including government sponsored entities have determined to
decrease their ownership in oil and natural gas related entities which may impact the liquidity of certain securities and put
downward pressure on the trading price of those securities. Similarly, the market price of the Common Shares could be subject
to significant fluctuations in response to variations in the Corporation's operating results, financial condition, liquidity and other
internal factors. Accordingly, the price at which Common Shares will trade cannot be accurately predicted.
Reputational Risk
The Corporation's business, financial condition, operations or prospects may be negatively impacted by any negative public
opinion toward the Corporation or as a result of any negative sentiment toward or in respect of Corporation's reputation with
stakeholders, special interest groups, political leadership, the media or other entities. Public opinion may be influenced by
certain media and special interest groups' negative portrayal of the industry in which the Corporation operates as well as such
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
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Management’s Discussion & Analysis
groups’ opposition to certain oil and natural gas projects. Potential impacts of negative public opinion or reputational issues
may include, with respect to both the Corporation and its customers which would indirectly affect the Corporation, the following:
delays or interruptions in operations, legal or regulatory actions or challenges, blockades, increased regulatory oversight,
reduced support for, delays in, challenges to, or the revocation of regulatory approvals, permits and/or licenses and increased
costs and/or cost overruns. Any environmental damage, loss of life, injury or damage to property caused by the Corporation's
operations could damage the reputation of the Corporation. The Corporation's reputation could be affected by actions and
activities of other corporations operating in the oil and natural gas industry, over which the Corporation has no control.
Opposition from special interest groups opposed to oil and natural gas development and the possibility of climate related
litigation against fossil fuel companies may indirectly harm the Corporation's reputation.
Reputational risk cannot be managed in isolation from other forms of risk. Credit, market, operational, insurance, regulatory
and legal risks, among others, must all be managed effectively to safeguard the Corporation's reputation. Damage to the
Corporation's reputation could result in in negative investor sentiment toward the Corporation, which may result in limiting the
Corporation's access to capital, increasing the cost of capital, and decreasing the price and liquidity of the Corporation's
securities.
Forced or Child Labour in Supply Chains
In May 2023 the Fighting Against Forced Labour and Child Labour in Supply Chains Act was passed and came into force on
January 1, 2024. Pursuant to the new legislation, any company that is subject to the reporting requirements, including the
Corporation, is required to file an annual report with respect to its supply chains. Due to the fact that the reporting requirements
are new and the industry standard is still being determined, the Corporation will be at risk of inadvertently preparing a report
that is insufficient. Further, in late 2024 the federal government signalled its intention to create a new and more onerous supply
chain due diligence regime overseen by a new oversight agency, whereby reporting entities would be required to scrutinize
their international supply chains for human rights risks and take action to resolve any such risks. While the Corporation is
currently unaware of any forced or child labour in any of its supply chains, the increased scrutiny on the supply chains of
Canadian companies could uncover the risk or existence of forced or child labour in a supply chain to which the Corporation
has a connection, which could negatively impact the reputation of the Corporation.
Management of Growth
The Corporation may be subject to growth-related risks at certain periods of time including capacity constraints and pressure
on its internal systems and controls. To continue to manage growth effectively, the Corporation will need to continue to
implement and improve its operational and financial systems and train and manage, and potentially expand, its employee base.
If the Corporation is unable to deal with such growth, it may have a material adverse effect on the Corporation's business,
financial condition, results of operations or prospects.
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PHX Energy Services Corp. | 2024 Annual Report
Information Technology Systems, Cybersecurity and Social Media
The Corporation has become increasingly dependent upon the availability, capacity, reliability and security of its information
technology infrastructure and its ability to expand and continually update this infrastructure to conduct daily operations. The
Corporation depends on various information technology systems to process and record financial data, manage financial
resources, administer contracts with customers and communicate with employees and third-party partners.
Further, the Corporation is subject to a variety of information technology and system risks as a part of its normal course
operations including potential breakdown, invasion, virus, cyber-attack, cyber-fraud, security breach, and destruction or
interruption of the Corporation’s information technology systems by third parties or insiders. Unauthorized access to these
systems by employees or third parties could lead to corruption or exposure of confidential, fiduciary or proprietary information,
interruption to communications or operations or disruption to business activities or the Corporation's competitive position.
In addition, cyber phishing attempts, in which a malicious party attempts to obtain sensitive information such as usernames,
passwords, and credit card and banking details, or approval of wire transfer requests, have become more widespread and
sophisticated in recent years. If the Corporation becomes a victim to a cyber phishing attack it could result in a loss or theft of
the Corporation's financial resources or critical data or could result in a loss of control of the Corporation's technological
infrastructure. The Corporation's employees are often the targets of such cyber phishing attacks, whereby parties using
fraudulent emails to misappropriate information or to introduce viruses or other malware to the Corporation’s systems. These
emails appear to be legitimate emails, but direct recipients to fraudulent websites operated by the sender of the email or request
recipients to send a password or other confidential information through email, or to download malware.
Additionally, social media is increasingly used as a vehicle to carry out cyber-attacks. Information posted on social media sites,
for business or personal purposes, may be used by attackers to gain entry into the Corporation's systems and obtain
confidential information. While the Corporation takes steps to alleviate such risks, as social media continues to grow in influence
and access to social media platforms becomes increasingly prevalent, there are significant risks that the Corporation may not
be able to properly regulate social media use and preserve adequate records of business activities and client communications
conducted through the use of social media platforms.
The Corporation maintains policies and procedures that address and implement employee protocols with respect to electronic
communications and electronic devices and conducts regular cybersecurity risk assessments (both internal and third-party)
and training and education programs for its employees. Despite PHX Energy’s efforts to mitigate such cyber-attacks through
education and training, malicious cyber-activities remain a serious problem that may damage its information technology
infrastructure. The Corporation applies technical and process controls in line with industry-accepted standards to protect its
information, assets and systems including a written incident response plan for responding to a cybersecurity incident. However,
these controls may not adequately prevent cybersecurity breaches. Disruption of critical information technology services, or
breaches of information security, could have a negative effect on the Corporation's performance and earnings, as well as its
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Management’s Discussion & Analysis
reputation, and any damages sustained may not be adequately covered by the Corporation's current insurance coverage, or
at all. The significance of any such event is difficult to quantify, and may in certain circumstances be material and could have
a material adverse effect on the Corporation’s business, financial condition and results of operations.
Data Protection
The protection of customer, employee, and company data is critical to the Corporation's business. The regulatory environment
surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and evolving
requirements. A significant breach of customer, employee, or company data could attract a substantial amount of media
attention, damage the Corporation's customer relationships and reputation, and result in lost sales, fines, or lawsuits. In
addition, an increasing number of countries have introduced and/or increased enforcement of comprehensive privacy laws or
are expected to do so. The continued emphasis on information security as well as increasing concerns about government
surveillance may lead customers to request the Corporation to take additional measures to enhance security and/or assume
higher liability under its contracts. As a result of legislative initiatives and customer demands, the Corporation may have to
modify its operations to further improve data security. Any such modifications may result in increased expenses and operational
complexity, and adversely affect its reputation, business, financial condition and results of operations.
Breach of Confidentiality
In the normal course of the Corporation’s business, the Corporation may discuss potential business relationships, transactions
with third parties, financing solutions or other activities and at which time the Corporation may disclose confidential information
relating to the business, operations or affairs of the Corporation. The Corporation takes commercially reasonable measures to
ensure confidentiality agreements are signed by third parties prior to the disclosure of any confidential information or to
otherwise ensure the confidentiality of such information is maintained; however, a breach or failure of these measures could
put the Corporation at competitive risk and may cause significant damage to its business. The harm to the Corporation's
business from a breach of confidentiality cannot be predicted, but may be material and may not be compensable in damages.
There is no assurance that, in the event of a breach of confidentiality, the Corporation would be able to obtain equitable
remedies, such as injunctive relief, from a court of competent jurisdiction in a timely manner, if at all, in order to prevent or
mitigate any damage to its business that such a breach of confidentiality may cause.
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PHX Energy Services Corp. | 2024 Annual Report
Corporate Governance
This MD&A has been prepared by the management of PHX Energy and it has been reviewed and approved by the Audit
Committee and the Board of the Corporation. Additional information relating to the Corporation’s Corporate Governance can
be found in the Corporation’s AIF and in its Information Circular in respect of its annual meeting of Shareholders, each of which
are annually filed on SEDAR+ at www.sedarplus.ca.
Disclosure Controls and Procedures
The Corporation's Chief Executive Officer and Chief Financial Officer (the "Certifying Officers") have designed, or caused to
be designed under their supervision, disclosure controls and procedures ("DC&P"), as defined in National Instrument 52-109
Certification of Disclosure in Issuers’ Annual and Interim Filings ("NI 52-109"), to provide reasonable assurance that information
required to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities
legislation and include controls and procedures designed to ensure that information required to be so disclosed is accumulated
and communicated to the Corporation's management, including the Certifying Officers, as appropriate to allow timely decisions
regarding required disclosure.
The Certifying Officers have evaluated, or caused to be evaluated under their supervision, the effectiveness of the
Corporation’s DC&P. Based on that evaluation, the Certifying Officers have concluded that the Corporation's DC&P were
effective as at December 31, 2024.
Internal Controls Over Financial Reporting
The Corporation's Certifying Officers have designed, or caused to be designed under their supervision, internal controls over
financial reporting ("ICFR"), as defined in NI 52-109, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles applicable to the Corporation. ICFR includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Corporation;
(ii) are designed to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of the Corporation are being made only in accordance
with authorizations of management and directors of the Corporation; and (iii) are designed to provide reasonable assurance
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Management’s Discussion & Analysis
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation's assets that could
have a material effect on the annual financial statements or interim financial reports.
The control framework used to design and evaluate the Corporation's ICFR is "Internal Control - Integrated Framework (2013)"
published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Certifying Officers have evaluated, or caused to be evaluated under their supervision, the effectiveness of the
Corporation's ICFR and have concluded that the Corporation's ICFR were effective as at December 31, 2024.
There were no changes in the Corporation's ICFR that occurred during the period from October 1, 2024 to December 31, 2024
that have materially affected, or are reasonably likely to materially affect, the Corporation's ICFR.
While the Certifying Officers believe that the Corporation's ICFR provide a reasonable level of assurance and are effective,
they do not expect that the ICFR will prevent all errors and fraud. A control system, no matter how well conceived or operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Outstanding Corporation Share Data
As at February 25, 2025
Common shares outstanding, excluding shares held in trust
45,506,771
Common shares held in trust (i)
3,301
Total common shares outstanding
45,510,072
Dilutive securities:
Options
881,667
Corporation shares – diluted
46,391,739
(i) Common Shares held in trust by an independent trustee for the potential future settlement of retention awards granted to eligible participant’s under the
Corporation’s Retention Award Plan
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PHX Energy Services Corp. | 2024 Annual Report
Selected Annual Financial Information
The following selected annual financial information was obtained from the audited consolidated financial statements prepared
in accordance with IFRS, with the exception of net debt.
(Stated in thousands of dollars except per share amounts)
Years ended December 31,
2024
2023
2022
Revenue
659,663
656,341
535,745
Net earnings
54,622
98,580
29,753
Earnings per share - basic
1.17
1.98
0.59
Earnings per share - diluted
1.16
1.96
0.58
Earnings from continuing operations
54,622
98,580
44,311
Earnings from continuing operations per share – basic
1.17
1.98
0.88
Earnings from continuing operations per share – diluted
1.16
1.96
0.87
Dividends declared per share(3)
0.80
0.65
0.40
Loans and borrowings
16,827
7,564
22,731
Net debt (Net cash)(2)
2,664
(8,869)
4,484
Total assets
423,286
385,494
375,224
In 2024, the Corporation continued its strategy of leveraging its financial strength to purchase drilling equipment in advance to
take advantage of the rising demand for its premium technologies while reducing the impact of resource shortages. As a result
of the Corporation’s progressive capital expenditure strategy since 2022, PHX Energy’s total assets increased from $375.2
million at the end of 2022 to $423.3 million as at December 31, 2024.
Throughout 2024, US industry activity has been softer compared to levels seen in 2023 however strong demand for PHX
Energy’s services and technologies in both Canada and the US persisted, and as a result, the Corporation generated record
annual revenue for a third consecutive time in 2024. In 2023, revenue increased by 23 percent to $656.3 million from $535.7
million in 2022 and in 2024, it increased by 1 percent to $659.7 million from 2023.
In 2023, net earnings increased to $98.6 million from $29.8 million in 2022. In 2024, the Corporation’s net earnings decreased
by 45 percent to $54.6 million from $98.6 million in 2023. Earnings in 2023 benefited from the recognition and utilization of
previously unrecognized deferred tax assets while increased direct costs and fewer instances of high dollar valued downhole
equipment losses negatively impacted the profitability of the Corporation in the 2024-year. The Corporation utilized its credit
facilities to supplement the cash generated from operating activities to fund capital expenditures in the year. PHX Energy ended
(2) Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
(3) Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures
presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this MD&A.
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Management’s Discussion & Analysis
the 2024-year with loans and borrowings of $16.8 million and a cash balance of $14.2 million, resulting in a net debt(2) of $2.7
million.
Summary of Quarterly Results
(Stated in thousands of dollars except per share amounts)
Dec-24
Sep-24
Jun-24
Mar-24
Dec-23
Sep-23
Jun-23
Mar-23
Revenue
178,676
160,634
154,230
166,123
165,332
169,368
155,618
166,022
Earnings
14,098
10,160
12,913
17,454
33,134
24,921
18,108
22,417
Earnings per share - basic
0.31
0.22
0.27
0.37
0.69
0.50
0.35
0.44
Earnings per share - diluted
0.30
0.22
0.26
0.37
0.68
0.50
0.35
0.42
Dividends paid
9,183
9,437
9,498
9,453
7,277
7,621
7,656
7,636
Cash and cash equivalents
14,163
14,203
13,798
13,380
16,433
14,845
20,080
15,502
Loans and borrowings
16,827
19,171
9,649
7,547
7,564
18,302
27,685
29,847
Non-GAAP and Other Financial Measures
Non-GAAP Financial Measures and Ratios
a) Adjusted EBITDA
Adjusted EBITDA, defined as earnings before finance expense, finance expense lease liability, income taxes, depreciation and
amortization, impairment losses on drilling and other equipment and goodwill and other write-offs, equity-settled share-based
payments, severance payouts relating to the Corporation’s restructuring cost, and unrealized foreign exchange gains or losses,
does not have a standardized meaning and is not a financial measure that is recognized under GAAP. However, Management
believes that adjusted EBITDA provides supplemental information to earnings that is useful in evaluating the results of the
Corporation’s principal business activities before considering certain charges, how it was financed and how it was taxed in
various countries. Investors should be cautioned, however, that adjusted EBITDA should not be construed as an alternative
measure to earnings determined in accordance with GAAP. PHX Energy’s method of calculating adjusted EBITDA may differ
from that of other organizations and, accordingly, its adjusted EBITDA may not be comparable to that of other companies.
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PHX Energy Services Corp. | 2024 Annual Report
The following is a reconciliation of earnings to adjusted EBITDA:
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Earnings:
14,098
33,134
54,622
98,580
Add:
Depreciation and amortization drilling and
other equipment
11,846
10,056
44,822
38,861
Depreciation and amortization right-of-use
asset
867
841
3,787
2,898
Provision for (recovery of) income taxes
1,711
(9,460)
15,658
5,070
Finance expense
527
448
1,948
2,422
Finance expense lease liability
512
551
2,213
2,245
Equity-settled share-based payments
59
60
480
491
Unrealized foreign exchange loss (gain)
18
(242)
204
150
Adjusted EBITDA
29,638
35,388
123,734
150,717
b) Adjusted EBITDA Per Share - Diluted
Adjusted EBITDA per share - diluted is calculated using the treasury stock method whereby deemed proceeds on the exercise
of the share options are used to reacquire common shares at an average share price. The calculation of adjusted EBITDA per
share - dilutive is based on the adjusted EBITDA as reported in the table above divided by the diluted number of shares
outstanding as quantified in Note 10(b) in the Notes to the Consolidated Financial Statements.
c) Adjusted EBITDA as a Percentage of Revenue
Adjusted EBITDA as a percentage of revenue is calculated by dividing the adjusted EBITDA as reported in the table above by
revenue as stated on the Consolidated Statements of Comprehensive Earnings.
d) Adjusted EBITDA Excluding Cash-settled Share-based Compensation Expense
Adjusted EBITDA excluding cash-settled share-based compensation expense is calculated by adding cash-settled share-
based compensation expense to adjusted EBITDA as described above. Management believes that this measure provides
supplemental information to earnings that is useful in evaluating the results of the Corporation’s principal business activities
before considering certain charges, how it was financed, how it was taxed in various countries, and without the impact of cash-
settled share-based compensation expense that is affected by fluctuations in the Corporation’s share price.
The following is a reconciliation of earnings to adjusted EBITDA excluding cash-settled share-based compensation expense:
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Management’s Discussion & Analysis
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Earnings:
14,098
33,134
54,622
98,580
Add:
Depreciation and amortization drilling and
other equipment
11,846
10,056
44,822
38,861
Depreciation and amortization right-of-use
asset
867
841
3,787
2,898
Provision for (recovery of) income taxes
1,711
(9,460)
15,658
5,070
Finance expense
527
448
1,948
2,422
Finance expense lease liability
512
551
2,213
2,245
Equity-settled share-based payments
59
60
480
491
Unrealized foreign exchange loss
18
(242)
204
150
Cash-settled share-based compensation
expense
2,190
4,572
11,774
13,470
Adjusted EBITDA excluding cash-settled share-
based compensation expense
31,828
39,960
135,508
164,187
e) Adjusted EBITDA Excluding Cash-settled Share-based Compensation Expense as a Percentage of Revenue
Adjusted EBITDA excluding cash-settled share-based compensation expense as a percentage of revenue is calculated by
dividing adjusted EBITDA excluding cash-settled share-based compensation expense as reported above by revenue as stated
on the Consolidated Statements of Comprehensive Earnings.
f)
Gross Profit as a Percentage of Revenue Excluding Depreciation & Amortization
Gross profit as a percentage of revenue excluding depreciation & amortization is defined as the Corporation’s gross profit
excluding depreciation and amortization divided by revenue and is used to assess operational profitability. This Non-GAAP
ratio does not have a standardized meaning and is not a financial measure recognized under GAAP. PHX Energy’s method of
calculating gross profit as a percentage of revenue may differ from that of other organizations and, accordingly, it may not be
comparable to that of other companies.
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PHX Energy Services Corp. | 2024 Annual Report
The following is a reconciliation of revenue, direct costs, depreciation and amortization and gross profit to gross profit as a
percentage of revenue excluding depreciation and amortization:
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Revenue
178,676
165,332
659,663
656,341
Direct costs
148,003
129,240
535,169
506,236
Gross profit
30,673
36,092
124,494
150,105
Depreciation & amortization drilling and other
equipment (included in direct costs)
11,846
10,056
44,822
38,861
Depreciation & amortization right-of-use asset
(included in direct costs)
867
841
3,787
2,898
43,386
46,989
173,103
191,864
Gross profit as a percentage of revenue excluding
depreciation & amortization
24%
28%
26%
29%
g) SG&A Costs Excluding Share-Based Compensation as a Percentage of Revenue
SG&A costs excluding share-based compensation as a percentage of revenue is defined as the Corporation’s SG&A costs
excluding share-based compensation divided by revenue and is used to assess the impact of administrative costs excluding
the effect of share price volatility. This Non-GAAP ratio does not have a standardized meaning and is not a financial measure
recognized under GAAP. PHX Energy’s method of calculating SG&A costs excluding share-based compensation as a
percentage of revenue may differ from that of other organizations and, accordingly, it may not be comparable to that of other
companies.
The following is a reconciliation of SG&A costs, share-based compensation, and revenue to SG&A costs excluding share-
based compensation as a percentage of revenue:
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
SG&A Costs
17,567
18,004
68,294
68,915
Deduct:
Share-based compensation (included in SG&A)
2,249
4,632
12,254
13,961
15,318
13,372
56,040
54,954
Revenue
178,676
165,332
659,663
656,341
SG&A costs excluding share-based compensation
as a percentage of revenue
9%
8%
8%
8%
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Management’s Discussion & Analysis
Capital Management Measures
a) Funds from Operations
Funds from operations is defined as cash flows generated from operating activities before changes in non-cash working capital,
interest paid, and income taxes paid. This financial measure does not have a standardized meaning and is not a financial
measure recognized under GAAP. Management uses funds from operations as an indication of the Corporation’s ability to
generate funds from its operations before considering changes in working capital balances and interest and taxes paid.
Investors should be cautioned, however, that this financial measure should not be construed as an alternative measure to cash
flows from operating activities determined in accordance with GAAP. PHX Energy’s method of calculating funds from
operations may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of cash flows from operating activities to funds from operations:
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Cash flows from operating activities
17,676
36,754
96,898
96,723
Add (deduct):
Changes in non-cash working capital
2,874
(15,467)
(4,416)
5,674
Interest paid
355
555
1,241
2,061
Income taxes paid
3,400
6,325
5,972
14,859
Funds from operations
24,305
28,167
99,695
119,317
b) Excess Cash Flow
Excess cash flow is defined as funds from operations (as defined above) less cash payment on leases, growth capital
expenditures, and maintenance capital expenditures from downhole equipment losses and asset retirements, and increased
by proceeds on disposition of drilling equipment. This financial measure does not have a standardized meaning and is not a
financial measure recognized under GAAP. Management uses excess cash flow as an indication of the Corporation’s ability
to generate funds from its operations to support operations and grow and maintain the Corporation’s drilling and other
equipment. This performance measure is useful to investors for assessing the Corporation’s operating and financial
performance, leverage and liquidity. Investors should be cautioned, however, that this financial measure should not be
construed as an alternative measure to cash flows from operating activities determined in accordance with GAAP. PHX
Energy’s method of calculating excess cash flow may differ from that of other organizations and, accordingly, it may not be
comparable to that of other companies.
-61-
PHX Energy Services Corp. | 2024 Annual Report
The following is a reconciliation of cash flows from operating activities to excess cash flow:
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Cash flows from operating activities
17,676
36,754
96,898
96,723
Add (deduct):
Changes in non-cash working capital
2,874
(15,467)
(4,416)
5,674
Interest paid
355
555
1,241
2,061
Income taxes paid (received)
3,400
6,325
5,972
14,859
Cash payment on leases
(1,385)
(1,343)
(5,590)
(5,258)
22,920
26,824
94,105
114,059
Proceeds on disposition of drilling equipment
10,057
10,997
36,741
43,686
Maintenance capital expenditures to replace
downhole equipment losses and asset retirements
(2,134)
(8,448)
(9,899)
(30,550)
Net proceeds
7,923
2,549
26,842
13,136
Growth capital expenditures
(13,580)
(7,026)
(73,378)
(34,382)
Excess cash flow
17,263
22,347
47,569
92,813
c) Working Capital
Working capital is defined as the Corporation’s current assets less its current liabilities and is used to assess the Corporation’s
short-term liquidity. This financial measure does not have a standardized meaning and is not a financial measure recognized
under GAAP. Management uses working capital to provide insight as to the Corporation’s ability to meet obligations as at the
reporting date. PHX Energy’s method of calculating working capital may differ from that of other organizations and, accordingly,
it may not be comparable to that of other companies.
The following is a reconciliation of current assets and current liabilities to working capital:
(Stated in thousands of dollars)
December 31,
2024
2023
Current assets
214,017
207,040
Deduct:
Current liabilities
(129,472)
(113,125)
Working capital
84,545
93,915
-62-
Management’s Discussion & Analysis
d) Net Debt (Net Cash)
Net debt is defined as the Corporation’s loans and borrowings less cash. This financial measure does not have a standardized
meaning and is not a financial measure recognized under GAAP. Management uses net debt to provide insight as to the
Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating net debt may differ from
that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of loans and borrowings and cash to net debt:
(Stated in thousands of dollars)
December 31,
2024
2023
Loans and borrowings
16,827
7,564
Deduct:
Cash
(14,163)
(16,433)
Net debt (Net cash)
2,664
(8,869)
e) Net Capital Expenditures
Net capital expenditures is comprised of total additions to drilling and other long-term assets, as determined in accordance with
IFRS, less total proceeds from disposition of drilling equipment, as determined in accordance with IFRS. This financial measure
does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses net capital
expenditures to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method
of calculating net capital expenditures may differ from that of other organizations and, accordingly, it may not be comparable
to that of other companies.
The following is a reconciliation of additions to drilling and other equipment and proceeds from disposition of drilling
equipment to net capital expenditures:
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Growth capital expenditures
13,580
7,026
73,378
34,382
Maintenance capital expenditures from asset
retirements
-
3,066
5,289
14,609
Maintenance capital expenditures to replace downhole
equipment losses
2,134
5,382
4,610
15,941
Total capital expenditures
15,714
15,474
83,277
64,932
Deduct:
Proceeds on disposition of drilling equipment
(10,057)
(10,997)
(36,741)
(43,686)
Net capital expenditures
5,657
4,477
46,536
21,246
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PHX Energy Services Corp. | 2024 Annual Report
f)
Remaining Distributable Balance under ROCS
Remaining distributable balance under ROCS is comprised of 70% of excess cash flow as defined above less repurchases of
shares under the Normal Course Issuer Bids in effect during the period and less the dividends paid to shareholders during the
period. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP.
Management uses the remaining distributable balance under ROCS to provide insight as to the Corporation’s ROCS strategy
as at the reporting date. PHX Energy’s method of calculating remaining distributable balance under ROCS may differ from that
of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of excess cash flow as defined above to remaining distributable balance under ROCS:
(Stated in thousands of dollars)
Three-month periods ended December 31,
Years ended December 31,
2024
2023
2024
2023
Excess cash flow
17,263
22,347
47,569
92,813
70% of excess cash flow
12,084
15,643
33,298
64,969
Deduct:
Dividends paid to shareholders
(9,183)
(7,277)
(37,570)
(30,189)
Repurchase of shares under the NCIB
(4,859)
(11,264)
(20,614)
(30,366)
Remaining Distributable Balance under ROCS
(1,958)
(2,898)
(24,886)
4,414
Supplementary Financial Measures
“Average consolidated revenue per day” is comprised of consolidated revenue, as determined in accordance with IFRS, divided
by the Corporation’s consolidated number of operating days. Operating days is defined under the “Definitions” section below.
“Average revenue per operating day” is comprised of revenue, as determined in accordance with IFRS, divided by the number
of operating days.
“Dividends paid per share” is comprised of dividends paid, as determined in accordance with IFRS, divided by the number of
shares outstanding at the dividend record date.
“Dividends declared per share” is comprised of dividends declared, as determined in accordance with IFRS, divided by the
number of shares outstanding at the dividend record date.
“Effective tax rate” is comprised of provision for or recovery of income tax, as determined in accordance with IFRS, divided by
earnings before income taxes, as determined in accordance with IFRS.
“Funds from operations per share – diluted” is calculated using the treasury stock method whereby deemed proceeds on
the exercise of the share options are used to reacquire common shares at an average share price. The calculation of funds
from operations per share - diluted is based on the funds from operations as reported in the table above divided by the diluted
number of shares outstanding as quantified in Note 10(b) in the Notes to the Consolidated Financial Statements.
-64-
Management’s Discussion & Analysis
Definitions
“Operating days” throughout this document, it is referring to the billable days on which PHX Energy is providing services to the
client at the rig site.
“Capital expenditures” equate to the Corporation’s total acquisition of drilling and other equipment as stated on the
Consolidated Statements of Cash Flows and Note 5(b) in the Notes to the Financial Statements.
“Growth capital expenditures” are capital expenditures that were used to expand capacity in the Corporation’s fleet of drilling
equipment.
“Maintenance capital expenditures” are capital expenditures that were used to maintain capacity in the Corporation’s fleet of
drilling equipment and replace equipment that were lost downhole during drilling operations.
Cautionary Statement Regarding Forward-Looking Information and
Statements
This MD&A contains certain forward-looking information and statements within the meaning of applicable securities laws. The use
of "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "could", "should", "can", "believe",
"plans", "intends", "strategy", “targets” and similar expressions are intended to identify forward-looking information or statements.
The forward-looking information and statements included in this MD&A are not guarantees of future performance and should
not be unduly relied upon. These statements and information involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from those anticipated in such forward-looking statements and
information. The Corporation believes the expectations reflected in such forward-looking statements and information are
reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements
and information included in this MD&A should not be unduly relied upon. These forward-looking statements and information
speak only as of the date of this MD&A.
In particular, forward-looking information and statements contained in this MD&A include, without limitation:
The Corporation’s intent to preserve balance sheet strength and continue to reward shareholders, including through
its dividend program, the ROCS program and NCIB;
The Corporation’s intent to remain committed to enhancing shareholder returns through its ROCS program which
targets up to 70 percent of annual excess cash flow to be used for shareholder returns and includes multiple options
including the dividend program and the NCIB. The Corporation will target the level of excess cash flow to be used
for shareholder returns to stay within the 70 percent threshold in 2025.
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PHX Energy Services Corp. | 2024 Annual Report
PHX Energy's intentions with respect leveraging the use of the NCIB and purchases thereunder and the effects of
repurchases under the NCIB;
The anticipated 2025 capital expenditure budget of $55 million. Of the total expenditures, approximately half is
anticipated to be spent on growth, including RSS systems and Real Time RSS Communications technology. The
remaining half is anticipated to be spent to maintain capacity in the fleet of drilling and other equipment and replace
equipment lost downhole during drilling operations.
The planned expenditures are expected to be financed from cash flow from operating activities, proceeds on
disposition of drilling equipment, cash and cash equivalents, and the Corporation’s credit facilities, if necessary.
The expectation that that equipment on order as part of the capital commitments as at December 31, 2024 will be
delivered within the first half of 2025.
The Corporation currently has ongoing R&D initiatives aimed at improving reliability, reducing costs to maintain
equipment, and displacing certain equipment rentals, and Management believes that these will aid in improving
profitability once implemented successfully.
The outlook related to the Corporation’s activity in the upcoming year and industry rig counts.
The potential for growth for the Atlas rental division, as the Corporation will be adding resources to support this
division and its operations.
The expected and potentially fluctuating revenue from the Atlas sales division, due to the sporadic and cyclical nature
of the customers’ ordering frequency.
The amount expected to be allocated towards replacing equipment lost downhole could increase, should more
downhole equipment losses occur throughout the year.
The anticipated increase to the Corporation’s RSS utilization and the percentage of activity this business line
represents in the upcoming year, along with the impact that this will have on profitability, particularly in Canada where
the Corporation expects to reduce equipment rentals,
The anticipated impact of potential new or increased tariffs that may be imposed by the US administration and any
retaliatory actions that may be taken by Canada or other nations, and the Corporation ability to reduce this impact in
its supply chain.
The above are stated under the headings: “Year End Highlights”, “Overall Performance”, “Dividends and ROCS”, “Capital
Spending”, “Segmented Information”, “Liquidity”, and “Cash Requirements for Capital Expenditures”. In addition, all information
contained under the headings “Dividends and ROCS”, “Cash Flow and Dividends”, “Critical Accounting Estimates and
Judgements”, “Business Risk Factors” and “Outlook” sections of this MD&A may contain forward-looking statements.
In addition to other material factors, expectations and assumptions which may be identified in this MD&A and other continuous
disclosure documents of the Corporation referenced herein, assumptions have been made in respect of such forward-looking
statements and information regarding, without limitation, that: the Corporation will continue to conduct its operations in a
-66-
Management’s Discussion & Analysis
manner consistent with past operations; the general continuance of current industry conditions and the accuracy of the
Corporation’s market outlook expectations for 2025 and in the future; that future business, regulatory and industry conditions
will be within the parameters expected by the Corporation; that there will be no adverse tariff events including intentional tariff
wars that could have a significant impact on the markets in which the Corporation operates; anticipated financial performance,
business prospects, impact of competition, strategies, the general stability of the economic and political environment in which
the Corporation operates; the potential impact of trade wars, pandemics, the Russian-Ukrainian war, Middle-East conflict and
other world events on the global economy, specifically trade, manufacturing, supply chain, inflation and energy consumption,
among other things and the resulting impact on the Corporation’s operations and future results which remain uncertain;
exchange and interest rates, and inflationary pressures including the potential for further interest rate hikes by global central
banks and the impact on financing charges and foreign exchange and the anticipated global economic response to concerted
interest rate hikes; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and
regulatory regimes; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost
of labour and services and the adequacy of cash flow; debt and ability to obtain financing on acceptable terms to fund its
planned expenditures, which are subject to change based on commodity prices; market conditions and future oil and natural
gas prices; and potential timing delays. Although management considers these material factors, expectations, and assumptions
to be reasonable based on information currently available to it, no assurance can be given that they will prove to be correct.
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors
that could affect the Corporation’s operations and financial results are included in reports on file with the Canadian Securities
Regulatory Authorities and may be accessed through the SEDAR+ website (www.sedarplus.ca) or at the Corporation’s website.
The forward-looking statements and information contained in this MD&A are expressly qualified by this cautionary statement.
The Corporation does not undertake any obligation to publicly update or revise any forward-looking statements or information,
whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
-67-
KPMG LLP
205 5th Avenue SW
Suite 3100
Calgary AB T2P 4B9
Tel 403-691-8000
Fax 403-691-8008
www.kpmg.ca
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global
organization of independent member firms affiliated with KPMG International Limited, a private
English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of PHX Energy Services Corp.
Opinion
We have audited the consolidated financial statements of PHX Energy Services Corp. (the Entity), which
comprise:
•
the consolidated statements of financial position as at December 31, 2024 and December 31, 2023
•
the consolidated statements of comprehensive earnings for the years then ended
•
the consolidated statements of changes in equity for the years then ended
•
the consolidated statements of cash flows for the years then ended
•
and notes to the consolidated financial statements, including a summary of material accounting policy
information
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated
financial position of the Entity as at December 31, 2024 and December 31, 2023, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with IFRS Accounting
Standards as issued by the International Accounting Standards Board.
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 Financial Statements” section of our auditor’s report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of
the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with
these requirements.
-68-
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements for the year ended December 31, 2024. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our
auditor’s report.
Directional drilling and motor rental revenue
Description of the matter
We draw your attention to note 3 and note 12 to the financial statements. The Entity primarily generates revenue
from the provision of directional drilling services whereby the client is charged a flat day rate for each day the rig
requires directional drilling services. Directional drilling revenue is recognized daily, over a period of time as
services have been provided. Motor rental revenue is recognized based on the number of hours the motor was
used in drilling operations and the rate for that equipment. Directional drilling and motor rental revenue during
the year ended December 31, 2024 was $648.4 million.
Why the matter is a key audit matter
We identified directional drilling and motor rental revenue as a key audit matter. Significant auditor attention was
required in evaluating the results of our audit procedures due to the magnitude and overall significance of
directional drilling and motor rental revenue transactions to the financial statements.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key audit matter:
•
We evaluated the design and tested the operating effectiveness of certain controls over directional drilling
and motor rental revenue processes
•
We tested directional drilling and motor rental revenue using computer-assisted audit techniques, which
included inspecting the amount and the period when the services or motor rental hours were provided by
agreeing a selection of items to supporting documentation
•
We assessed the timing of revenue recognized by agreeing a sample of directional drilling and motor rental
revenue transactions recognized before and after December 31, 2024 to supporting documentation to
assess if the revenue was recognized in the appropriate period
-69-
Other Information
Management is responsible for the other information. Other information comprises:
•
the information included in Management’s Discussion and Analysis filed with the relevant Canadian
Securities Commissions
•
the information, other than the financial statements and the auditor’s report thereon, included in a document
entitled “2024 Annual Report”
Our opinion on the 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 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
financial statements or our knowledge obtained in the audit and remain alert for indications that the other
information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian
Securities Commissions and the information, other than the financial statements and the auditor’s report
thereon, included in a document entitled “2024 Annual Report” as at the date of this auditor’s report. If, based
on the work we have performed on this other information, we conclude that there is a material misstatement of
this other information, we are required to report that fact in the auditor’s report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial
Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance
with IFRS Accounting Standards as issued by the International Accounting Standards Board, and for such
internal control as management determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no
realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
-70-
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the 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 the 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 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 Entity'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 Entity'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 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 Entity to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
-71-
•
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.
•
Provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
•
Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business units within the group as a basis for forming an opinion on the group
financial statements. We are responsible for the direction, supervision and review of the audit work
performed for the purposes of the group audit. We remain solely responsible for our audit opinion.
•
Determine, from the matters communicated with those charged with governance, those matters that were
of most significance in the audit of the 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 auditor’s 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 auditor’s report is Richard John Mussenden.
Chartered Professional Accountants
Calgary, Canada
February 25, 2025
-72-
Consolidated Financial Statements & Notes
-7
Consolidated Statements of Financial Position
(Stated in thousands of dollars)
December 31, 2024
December 31, 2023
ASSETS
Current assets:
Cash
$
14,163
$
16,433
Trade and other receivables (Note 18a)
133,589
121,334
Inventories (Note 4)
63,135
63,173
Prepaid expenses
2,628
2,409
Current tax assets
502
3,691
Total current assets
214,017
207,040
Non-current assets:
Drilling and other long-term assets (Note 5)
166,081
128,263
Right-of-use assets (Note 20)
24,943
27,056
Intangible assets (Note 6)
14,611
14,200
Investments (Note 7)
2,171
3,001
Other long-term assets
1,463
1,284
Deferred tax assets (Note 9)
-
4,650
Total non-current assets
209,269
178,454
Total assets
$
423,286
$
385,494
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other payables
$
116,668
$
100,438
Dividends payable (Note 10e)
9,102
9,453
Current lease liabilities (Note 20)
3,702
3,234
Current tax liabilities
-
-
Total current liabilities
129,472
113,125
Non-current liabilities:
Lease liabilities (Note 20)
31,650
33,972
Loans and borrowings (Note 8)
16,827
7,564
Deferred tax liabilities (Note 9)
19,792
16,822
Other (Note 11b)
3,340
4,042
Total non-current liabilities
71,609
62,400
Equity:
Share capital (Note 10a)
203,841
222,653
Contributed surplus
7,189
7,168
Deficit
(28,291)
(45,695)
Accumulated other comprehensive income (AOCI)
39,466
25,843
Total equity
222,205
209,969
Total liabilities and equity
$
423,286
$
385,494
See accompanying notes to consolidated financial statements, commitments (Note 5c)
Approved by the Board of Directors
(Signed) John Hooks
(Signed) Terry Freeman
John Hooks – Chairperson of the Board
Terry Freeman – Chair of the Audit Committee
-73-
PHX Energy Services Corp. | 2024 Annual Report
-8-
Consolidated Statements of Comprehensive Earnings
(Stated in thousands of dollars except earnings per share)
Years ended December 31,
2024
2023
Revenue (Note 12)
$
659,663
$
656,341
Direct costs (Note 13)
535,169
506,236
Gross profit
124,494
150,105
Expenses:
Selling, general and administrative expenses (Note 13)
68,294
68,915
Research and development expenses (Note 13)
5,337
5,210
Finance expense
1,948
2,422
Finance expense lease liability (Note 20)
2,213
2,245
Other income (Note 14)
(23,578)
(32,337)
54,214
46,455
Earnings before income taxes
70,280
103,650
Provision for (recovery of) income taxes (Note 15)
Current
9,273
10,435
Deferred
6,385
(5,365)
15,658
5,070
Net earnings
54,622
98,580
Other comprehensive income (loss)
Foreign currency translation, net of tax (Note 18e)
14,453
(4,767)
Equity investment revaluation through AOCI (Note 7)
(830)
-
Total comprehensive earnings
$
68,245
$
93,813
Earnings per share – basic (Note 10d)
$
1.17
$
1.98
Earnings per share – diluted (Note 10d)
$
1.16
$
1.96
See accompanying notes to consolidated financial statements.
-74-
Consolidated Financial Statements & Notes
-9
Consolidated Statements of Changes in Equity
(Stated in thousands of dollars except share capital numbers)
Year Ended
Share Capital
Contributed
Surplus
Accumulated Other
Comprehensive
Income
Deficit
Total Equity
December 31, 2024
Number
Amount ($)
Balance, December 31, 2023
47,260,472
$
222,653
$
7,168
$
25,843
$
(45,695)
$
209,969
Issuance of share capital on
exercise of options
(Note 10a)
387,533
1,343
-
-
-
1,343
Common shares purchased and
cancelled (Note 10f)
(2,141,232)
(20,614)
-
-
-
(20,614)
Share-based payments
-
-
480
-
-
480
Fair value of options exercised
-
459
(459)
-
-
Net earnings
-
-
-
-
54,622
54,622
Equity investment loss through
AOCI (Note 7)
-
-
-
(830)
-
(830)
Foreign currency translation,
net of tax
-
-
-
14,453
-
14,453
Dividends
-
-
-
-
(37,218)
(37,218)
Balance, December 31, 2024
45,506,773
$
203,841
$
7,189
$
39,466
$
(28,291)
$
222,205
Year Ended
Share Capital
Contributed Surplus
Accumulated Other
Comprehensive
Income
Deficit
Total Equity
December 31, 2023
Number
Amount ($)
Balance, December 31, 2022
50,896,175
$
251,345
$
7,044
$
30,610
$
(112,121)
$
176,878
Issuance of share capital on
exercise of options
(Note 10a)
389,134
964
-
-
-
964
Issuance of share capital from trust
on settlement of retention
awards (Note 10a)
121,763
955
-
-
-
955
Common shares purchased and
held in trust (Note 10a)
(114,000)
(612)
-
-
-
(612)
Common shares purchased and
cancelled (Note 10f)
(4,032,600)
(30,366)
-
-
-
(30,366)
Share-based payments
-
-
491
-
-
491
Fair value of options exercised
-
367
(367)
-
-
-
Net earnings
-
-
-
-
98,580
98,580
Foreign currency translation, net of
tax
-
-
-
(4,767)
-
(4,767)
Dividends
-
-
-
-
(32,154)
(32,154)
Balance, December 31, 2023
47,260,472
$
222,653
$
7,168
$
25,843
$
(45,695)
$
209,969
See accompanying notes to consolidated financial statements.
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Consolidated Statements of Cash Flows
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Cash flows from operating activities:
Earnings
$
54,622
$
98,580
Adjustments for:
Depreciation and amortization (Note 13)
44,822
38,861
Depreciation and amortization right-of-use asset (Note 13)
3,787
2,898
Provision for income taxes (Note 15)
15,658
5,070
Unrealized foreign exchange loss
204
150
Net gain on disposition of drilling equipment (Note 14)
(24,648)
(31,347)
Equity-settled share-based payments (Note 11a)
480
491
Finance expense
1,948
2,422
Finance expense lease liability (Note 20)
2,213
2,245
Provision for bad debts (Note 14)
-
117
Provision for inventory obsolescence (Note 4 and Note 13)
2,822
2,075
Interest paid on lease liability (Note 20)
(2,213)
(2,245)
Interest paid
(1,241)
(2,061)
Income taxes paid
(5,972)
(14,859)
Change in non-cash working capital (Note 17)
4,416
(5,674)
Net cash from operating activities
96,898
96,723
Cash flows from investing activities:
Proceeds on disposition of drilling equipment
36,741
43,686
Acquisition of drilling and other equipment (Note 5b)
(83,277)
(64,932)
Acquisition of intangible assets (Note 6)
(2,228)
(686)
Change in non-cash working capital (Note 17)
(400)
1,670
Net cash used in investing activities
(49,164)
(20,262)
Cash flows from financing activities:
Repurchase of shares under the NCIB (Note 10f)
(20,614)
(30,366)
Dividends paid to shareholders
(37,570)
(30,189)
Net proceeds from (net repayment of) loans and borrowings (Note 8b)
9,107
(14,731)
Payments of lease liability (Note 20)
(3,377)
(3,013)
Purchase of shares held in trust (Note 10a)
-
(612)
Proceeds from exercise of options
1,343
964
Net cash used in financing activities
(51,111)
(77,947)
Net decrease in cash
(3,377)
(1,486)
Cash, beginning of year
16,433
18,247
Effect of movements in exchange rates on cash held
1,107
(328)
Cash, end of year
$
14,163
$
16,433
See accompanying notes to consolidated financial statements.
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Consolidated Financial Statements & Notes
-11-
Notes to the Consolidated Financial Statements
For the years ended December 31, 2024 and 2023
1. Reporting Entity
PHX Energy Services Corp. (“PHX Energy” or the “Corporation”) is a publicly-traded Corporation listed on the Toronto Stock
Exchange (“TSX”) under the symbol “PHX”. The Corporation’s registered office is at Suite 1600, 215 – 9th Avenue SW
Calgary, Alberta, Canada.
The Corporation, through its subsidiaries (see Note 22), provides horizontal and directional drilling services, rents
performance drilling motors, and sells motor equipment and parts to oil and natural gas exploration and development
companies in Canada, United States, and the Middle East regions. The Corporation also develops and manufactures
technologies that are made available for internal operational use.
The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries.
2. Basis of Preparation
a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with IFRS Accounting Standards as
issued by the International Accounting Standards Board (IASB). Details of the Corporation’s material accounting
policies, including changes during the year, are included in Note 3.
The consolidated financial statements were authorized for issuance by the Board of Directors (the “Board”) on
February 25, 2025.
b) Basis of Measurement
The consolidated financial statements have been prepared on a going concern basis using the historical cost basis
except for liabilities for cash-settled share-based payment arrangements and investments, which are measured at
fair value.
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c) Functional and Presentation Currency
These consolidated financial statements are presented in thousands of Canadian dollars (“CAD”), which is the
Corporation’s functional currency, unless otherwise stated.
d) Use of Estimates
The preparation of the consolidated financial statements in conformity with IFRS Accounting Standards as issued by
the IASB requires management to make estimates and judgements that affect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected.
Assumptions and estimation uncertainties that have a significant risk of material adjustment in the context of these
financial statements include the following:
key assumptions used in the valuation of drilling and other equipment;
estimated useful lives of drilling and other equipment and intangible assets;
recognition of deferred tax assets based on estimates of the availability of future taxable profit against
which carry-forward tax losses can be used;
assumptions used in the valuation of investments;
estimates and assumptions used in the valuation of inventory;
estimate used in the valuation of accounts receivable;
valuation of equity-settled and cash-settled share-based payments; and,
key assumptions used in the estimate of leases including valuation of right-of-use assets and lease
liabilities.
i. Climate Change and Environmental, Social, and Governance (“ESG”)
Climate change policy and ESG culture policies are evolving at regional, national and international levels. Political
and economic events may significantly affect the scope and timing of ESG policies and climate change measures.
The Canadian Securities Administrators (“CSA”) have issued a proposed National Instrument 51-107 Disclosure of
Climate-related Matters. The Canadian Sustainability Standards Board (“CSSB”) have published Canadian
Sustainability Disclosure Standard (“CSDS”), CSDS 1 & CSDS 2 in the current period, adoption is voluntary until
mandated by provincial regulators. The CSA is currently developing a revised climate-related disclosure policy, which
will provide the regulatory framework for issuers.
The direct or indirect costs of compliance with greenhouse gas-related regulations and ESG directives may have an
adverse effect on the Corporation's and its customer’s business, financial condition, results of operations and
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Consolidated Financial Statements & Notes
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prospects; however, at this time these costs have not yet been quantified. Significant estimates and judgment
currently made by management which could be significantly impacted by climate and climate-related matters include:
Recoverability of asset carrying values;
Useful life of assets; and,
Cash flow projections for purpose of impairment tests.
e) Critical Judgments
Significant judgement is required to assess when impairment indicators exist, and impairment testing is required.
The assessment of impairment indicators is based on management’s judgment of whether there are internal and
external factors that would indicate that a cash generating unit ("CGU") and specifically the non-financial assets
within the CGU, are impaired. These factors include revenue and earnings before interest, taxes, depreciation and
amortization (”EBITDA”) forecasts, expected industry activity levels, commodity price developments and market
capitalization. The determination of a CGU is also based on management’s judgment and is an assessment of the
smallest group of assets that generate cash inflows independently of other assets.
3. Material Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements.
a) Basis of Consolidation
i. Subsidiaries
Subsidiaries are entities controlled by the Corporation. The Corporation controls an entity when it is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power over the entity. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases.
ii. Loss of Control
When the Corporation loses control over a subsidiary it derecognizes the assets and liabilities of the subsidiary, and
any other related components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained
in the former subsidiary is measured at fair value when control is lost.
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iii. Transactions Eliminated on Consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group
transactions, are eliminated.
iv. Foreign Currency Transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Corporation’s entities
at exchange rates at the dates of the transactions. The methods used to account for assets and liabilities relating to
foreign currency transactions entered into by the Corporation’s entities, and to measure the foreign exchange risk
arising on such transactions, depend upon whether the asset or liability in question is classified as a monetary or
non-monetary item.
Receivables, liabilities and other monetary assets denominated in foreign currencies at the reporting date are
translated at the functional currency spot exchange rate at the statement of financial position date. Exchange
differences that arise between the rate at the transaction date and the one in effect at the payment date or the rate
at the statement of financial position date are recognized in the statement of comprehensive earnings as other
income or expense.
Drilling and other equipment, inventories and other non-monetary items purchased in foreign currencies and that are
measured on the basis of historical cost are translated using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value is determined.
v. Foreign Operations
When entities, which prepare their financial statements in a functional currency other than Canadian dollars, are
recognized in the consolidated financial statements, the income and expenses are translated at the monthly average
exchange rates. The assets and liabilities of foreign operations are translated to Canadian dollars at the rate of
exchange prevailing at the statement of financial position date.
Foreign currency differences are recognized in other comprehensive earnings in the accumulated other
comprehensive income account. The exchange differences arising on the translation to the Corporation’s
presentation currency are recognized directly in the cumulative translation reserve as a separate component of
equity. When a foreign operation is disposed of in its entirety or partially such that control, significant influence or
joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified
to profit or loss as part of the gain or loss on disposal.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor
likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered
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Consolidated Financial Statements & Notes
-15-
to form part of a net investment in a foreign operation and are recognized in other comprehensive earnings, and are
presented within equity in accumulated other comprehensive income.
b) Financial Instruments
i. Financial Assets at Fair Value Through Other Comprehensive Income (“FVOCI”)
These assets are subsequently measured at fair value with the net gains or losses recognized in other
comprehensive income (“OCI”). Interest and dividend income resulting from financial assets measured at FVOCI
are recognized in the Corporation’s net earnings.
ii. Financial Assets at Amortized Cost
These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost
is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized
in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
iii. Non-derivative Financial Assets
The carrying amount of the Corporation’s financial assets includes cash, trade and other receivables, and
investments. A lifetime expected credit loss (“ECL”) is recognized on financial assets when there is objective
evidence of a significant increase in credit risk as a result of one or more events that occurred after the initial
recognition of the asset.
The Corporation initially recognizes trade and other receivables on the date that they originate. All other financial
assets (including assets designated at fair value through profit or loss) are recognized initially on the trade date at
which the Corporation becomes a party to the contractual provisions of the instrument.
Financial assets at amortized cost consist of cash and trade and other receivables. Trade and other receivables are
recorded at its original invoice value less any amounts estimated to be uncollectible plus any directly attributable
transaction costs.
Financial assets at FVOCI consist of an equity investment in a company (see Note 7). On initial recognition of an
equity investment that is not held-for-trading, the Corporation may irrevocably elect to present subsequent changes
in the investment’s fair value in OCI. There is no subsequent reclassification of fair value changes to earnings
following the derecognition of the investment. Interest and dividends that reflect a return on investment continue to
be recognized in net earnings. This election is made on an investment-by-investment basis.
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iv.
Non-derivative Financial Liabilities
Financial liabilities are recognized initially on the trade date at which the Corporation becomes a party to the
contractual provisions of the instrument. Such financial liabilities are recognized initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized
cost using the effective interest rate method. Transaction costs related to the issuance of any long-term debt are
netted against the carrying value of the associated long-term debt and amortized as part of financing costs over the
life of the debt using the effective interest rate method. The Corporation derecognizes a financial liability when its
contractual obligations are discharged, cancelled or expire.
The Corporation has the following non-derivative financial liabilities: trade and other payables, dividends payable,
and loans and borrowings.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when,
and only when, the Corporation has a legal right to offset the amounts and intends either to settle on a net basis or
to realize the asset and settle the liability simultaneously.
c) Share Capital
i. Common Shares
Common shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and
share options are recognized as a deduction from equity, net of any tax effects.
ii. Repurchase and Reissue of Common Shares
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly
attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified
as either, shares held in trust and are presented in the shares held in trust reserve for future settlement of retention
award liability, or are repurchased and cancelled under the Normal Course Issuance Bid (“NCIB”). When shares held
in trust are reissued to settle retention award liabilities, the amount of liabilities settled is recognized as an increase
in equity.
d) Drilling and Other Equipment
i. Recognition and Measurement
Items of drilling and other equipment are measured at cost less accumulated depreciation and accumulated
impairment losses.
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Consolidated Financial Statements & Notes
-17-
Cost is comprised of the acquisition price, costs directly attributable to the acquisition and preparation costs of the
asset until the time when it is ready to be put into operation. Drilling and other equipment also includes parts and
raw materials awaiting assembly. These assets are recorded at cost and no depreciation is taken until the asset is
completed and available for intended use.
When parts of an item of drilling and other equipment have different useful lives, they are accounted for as separate
items (major components) of drilling and other equipment.
Gains and losses on disposal of an item of drilling and other equipment are determined by comparing the proceeds
from disposal with the carrying amount of drilling and other equipment, and are recognized net within other income
in the Corporation’s profit or loss.
ii. Subsequent Costs
The cost of replacing a part of an item of drilling and other equipment is recognized in the carrying amount of the
item if it is probable that the future economic benefits embodied within the part will flow to the Corporation, and its
cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-
day servicing of drilling and other equipment are recognized in the Corporation’s profit or loss as incurred.
iii. Depreciation
Depreciation expense is recognized in profit or loss on a straight-line basis over the estimated useful lives of drilling
and other equipment and is calculated using the depreciable amount, which is the cost of an asset, or other amount
substituted for cost, less its residual value. Significant components of individual assets are assessed, and if a
component has a useful life that is different from the remainder of that asset, then that component is depreciated
separately.
The estimated useful lives for the current period are as follows:
Directional drilling equipment
2 to 8 years straight-line
Office and computer equipment
3 to 10 years straight-line
Machinery and equipment
5 years straight-line
Vehicles
5 years straight-line
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if
appropriate.
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e) Intangible Assets
i. Research and Development Costs
Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and
understanding is recognized in profit or loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved product and
process. Development expenditure is capitalized only if development costs can be measured reliably, the product or
process is technically feasible, future economic benefits are probable, and the Corporation intends to and has
sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the
cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended
use, and borrowing costs. Other development expenditures are recognized in profit or loss as incurred. Development
expenditures are accumulated until the project has reached commercial feasibility, at which time the development
expenditure will be amortized over the estimated useful life of the related asset.
Capitalized development expenditure is measured at cost less accumulated amortization and accumulated
impairment losses.
ii. Other Intangible Assets
Other intangible assets that are acquired by the Corporation and have finite useful lives are measured at cost less
accumulated amortization and any accumulated impairment losses.
Other intangible assets include licenses which give the Corporation rights to use in any manner certain equipment
acquired from a third party. These licenses are transferrable to other equipment should it be lost downhole, retired,
or sold. The useful life of these licenses is estimated to be the same as the estimated useful life of the associated
technologies.
iii. Subsequent Expenditures
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the
specific asset to which they relate. All other expenditures, including expenditures on internally generated goodwill,
are recognized in profit or loss as incurred.
iv. Amortization
Amortization is calculated to write-off the costs of intangible assets less their estimated residual values using the
straight-line method over their estimated useful lives, and is recognized in profit or loss.
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Consolidated Financial Statements & Notes
-19-
The estimated useful life is as follows:
Licenses
10 to 15 years
Development costs
10 to 15 years
Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if
appropriate.
f) Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-
in first-out method, and includes expenditures incurred in acquiring the inventories, production or conversion costs
and other costs incurred in bringing them to their existing location and condition.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.
g) Impairment
i. Financial Assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine
whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates
that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect
on the estimated future cash flows of that asset that can be estimated reliably.
The Corporation considers evidence of impairment for receivables at a specific asset level. When determining
whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating
ECL, the Corporation considers reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and analysis based on the Corporation’s
historical experience, informed credit assessment, and forward-looking information. The Corporation has elected to
measure loss allowances for trade and other receivables at an amount equal to the ECL over the expected life of a
financial instrument.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between
its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original
effective interest rate. Losses are recognized in profit or loss and are reflected in an allowance account against
receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When
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PHX Energy Services Corp. | 2024 Annual Report
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a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed
through profit or loss.
ii. Non-Financial Assets
The carrying amounts of the Corporation’s non-financial assets, other than inventories and deferred tax assets are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication
exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite
useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset. For the
purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group
of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other
assets or groups of assets. For the purposes of goodwill impairment testing, goodwill acquired in a business
combination is allocated to the group of CGUs that is expected to benefit from the synergies of the combination. This
allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is
monitored for internal reporting purposes.
The Corporation’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate
asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
Where the carrying amount of an asset or CGU exceeds its recoverable amount, the non-financial assets within the
CGU are considered impaired and its carrying amount is reduced to its recoverable amount. Impairment losses
recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units,
and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized
in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had
been recognized.
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Consolidated Financial Statements & Notes
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iii. Employee Benefits
Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related
service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus plans if the Corporation has
a present legal or constructive obligation to pay this amount as a result of past service provided by the employee,
and the obligation can be estimated reliably.
Share-based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognized as an employee
expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled
to the awards (vesting period). The amount recognized as an expense is adjusted to reflect the number of awards
for which the related service and non-market vesting conditions are expected to be met, such that the amount
ultimately recognized as an expense is based on the number of awards that do meet the related service and non-
market performance conditions at the vesting date.
The fair value of the amount payable to employees in respect of Retention Awards, which may be settled in cash or
equity, is recognized as an expense with a corresponding increase in liabilities, over the period that the employees
unconditionally become entitled to payment. The liability is remeasured at each reporting date and at settlement
date. Any changes in the fair value of the liability are recognized as personnel expense in profit or loss.
h) Revenue
Revenue is recognized when a client obtains control of the goods or services. Revenue is measured based on the
consideration specified in the contract with a client and excludes amounts collected on behalf of third parties. The
Corporation recognizes revenue when it transfers control over a product or service to a customer or client. The
Corporation’s services are sold based upon bid acceptance or contracts with clients that includes fixed or
determinable prices based upon daily, hourly, or job rates.
The Corporation primarily generates revenue from the provision of directional drilling services whereby the client is
charged a flat day rate for each day the rig requires directional drilling services. The day rate includes personnel
assistance as well as use of equipment. The Corporation recognizes revenue daily based on the daily drilling rate.
The Corporation’s performance obligation is the bundling of its services relating to directional drilling activities, which
distinctly benefit the client each day of active drilling. The Corporation recognizes this benefit to revenue daily, over
a period of time, as services have been provided. An invoice is sent to the client upon completion of the well, also
revenues are accrued based on daily services provided at period end.
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Instances where there are equipment failures or delays, a sales credit will be issued upon review with the client. The
Corporation will accrue a sales credit when it is highly probable that a sales credit will be issued.
Motor rental revenue is based on the number of hours the motor was used in drilling operations, and the rate for that
equipment. The Corporation’s performance obligation is providing the use of equipment which distinctly benefits the
client during the rental period. The Corporation recognizes this benefit to revenue based on each hour of utilization.
An invoice is sent to the client upon completion of the rental period, also revenue is accrued based on the number
of hours the motor was used at period end.
The Corporation also sells various motor parts and motor equipment. The Corporation’s performance obligation is
satisfied upon delivery of such inventory to the customer, at which time the benefits of ownership and control of the
asset has been transferred and revenue is recognized. An invoice is sent to the customer upon shipment of goods.
i) Leases
i. Definition of a Lease
The Corporation determines whether an arrangement or an agreement contains a lease in accordance to IFRS 16
Leases. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an
identified asset for a period of time in exchange for consideration.
At inception of a contract, the Corporation assesses whether a contract is, or contains, a lease. To assess whether
a contract conveys the right to control the use of an identified asset, the Corporation assesses whether:
The contract involves the use of an identified asset, which may be specifically or implicitly stated, and the
identified asset should be physically distinct or represents substantially all of the capacity of the asset. If
the supplier has the substantive right to substitute the asset throughout the term of the contract, then the
asset is not identified;
The Corporation has the right to obtain substantially all of the economic benefits from use of the asset
throughout the contract; and
The Corporation has the right to direct the use of the identified asset throughout the contract. The
Corporation has this right to direct how and for what purpose the asset is used. In addition, the Corporation
has the right to operate the asset without the lessor or supplier having the right to change those operation
instructions, or the Corporation designed the asset in a way that predetermines how and for what purpose
it will be used.
At inception or on reassessment of a contract that contains a lease component, the Corporation allocates the
consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices.
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Consolidated Financial Statements & Notes
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However, for leases of properties in which it is a lessee, the Corporation has elected not to separate non-lease
components and will instead account for the lease and non-lease components as a single lease component.
ii. As a Lessee
The Corporation recognizes right-of-use assets and lease liabilities at the lease commencement date. The right-of-
use assets are initially measured at cost, which comprises the initial amount of the lease liabilities adjusted for any
lease payments made at or before the commencement date, plus any initial direct costs incurred less any lease
incentives received.
The right-of-use assets are depreciated using the straight-line method from the commencement date to the end of
the lease term, unless the lease transfers ownership of the underlying asset to the Corporation by the end of the
lease term or the cost of the right-of-use asset reflects that the Corporation will exercise a purchase option. In that
case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on
the same basis as those of drilling and other equipment.
The lease liabilities are initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the Corporation’s incremental borrowing rate. The Corporation determines
its incremental borrowing rate by obtaining interest rates from external financing sources and adjusting to reflect the
terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liabilities comprise the following:
Fixed payments, including in-substance fixed payments;
Amounts expected to be payable under a residual value guarantee if applicable; and,
The exercise price under a purchase option that the Corporation is reasonably certain to exercise, lease
payments in an optional renewal period if the Corporation is reasonably certain to exercise and penalties
for early termination of a lease unless the Corporation is reasonably certain not to terminate early.
The lease liabilities are measured at amortized cost using the effective interest method. It is remeasured when there
is a change in future lease payments arising from a change in discount rate or change in estimate and assumptions
related to the leased asset. When a lease liability is remeasured a corresponding adjustment is made to the carrying
amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has
been reduced to zero.
The Corporation has elected to apply recognition exemptions to right-of-use assets and lease liabilities for some
leases of low-value assets (e.g. office equipment), as well as for short-term leases or leases with terms less than
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PHX Energy Services Corp. | 2024 Annual Report
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twelve months or entered into on a month-to-month basis. The Corporation recognizes the lease payments
associated with these leases as an expense on a straight-line basis over the lease term.
j) Income Tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss
except to the extent that it relates to a business combination or items recognized directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the
following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in
subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition
of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when
they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax
assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and
they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the
extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax
assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realized.
The criteria for recognizing deferred tax assets arising from unused tax losses is the same as the criteria arising from
temporary differences between the carrying amounts of asset and liabilities for tax purposes. However, the
Corporation under the circumstances of having unused tax losses due to a history of recent losses recognizes
deferred tax assets to the extent there is convincing other evidence that sufficient taxable income will be available
against the unused losses.
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Consolidated Financial Statements & Notes
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Tax exposures
In determining the amount of current and deferred tax, the Corporation takes into account the impact of uncertain tax
positions and whether additional taxes and interest may be due. This assessment relies on estimates and
assumptions and may involve a series of judgements about future events. New information may become available
that causes the Corporation to change its judgement regarding the adequacy of existing tax liabilities; such changes
to tax liabilities will impact tax expense in the period that such a determination is made.
k) Earnings per Share
The Corporation presents basic and diluted earnings per share data for its ordinary shares. Basic per share amounts
are calculated by dividing the earnings or loss attributable to ordinary shareholders of the Corporation by the
weighted-average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted
per share amounts are calculated by adjusting the earnings or loss attributable to ordinary shareholders and the
weighted-average number of common shares outstanding, adjusted for own shares held, for the effects of all dilutive
potential ordinary shares, which comprise share options, retention awards, and performance awards granted to
employees and directors.
l) Segment Reporting
An operating segment is a component of the Corporation that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses that relate to transactions with any of the
Corporation’s other components. Operating segments are determined based on geographical location. All operating
segments’ operating results are reviewed regularly by the Corporation’s Chief Executive Officer (“CEO”) to make
decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial
information is available.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that
can be allocated on a reasonable basis. Unallocated items comprise mainly of corporate assets, head office
expenses, and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the period to acquire drilling and other equipment, and
intangible assets other than goodwill.
Management has determined that the previously disclosed international segment no longer meets the definition of a
reportable segment. The international segment was formerly comprised of PHX Energy’s Russia and Albania
divisions. The Russian division was disposed of on June 30, 2022. As a result of the internal realignment, the results
of the Albania division are no longer regularly reviewed by the Corporation’s chief operating decision makers. The
results of the Albania division also do not exceed the quantitative thresholds in IFRS 8, Operating Segments, and
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the wind down of active operations has been substantially completed in the current period. Accordingly, the results
of the international segment are no longer presented separately and are included within the Canada segment. The
comparative segment disclosures have been restated to align with the reportable segment presentation adopted in
the current period.
During the third quarter of 2024, the International Accounting Standards Board issued a decision regarding the
disclosure requirements under IFRS 8 segment reporting. Management has made updates in the current and
comparative periods to the disclosures under Note 16 – Operating Segments to align with the decision, providing
further detail relating to the segmentation of income statement items. Significant changes include the allocation of
finance expense lease liability and other income to the reportable segments and disclosure of specified amounts
used in arriving at reportable segment profit (loss) before income taxes.
m) Changes in Material Accounting Policies
i.
Global Minimum Top-up Tax
The Corporation has adopted International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12) upon their
release on May 23, 2023. The amendments provide a temporary mandatory exception from deferred tax accounting
for the top-up tax, which is effective immediately, and requires new disclosures about the Pillar Two exposure. The
mandatory exception applies retrospectively. The Global Minimum Tax Act was assented to by the Canadian
Government on June 20, 2024 and has been retrospectively applied to the consolidated financial statements.
However, no related deferred tax was recognized for the years ended December 31, 2023 and 2024 as the
Corporation’s revenues did not meet the minimum threshold as defined in the Global Minimum Tax Act in both
periods. Application has no impact on the Corporation’s consolidated financial statements.
n) Accounting Standards Issued But Not Yet Effective
A number of new accounting standards are effective for annual periods beginning after January 1, 2025 and earlier
application is permitted. The following new and amended accounting standards are not expected to have a significant
impact on the Corporation’s consolidated financial statements.
Lack of Exchangeability (Amendments to IAS 21)
Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7)
Annual improvements to IFRS Accounting Standards (Includes Amendments to IFRS 1, IFRS 7, IFRS 9,
IFRS 10, and IAS 7)
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Consolidated Financial Statements & Notes
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Recently Announced Accounting Pronouncements
In April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements which will replace IAS
1 Presentation of Financial Statements. The new standard will establish a revised structure for the consolidated
statements of comprehensive income and improve comparability across entities and reporting periods. IFRS 18 is
effective for annual periods beginning on or after January 1, 2027. The standard will be applied retroactively, with
certain transition provisions. The Corporation is currently evaluating the impact of adopting IFRS 18 on the
consolidated financial statements.
In May 2024, the IASB issued amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments:
Disclosures to clarify the date of recognition and derecognition of some financial assets and liabilities, with a new
exception for some financial liabilities settled using an electronic payment system. The amendments are effective
January 1, 2026, with early adoption permitted. The Corporation is currently evaluating the impact of these
amendments on the consolidated financial statements.
4. Inventories
Inventories are mainly comprised of drilling and other equipment repair parts, and motor equipment and parts for sale. In
2024, consumed repair parts and the cost of motor equipment and parts sold were $81.6 million (2023 - $72.8 million)
and $6.9 million (2023 – $4.3 million), respectively (Note 13). These amounts were included in direct costs. For the year
ended December 31, 2024, the Corporation recognized a provision for inventory obsolescence of $2.8 million (2023 - $2.1
million).
(Stated in thousands of dollars)
At December 31,
2024
2023
Raw materials
826
1,009
Work in process
4,170
3,388
Spare parts and consumables
58,139
58,776
63,135
63,173
5. Drilling and Other Long-Term Assets
a) Impairment Analysis
The Corporation is required to assess whether there are any external and internal indicators that exist at the end of
each reporting period. As at December 31, 2024, Management determined no indicators of impairment existed.
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b) Acquisitions and Disposals
Assets with a carrying amount of $12.1 million (2023 - $12.3 million) were disposed of as a result of tools lost down
hole and scrapped assets, resulting in a net gain on disposition of $24.6 million (2023 - $31.3 million), which is
included in other income (Note 14) in the consolidated statement of comprehensive earnings.
(Stated in thousands of dollars)
Directional
Drilling
Equipment
Machinery
and
Equipment
Office and
Computer
Equipment
Vehicles
Total
Cost
At January 1, 2024
369,934
22,715
19,920
1,981
414,550
Additions
78,287
2,814
1,927
249
83,277
Disposals
(42,963)
(68)
(31)
(268)
(43,330)
Effect of movement
in exchange rate
22,154
1,211
890
106
24,361
At December 31, 2024
427,412
26,672
22,706
2,068
478,858
Accumulated Depreciation
At January 1, 2024
248,587
19,133
16,961
1,606
286,287
Depreciation
40,283
1,359
892
170
42,704
Disposals
(30,892)
(64)
(30)
(251)
(31,237)
Effect of movement
in exchange rate
13,329
924
691
79
15,023
At December 31, 2024
271,307
21,352
18,514
1,604
312,777
Carrying amount
at December 31, 2024
156,105
5,320
4,192
464
166,081
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Consolidated Financial Statements & Notes
-29-
(Stated in thousands of dollars)
Directional
Drilling
Equipment
Machinery
and
Equipment
Office and
Computer
Equipment
Vehicles
Total
Cost
At January 1, 2023
346,477
20,797
19,477
1,361
388,112
Additions
61,820
2,191
652
269
64,932
Disposals
(31,003)
-
(416)
(108)
(31,527)
Effect of movement
in exchange rate
(7,360)
(273)
207
459
(6,967)
At December 31, 2023
369,934
22,715
19,920
1,981
414,550
Accumulated Depreciation
At January 1, 2023
236,939
17,986
16,215
1,027
272,167
Depreciation
34,321
1,361
897
220
36,799
Disposals
(18,665)
-
(416)
(108)
(19,189)
Effect of movement
in exchange rate
(4,008)
(214)
265
467
(3,490)
At December 31, 2023
248,587
19,133
16,961
1,606
286,287
Carrying amount
at December 31, 2023
121,347
3,582
2,959
375
128,263
c) Capital Commitments
As at December 31, 2024, the Corporation has entered into commitments to purchase drilling and other equipment
for $44 million (2023 - $42.7 million); delivery is expected to occur within the first half of 2025.
6. Intangible Assets
Intangible assets are mainly licenses which give the Corporation rights to use in any manner certain equipment acquired
from a third party. These licenses are transferrable to other equipment should it be lost downhole, retired, or sold. The
useful life of these licenses is estimated to be the same as the estimated useful life of the associated technologies.
Additions to development costs relate mainly to the cost of a prototype to be designed in collaboration with an external
party.
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PHX Energy Services Corp. | 2024 Annual Report
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(Stated in thousands of dollars)
License
Development Costs
Total
Cost
At January 1, 2024
27,218
686
27,904
Additions
1,365
863
2,228
Disposals
-
-
-
Effect of movement in exchange rate
535
-
535
At December 31, 2024
29,118
1,549
30,667
Accumulated Amortization
At January 1, 2024
13,704
-
13,704
Amortization
2,118
-
2,118
Disposals
-
-
-
Effect of movement in exchange rate
234
-
234
At December 31, 2024
16,056
-
16,056
Carrying amount at December 31, 2024
13,062
1,549
14,611
(Stated in thousands of dollars)
License
Development
Costs
Systems/
Software
Technology
Total
Cost
At January 1, 2023
29,282
2,643
1,970
1,826
35,721
Additions
-
686
-
-
686
Disposals
(1,923)
(2,643)
(1,970)
(1,826)
(8,362)
Effect of movement in exchange rate
(141)
-
-
-
(141)
At December 31, 2023
27,218
686
-
-
27,904
Accumulated Amortization
At January 1, 2023
13,614
2,643
1,970
1,826
20,053
Amortization
2,064
-
-
-
2,064
Disposals
(1,923)
(2,643)
(1,970)
(1,826)
(8,362)
Effect of movement in exchange rate
(51)
-
-
-
(51)
At December 31, 2023
13,704
-
-
-
13,704
Carrying amount at December 31, 2023
13,514
686
-
-
14,200
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Consolidated Financial Statements & Notes
-31-
7. Investments
Investments are comprised of 3.5 million common shares in a geothermal power developer, DEEP Earth Energy
Production Corp (“DEEP”).
On July 16, 2024, 3.5 million warrants held by PHX Energy in DEEP expired. As a result of the expiration, a loss on
revaluation of investments of $0.8 million, which represents the fair value assigned to the expired warrants was recognized
through other comprehensive income.
8. Loans and Borrowings
a) Terms and Covenants
(Stated in thousands of dollars)
Currency
Amount of
Facility
Date of Maturity Currency
Carrying Amount at
December 31, 2024
Currency
Carrying Amount at
December 31, 2023
Operating Facility
CAD
15,000 December 12, 2026
CAD
1,354
CAD
-
Syndicated Facility
CAD
80,000 December 12, 2026
CAD
9,719
CAD
7,564
Total CAD Facility
CAD
95,000
CAD
11,073
CAD
7,564
US Operating Facility
USD
20,000 December 12, 2026
USD
4,000
USD
-
Total USD Facility
USD
20,000
USD
4,000
USD
-
The carrying amount of loans and borrowings is presented net of borrowing costs amounting to $0.3 million at December
31, 2024. Under the syndicated credit agreement, the Corporation is required to maintain certain financial covenants. As
at December 31, 2024 the Corporation was in compliance with all its financial covenants as follows:
Ratio
Covenant
As at December 31, 2024
Debt to covenant EBITDA(i)
<3.0x
0.14
Interest coverage ratio(i)
>3.0x
60.66
(i) Definitions for these terms are included in the credit agreement filed on SEDAR
Under the syndicated credit agreement, in any given period, the Corporation’s distributions (as defined therein) cannot
exceed its maximum aggregate amount of distributions limit as defined in the Corporation’s syndicated credit agreement.
Distributions include, without limitation, dividends declared and paid, cash used for common shares purchased by the
independent trustee in the open market and held in trust for potential settlement of outstanding retention awards, as well
as cash used for common shares repurchased and cancelled.
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PHX Energy Services Corp. | 2024 Annual Report
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The facilities bear interest based primarily on the Corporation’s debt to earnings before interest, taxes, depreciation and
amortization (“EBITDA”) ratio, as defined in the credit agreement. Interest on the operating facility is at the bank’s prime
rate plus one percent. Interest on the syndicated facility is at the Canadian Overnight Repo Rate Average (“CORRA”) plus
two percent.
As at December 31, 2024 the Corporation has CAD $83.6 million and USD $16 million available to be drawn from its
credit facilities. The credit facilities are secured by substantially all of the Corporation's assets.
b) Reconciliation of Movements of Liabilities to Cash Flows Arising
from Financing Activities
(Stated in thousands of dollars)
CAD Operating
Facility
CAD Syndicated
Facility
USD Operating
Facility (CAD)
Total
Consolidated
Facility
Balance at January 1, 2024
-
7,564
-
7,564
Proceeds from loans and
borrowings
-
30,000
5,754
35,754
Repayment of borrowings
-
(28,000)
-
(28,000)
Change in operating facility
1,354
-
-
1,354
Accretion of borrowing costs
-
155
-
155
Balance at December 31, 2024
1,354
9,719
5,754
16,827
(Stated in thousands of dollars)
CAD Operating
Facility
CAD Syndicated
Facility
USD Operating
Facility (CAD)
Total
Consolidated
Facility
Balance at January 1, 2023
731
22,000
-
22,731
Proceeds from loans and
borrowings
-
16,500
13,240
29,740
Repayment of borrowings
-
(30,500)
(13,240)
(43,740)
Change in operating facility
(731)
-
-
(731)
Borrowing costs
-
(436)
-
(436)
Balance at December 31, 2023
-
7,564
-
7,564
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Consolidated Financial Statements & Notes
-33-
9. Deferred Tax Assets and Liabilities
a) Unrecognized Deferred Tax Assets and Liabilities
(Stated in thousands of dollars)
2024
2023
Gross
Amount
Tax Effect
Gross
Amount
Tax Effect
Investment tax credit / foreign tax
credit
$
-
$
1,592
$
-
$
1,592
Non-capital income tax losses
6,268
1,537
437
100
Drilling and other equipment
-
-
-
-
Intangibles
-
-
-
-
Other
-
-
-
-
$
6,268
$
3,129
$
437
$
1,692
The Corporation has unrecognized deferred tax assets relating to international jurisdictions. Deferred tax assets
have not been recognized in respect of the foreign tax losses and foreign tax credits as they may not be used to
offset taxable profits elsewhere in the Corporation, and they have arisen in subsidiaries that have not established
indicators demonstrating that it is probable that future taxable profits will be available to utilize those loss carry-
forwards. These non-capital losses will expire between 2025 and 2040. The foreign tax credits will expire between
2026 and 2040.
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PHX Energy Services Corp. | 2024 Annual Report
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b) Recognized Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are attributable to the following:
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Deferred income tax assets:
Lease liability
$
8,318
$
8,756
Other (including foreign and other tax credits)
1,459
6,178
Partnership loss
1,075
-
Intangible assets
1,216
1,329
Non-capital income tax losses
339
2,619
Drilling and other equipment
-
208
$
12,407
$
19,090
Deferred income tax liabilities:
Drilling and other equipment
$
(25,123) $
(21,178)
Right-of-use asset
(5,879)
(6,377)
Intangible assets
(1,197)
(942)
Partnership income
-
(2,765)
(32,199)
(31,262)
Net deferred income tax liability
$
(19,792) $
(12,172)
Non-capital income tax losses expire between 2043 and 2044. Deferred tax assets are recognized only to the extent
it is considered probable that those assets will be recoverable. The determination involves an assessment of when
those deferred tax assets are likely to reverse and a judgment of whether there will be sufficient taxable profits
available to utilize the tax assets when they do reverse. Assumptions regarding future profitability have been made
and used as the basis for recognizing the deferred tax asset. Deferred tax movements are included in net earnings.
(Stated in thousands of dollars)
Drilling and
Other
Equipment
Right-of-
Use Asset Intangibles
Partnership
loss
(Income)
Non-Capital
Income Tax
Losses
Lease
Liabilities
Other
Total
At January 1, 2024
(20,968)
(6,378)
387
(2,765)
2,618
8,756
6,178
(12,172)
Recognized in
profit
(1,520)
1,299
(418)
4,187
(2,609)
(1,538)
(5,786)
(6,385)
Recognized in OCI
(2,635)
(800)
50
(347)
330
1,100
773
(1,529)
Other
-
-
-
-
-
-
294
294
At December 31,
2024
(25,123)
(5,879)
19
1,075
339
8,318
1,459
(19,792)
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Consolidated Financial Statements & Notes
-35-
(Stated in thousands of dollars)
Drilling and
Other
Equipment
Right-of-Use
Asset
Intangibles
Partnership
Income
Non-Capital
Income Tax
Losses
Lease
Liabilities
Other
Total
At January 1, 2023
(20,755)
(6,924)
(845)
(1,115)
255
9,348
1,593
(18,443)
Recognized in
profit
(349)
501
1,226
(1,657)
2,365
(531)
3,809
5,364
Recognized in OCI
136
45
6
7
(2)
(61)
(10)
121
Other
-
-
-
-
-
-
786
786
At December 31,
2023
(20,968)
(6,378)
387
(2,765)
2,618
8,756
6,178
(12,172)
10. Share Capital
a) Authorized and Issued Shares
The Corporation is authorized to issue an unlimited number of common shares.
(Stated in thousands of dollars except common shares outstanding)
Number
Amount
Balance as at January 1, 2023
50,896,175
$
251,345
Common shares repurchased and cancelled (Note 10f)
(4,032,600)
(30,366)
Common shares repurchased and held in trust (Note 11b)
(114,000)
(612)
Issued shares pursuant to retention awards plan
121,763
955
Issued shares pursuant to share option plan
389,134
1,331
Balance as at December 31, 2023
47,260,472
$
222,653
Common shares repurchased and cancelled (Note 10f)
(2,141,232)
(20,614)
Issued shares pursuant to share option plan
387,533
1,802
Balance as at December 31, 2024
45,506,773
$
203,841
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PHX Energy Services Corp. | 2024 Annual Report
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b) Weighted-Average Number of Shares
(Stated in thousands of dollars except common shares outstanding)
2024
2023
Issued common shares at January 1,
47,260,472
50,896,175
Effect of share options exercised
247,914
189,162
Effect of shares pursuant to Normal Course Issuer Bid
(727,539)
(1,344,200)
Effect of shares issued from trust
-
93,472
Effect of shares pursuant to shares purchased and held in trust
-
(90,199)
Weighted-average number of common shares (basic) at December 31,
46,780,847
49,744,410
Effect of share options
242,102
374,140
Effect of retention awards, if dilutive
-
2,590,004
Weighted-average number of common shares (diluted) at December 31,
47,022,949
52,708,554
c) Reconciliation of Earnings to Diluted Earnings
(Stated in thousands of dollars)
2024
2023
Earnings
54,622
98,580
Effect of retention awards, if dilutive
-
4,697
Diluted earnings
54,622
103,277
d) Basic and Diluted Earnings per Share
(Stated in thousands of dollars except share capital numbers)
2024
Earnings
Shares
Per Share
(numerator)
(denominator)
Amount
Net earnings:
Basic earnings per share:
$
54,622
46,780,847
$
1.17
Diluted earnings per share:
$
54,622
47,022,949
$
1.16
2023
Earnings
Shares
Per Share
(numerator)
(denominator)
Amount
Net earnings:
Basic earnings per share:
$
98,580
49,744,410
$
1.98
Diluted earnings per share:
$
103,277
52,708,554
$
1.96
The Corporation realized profits in both the year ended December 31, 2024 and 2023. The number of options which
had a dilutive effect is 881,667 for the year ended December 31, 2024 (2023 – 994,200). As at December 31, 2024,
retention awards of 1,599,094 were excluded from the dilutive calculation, as their effect is anti-dilutive (2023 -
2,590,004 shares included in the dilutive calculation).
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Consolidated Financial Statements & Notes
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e) Dividends
For the year ended December 31, 2024, the Corporation paid an aggregate of $0.80 per share or $37.6 million,
relating to dividends declared in the last quarter of 2023 and the first three quarters of 2024.
On December 13, 2024, the Corporation declared a dividend of $0.20 per share or $9.1 million, payable on January
15, 2025, to shareholders of record on December 31, 2024.
f) Normal Course Issuer Bid (“NCIB”)
During the third quarter of 2024, the TSX approved the renewal of PHX Energy’s Normal Course Issuer Bid (“NCIB”)
to purchase for cancellation, from time-to-time, up to a maximum of 3,363,845 common shares, representing 10
percent of the Corporation’s public float of Common Shares as at August 7, 2024. The NCIB commenced on August
16, 2024 and will terminate on August 15, 2025. Purchases of common shares are to be made on the open market
through the facilities of the TSX and through alternative trading systems. The price which PHX Energy is to pay for
any common shares purchased is to be at the prevailing market price on the TSX or alternate trading systems at the
time of such purchase.
Pursuant to the previous and current NCIB, 2,141,232 common shares were purchased by the Corporation for $20.6
million and cancelled for the year ended December 31, 2024. Of the 2,141,232 common shares purchased and
cancelled, 1,069,121 common shares were purchased under the previous NCIB and 1,072,111 common shares were
purchased under the current NCIB. During 2023, 4,032,600 common shares were purchased by the Corporation for
$30.4 million and cancelled.
11. Share-Based Payments
a) Share Option Program (Equity-Settled)
PHX Energy has a share option program that entitles key management personnel and other employees to purchase
common shares in the Corporation. Grants under the plan vest as to one-third 6 months from the grant date, one-
third 18 months from grant date and one-third 30 months from grant date. In accordance with these programs, options
are exercisable using the five-day weighted-average trading price of the common shares ending immediately prior
to the date of grant, or in the case of a US option holder, the trading price of the common shares ending immediately
prior to the date of grant. The options have a term of five years.
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PHX Energy Services Corp. | 2024 Annual Report
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Summary of option grants in 2024
Number
Exercise Price
Expiration Date
Fair Value
150,000
$
9.17
March 7, 2029
$
1.78
125,000
9.23
March 7, 2029
1.64
275,000
The Corporation values all of its share options using the Black-Scholes model. The Corporation’s determination of
fair value of options on the date of grant is affected by the Corporation’s share price as well as assumptions regarding
a number of variables. For the options granted during 2024 these variables include, but are not limited to, the
Corporation’s expected share price volatility over the term of the options of 41 percent, forfeiture rate of nil, dividend
yield of 8.66 percent and a risk-free interest rate of 4.13 percent (2023 – expected share price volatility 54 percent,
forfeiture rate of nil, dividend yield of 7.87 percent and a risk-free interest rate of 4.03 percent). The amounts
computed according to the Black-Scholes model method may not be indicative of the actual values realized upon
the exercise of these options by the holders.
During 2024, the Corporation recognized a total compensation expense of $0.5 million (2023 - $0.5 million) for share
options granted between 2022 and 2024 (2023 – share options granted between 2021 and 2023).
A summary of the status of the plan as at December 31, is presented below:
2024
2023
Options
Weighted-Average
Exercise Price
Options
Weighted-Average
Exercise Price
Outstanding, beginning of year
994,200
$
4.80
1,133,334
$
3.31
Granted
275,000
9.20
250,000
7.91
Exercised
(387,533)
3.47
(389,134)
2.48
Outstanding, end of year
881,667
$
6.75
994,200
$
4.80
Options exercisable, end of year
614,995
$
5.87
744,195
$
3.95
The weighted-average share price at the date of exercise for share options exercised in 2024 was $9.08
(2023 - $7.84).
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Consolidated Financial Statements & Notes
-39-
The range of exercise prices for options outstanding at December 31, 2024 are as follows:
Options Outstanding
Options Exercisable
Number
Weighted-Average
Remaining Contractual Life
Weighted-Average
Exercise Price
Number
Weighted-Average
Exercise Price
50,000
0.18 yrs
$
2.19
50,000
$
2.19
100,000
1.18 yrs
2.74
100,000
2.74
40,000
1.18 yrs
2.64
40,000
2.64
150,000
2.17 yrs
6.08
150,000
6.08
50,000
2.17 yrs
6.16
50,000
6.16
150,000
3.19 yrs
7.96
99,999
7.96
66,667
3.19 yrs
7.83
33,333
7.83
150,000
4.18 yrs
9.17
49,998
9.17
125,000
4.18 yrs
9.23
41,665
9.23
881,667
2.78 yrs
$
6.75
614,995
$
5.87
b) Retention Award Plan (Cash-Settled)
The retention award plan (“RAP”) has two types of awards: Restricted Awards (“RAs”) and Performance Awards
(“PAs”) and results in eligible participants, as approved by the Board, receiving cash or common shares in relation
to the value of a specified number of underlying notional retention awards. Under the previous RAP, if common
shares are used to settle awards, an additional multiplier to the award value of 1.25 times is applied. Effective
February 28, 2023, the Board approved an amendment to the RAP whereby if the Corporation elects to settle awards
in common shares, the additional multiplier will no longer be applied. This amended plan applies to grants after
February 28, 2023. Common shares acquired by an independent trustee in the open market are held in trust for the
potential settlement of RA and PA award values and are netted out of share capital, including the cumulative
purchase cost, until they are distributed for future settlements. For the year ended December 31, 2024, the
independent trustee did not purchase any common shares (2023 – 114,000 shares purchased, cost $0.6 million) and
no common shares were released to settle retention award obligations (2023 – 121,763 released to settle retention
award obligations of $1 million). As at December 31, 2024, the independent trustee held 3,301 common shares in
trust (2023 – 3,301). The Corporation continues to account for its retention award plan as cash-settled share-based
compensation.
RAs vest evenly over a period of three-years. Upon vesting and subsequent exercise, the holder is entitled to receive
a cash payment or common shares based on the fair value of the underlying shares determined using the five-day
weighted-average trading price of the shares ending immediately prior to the exercise date plus accrued re-invested
dividends.
PAs vesting and subsequent exercise is similar to RAs, except a payout multiplier is applied to the final payout. The
payout multiplier is linked solely to total shareholder return on the Corporation’s common shares relative to returns
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PHX Energy Services Corp. | 2024 Annual Report
-40-
on securities of members of the Corporation’s peer comparison group over the applicable vesting period and can
range from a payout of zero percent to 200 percent. During the year ended December 31, 2024, 236,112 PAs were
granted (2023 – 268,825), 543,991 PAs settled at a weighted-average payout multiplier of 155 percent (2023 –
681,979 PAs settled at a weighted-average payout multiplier of 136 percent), and no PAs were forfeited (2023 – nil).
As at December 31, 2024, 614,698 PAs were outstanding (2023 – 863,897).
The Corporation recorded a total of $11.8 million compensation expense relating to these plans for the year ended
December 31, 2024 (2023 – $13.5 million). The expense is included in selling, general and administrative expense
and has a corresponding liability of $8.5 million in trade and other payables for the current portion and $3.3 million
included in other liabilities for the long-term portion which had vesting dates after December 31, 2025 (2023 - $12
million and $4 million). There were 1,599,094 RAs and PAs outstanding as at December 31, 2024 (2023 - 2,160,151).
The closing share price on December 31, 2024 of PHX stock was $9.32.
A summary of the status of the plan as at December 31, is presented below:
2024
2023
RAs and PAs outstanding, beginning of year
2,160,151
2,845,191
Granted
583,543
744,643
Settled
(1,141,980)
(1,429,683)
Forfeited
(2,620)
-
RAs and PAs outstanding, end of year
1,599,094
2,160,151
12. Revenue
The Corporation generates revenue primarily from providing directional drilling services to clients. Other sources of
revenue include rental of performance drilling motors and sale of motor equipment and parts. Management has
determined that the previously disclosed international segment no longer meets the definition of a reportable segment
and therefore comparative numbers have been restated (Note 3l).
(Stated in thousands of dollars)
Canada
United States
Total
Years ended December 31,
2024
2023
2024
2023
2024
2023
Directional drilling
services
178,319
157,954
431,675
440,385
609,994
598,339
Motor rental
1,879
1,864
36,557
45,145
38,436
47,009
Sale of motor equipment
and parts
-
-
11,233
10,993
11,233
10,993
Total revenue
180,198
159,818
479,465
496,523
659,663
656,341
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Consolidated Financial Statements & Notes
-41-
13. Expenses by Nature
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Salaries and employee benefits
207,118
199,692
Share-based payments
12,254
13,962
Personnel expenses
219,372
213,654
Equipment expenses
159,929
150,620
Consumed repair parts
81,640
72,781
Depreciation and amortization
44,822
38,861
Contract labour
29,370
35,786
Field and freight expenses
23,941
23,694
Insurance and business and sales taxes
18,012
18,293
Facility and office expenses
8,973
8,333
Cost of motor equipment and parts sold
6,858
4,287
Travel and entertainment
6,226
6,587
Depreciation and amortization right-of-use asset
3,787
2,898
Provisions for inventory obsolescence
2,822
2,075
Legal and audit fees
2,023
1,676
Other
1,025
816
608,800
580,361
The total amount of expenses represents the aggregate of direct costs, selling, general and administrative expenses, and
research and development expenses in the statements of comprehensive earnings.
14. Other Income
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Net gain on disposition of drilling equipment (Note 5b)
$
24,648
$
31,347
Foreign exchange (loss) gain
(1,070)
1,107
Provision for bad debts
-
(117)
$
23,578
$
32,337
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PHX Energy Services Corp. | 2024 Annual Report
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15. Income Taxes
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Current tax expense (recovery):
Current period
$
11,314
$
10,274
Adjustment for prior periods
(2,041)
161
9,273
10,435
Deferred tax expense (recovery):
Origination and reversal of temporary differences
5,293
8,943
Adjustment for prior periods
1,092
(14,308)
6,385
(5,365)
Total income tax expense
$
15,658
$
5,070
Reconciliation of effective tax rate
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Net earnings
$
54,622
$
98,580
Total income tax provision
15,658
5,070
Income before income taxes
70,280
103,650
Income tax using the Corporation’s domestic tax rate
16,165
23%
23,739
22.9%
Non-taxable portion of gains on disposal of assets
(743)
(1.0%)
(552)
(0.5%)
Change in unrecognized deductible temporary
differences
(237)
(0.3%)
(17,722)
(17.1%)
Research and development tax credit
(61)
(0.1%)
(359)
(0.3%)
Effect of tax rates in foreign jurisdictions
452
0.6%
331
0.3%
Non-deductible share-based payments and other
expenses
43
0.05%
190
0.2%
Other
39
0.05%
(557)
(0.5%)
$
15,658
22.3%
$
5,070
4.9%
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Consolidated Financial Statements & Notes
-43-
16. Operating Segments
The Corporation provides directional and horizontal oil and natural gas well drilling services. PHX Energy’s reportable
segments have been aligned as follows:
Information about reportable segments
(Stated in thousands of dollars)
Canada
United States
Corporate
Total
Years ended December 31,
2024
2023
2024
2023
2024
2023
2024
2023
Revenue
180,198
159,818
479,465
496,523
-
-
659,663
656,341
Direct costs
150,291
126,216
384,878
380,020
-
-
535,169
506,236
Gross profit
29,907
33,602
94,587
116,503
-
-
124,494
150,105
Expenses:
Selling, general and
administrative expenses
15,548
11,303
30,746
30,042
22,000
27,570
68,294
68,915
Research and
development expenses
-
-
-
-
5,337
5,210
5,337
5,210
Finance expense
-
-
-
-
1,948
2,422
1,948
2,422
Finance expense lease
liability
1,193
1,241
943
929
77
75
2,213
2,245
Other income
(7,292)
(5,345)
(16,286)
(26,992)
-
-
(23,578)
(32,337)
Reportable segment profit
(loss) before income taxes
20,458
26,403
79,184
112,524
(29,362)
(35,277)
70,280
103,650
(Stated in thousands of dollars)
Canada
United States
Corporate
Total
As at December 31,
2024
2023
2024
2023
2024
2023
2024
2023
Acquisition of drilling and
other equipment
31,544
29,112
51,733
35,820
-
-
83,277
64,932
Segment non-current
assets
65,548
66,095
141,550
109,358
2,171
3,001
209,269
178,454
Total Assets
138,541
133,888
282,749
248,537
1,996
3,069
423,286
385,494
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PHX Energy Services Corp. | 2024 Annual Report
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17. Changes in Non-Cash Working Capital
Changes in non-cash working capital relating to operating activities:
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Trade and other receivables
$
(12,255)
$
4,502
Inventories
38
(53)
Prepaid expenses
(219)
615
Other long-term assets
(179)
(291)
Trade and other payables
16,630
(6,876)
Other (Note 11b)
(702)
(420)
Retention award liabilities settled in shares
-
955
Impact of foreign exchange rate changes and other in working capital
1,103
(4,106)
$
4,416
$
(5,674)
Changes in non-cash working capital relating to investing activities:
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Trade and other payables
(400)
1,670
$
(400)
$
1,670
18. Financial Instruments
a) Credit Risk
The Corporation held cash of $14.2 million at December 31, 2024 (2023 – $16.4 million). Cash is held with financial
institution counterparts, which are rated A+ or higher, based on S&P Global ratings.
The Corporation is exposed to normal credit risks of its customers that exist within the oil and natural gas exploration
and development industry. The Corporation’s credit risk associated with these customers can be directly impacted
by a decline in economic conditions, which would impair the customers’ ability to satisfy their obligations to the
Corporation. During the year ended December 31, 2024, one customer comprised 15 percent of the total revenue
(2023 - 14 percent of revenue). The customer’s revenue is reported within the US operating segment.
As at December 31, 2024, the aging of trade and other receivables that were not impaired was as follows:
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Consolidated Financial Statements & Notes
-45-
(Stated in thousands of dollars)
2024
Neither past due nor impaired
$
93,747
Past due 1-30 days
30,770
Past due 31-60 days
7,915
Past due 61-90 days
459
Past due over 90 days
698
$
133,589
The Corporation’s standard customer payment terms are 30 days after job completion or invoice issuance date, after
which, the balance becomes past due. The Corporation will assess for impairment once the receivable becomes
past due. All accounts receivable balances that are past due for more than 90 days and were not impaired
represented less than one percent or approximately $0.7 million of total receivables on the statement of financial
position at December 31, 2024. Management believes that the unimpaired amounts that are past due are still
collectible in full, based on historic payment behavior and extensive analysis of customer credit risk. Management
has provided an allowance of $0.1 million for all amounts it considers uncollectable at December 31, 2024 (2023 -
$0.1 million).
The Corporation has a credit management program to assist in managing this risk, which consists of conducting
financial and other assessments to establish and monitor a customer’s creditworthiness. The Corporation monitors
and manages its credit risk on an ongoing basis.
b) Liquidity Risk
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The
Corporation has financial liabilities, thus, is exposed to liquidity risk. The Corporation’s approach to managing liquidity
risk is to ensure that it always has sufficient cash and credit facilities to meet its obligations when due. Management
typically forecasts cash flows for a period of twelve months to identify financing requirements. These requirements
are then addressed through a combination of demand credit facilities and access to capital markets. The Corporation
believes that future cash flows generated by the operations and access to additional liquidity through capital and
banking markets will be adequate to meet its financial obligations.
The following table reflects the Corporation’s anticipated payment of contractual obligations as at December 31,
2024:
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PHX Energy Services Corp. | 2024 Annual Report
-46-
(Stated in thousands of dollars)
2025
2026
2027
2028
2029 and after
Drilling and other equipment
purchase commitments
43,973
-
-
-
-
Trade and other payables
116,668
-
-
-
-
Other non-current liabilities
-
2,771
570
-
-
Dividends payable
9,102
-
-
-
-
Bank loan interest and principal (i)
2,500
16,534
-
-
-
Lease payments (ii)
6,772
6,387
6,107
5,480
4,304
179,015
25,692
6,677
5,480
4,304
(i) Bank loan interest has been estimated using interest rates in effect at December 31, 2024.
(ii) Lease payment amounts are gross and undiscounted contractual cash flows and include low value and short-term leases.
c) Fair Values of Financial Instruments
The Corporation has designated its trade and other payables, dividends payable, and loans and borrowings as non-
derivative financial liabilities carried at amortized cost. Trade and other receivables are designated as non-derivative
financial assets measured at amortized cost. The Corporation’s carrying values of these items, excluding loans and
borrowings, approximate their fair value due to the relatively short periods to maturity of the instruments. Loans and
borrowings bears interest at a floating market rate indicative of current spreads and accordingly the fair value
approximates the carrying value.
Equity investments in a company are designated as non-derivative financial assets measured at FVOCI as the
investment is not held-for-trading and fair value changes are not reflective of the Corporation’s operations. The
investment asset is carried at fair value on the consolidated statement of financial position. Fair value is considered
level 3 under the fair value hierarchy and requires management to assess information available, which may include
private placements, available financial statement information and other available market data.
d) Interest Rate Risk
Interest rate risk is created by fluctuations in the fair values of financial instruments due to changes in the market
interest rates. The Corporation has access to variable interest long-term debt which exposes it to fluctuations in cash
interest payment amounts.
A one percent change in interest rates would have increased or decreased the Corporation’s profit by $0.1 million
for the year ended December 31, 2024.
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Consolidated Financial Statements & Notes
-47-
e) Foreign Exchange Risk
Foreign exchange risk is created by fluctuations in the fair values of financial instruments due to changes in foreign
exchange rates. Due to operations of the Corporation’s subsidiaries in the US, the Corporation has an exposure to
foreign currency exchange rates. The carrying values of Canadian dollar and US dollar denominated monetary
assets and liabilities and earnings are subject to foreign exchange risk. For the year ended December 31, 2024,
foreign currency translation gains of $14.5 million (2023 – $4.8 million loss) that resulted from fluctuations in the
CAD-USD exchange rates were recognized in other comprehensive income. For the year ended December 31, 2024,
foreign exchange losses of $1.1 million (2023 - $1.1 million gain) were recognized as part of earnings. The
Corporation reviews options with respect to managing its foreign exchange risk periodically.
The following chart represents the Corporation’s exposure to foreign currency risk:
(Stated in thousands of dollars)
As at December 31, 2024
CAD
USD
Cash and cash equivalents
-
968
Trade and other payables
-
(3,073)
Intercompany payables
(2,800)
-
Statement of financial position exposure
(2,800)
(2,105)
As at December 31, 2023
CAD
USD
Cash and cash equivalents
-
756
Trade and other payables
-
(2,651)
Intercompany receivables
(1,948)
-
Statement of financial position exposure
(1,948)
(1,895)
The following significant exchange rates compared to the Canadian dollar applied during the year ended
December 31:
Average Rate
December 31, Close Rate
2024
2023
2024
2023
USD
1.3700
1.3495
1.4384
1.3243
A strengthening of the Canadian dollar and US dollar against all other currencies as at December 31 would have
affected the measurement of financial instruments denominated in a foreign currency and affected profit or loss by
the amounts shown below. The analysis assumes that all other variables remain constant.
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PHX Energy Services Corp. | 2024 Annual Report
-48-
(Stated in thousands of dollars)
Gain (Loss)
2024
2023
CAD (10% strengthening)
$
(195) $
(132)
USD (10% strengthening)
(303)
(251)
19. Capital Management
The Corporation’s primary objective of capital management is to maintain a strong capital base, in conjunction with
conservative long-term debt levels so as to maintain investor, creditor and market confidence, and to sustain future
development of the business. The Corporation seeks to maintain a balance between higher returns that might be possible
with higher levels of borrowings and the advantages and security created by a strong equity position. The Corporation
remains committed to shareholder returns through its Return of Capital Strategy (“ROCS”) that includes multiple options
including the dividend program and the NCIB.
The Corporation’s management considers the capital structure to consist of long-term debt and shareholders’ equity. As
at December 31, 2024, the Corporation had $16.8 million in loans and borrowings outstanding (2023 – $7.6 million) and
$222.2 million (2023 – $210 million) in shareholders’ equity. The Corporation’s resulting long-term debt to equity ratio was
0.08 as at December 31, 2024 (2023 – 0.04).
The Corporation prepares annual and quarterly operating and capital expenditure budgets, and forecasts to assist with the
management of its capital. The Corporation intends to maintain a flexible capital structure and it may alter its dividend levels,
raise new equity or issue new debt in response to a change in economic conditions.
The Corporation is subject to capital requirements relating to debt covenants on debt facilities held. As at December 31, 2024,
the Corporation was in compliance with all debt covenants. There were no changes to the Corporation’s approach to capital
management during the year ended December 31, 2024.
20. Leases
a) Leases as Lessee
The Corporation leases shop facilities, offices, and vehicles. The shop and office leases typically run for a period
between 5 to 15 years, with an option to renew the lease after that date. Vehicle leases typically run for a period
between 3 to 6 years with an option to purchase the vehicle.
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Consolidated Financial Statements & Notes
-49-
The Corporation elected not to recognize right-of-use assets and lease liabilities for leases that were short-term or low-value
items like office equipment. Information about leases for which the Corporation is the lessee is presented below.
i.
Right-of-Use Assets
Right-of-use assets relate to leased properties that do not meet the definition of investment property.
(Stated in thousands of dollars)
Shop and Office
Buildings
Vehicles
Total
Balance at January 1, 2024
$
26,395
$
661
$
27,056
Depreciation charge for the year
(3,101)
(686)
(3,787)
Additions to right-of-use assets
357
148
505
Effect of movement in exchange rate
780
389
1,169
Balance at December 31, 2024
$
24,431
$
512
$
24,943
(Stated in thousands of dollars)
Shop and Office
Buildings
Vehicles
Total
Balance at January 1, 2023
$
28,540
$
796
$
29,336
Depreciation charge for the year
(2,562)
(336)
(2,898)
Additions to right-of-use assets
711
263
974
Derecognition of right-of-use assets (i)
-
(51)
(51)
Effect of movement in exchange rate
(294)
(11)
(305)
Balance at December 31, 2023
$
26,395
$
661
$
27,056
(i) Derecognition of right-of-use assets during 2023 is a result of leases disposed of before lease end date.
ii.
Lease Liability
Lease liability relate to leased properties and are amortised over the life of the lease.
(Stated in thousands of dollars)
Shop and Office
Buildings
Vehicles
Total
Balance at January 1, 2024
$
36,515
691
37,206
Additions and modifications
357
148
505
Finance expense lease liability
2,062
151
2,213
Payments of principal
(3,098)
(279)
(3,377)
Interest paid on lease liabilities
(2,062)
(151)
(2,213)
Effect of movement in exchange rate
1,022
(4)
1,018
Balance at December 31, 2024
$
34,796
556
35,352
Current lease liability
3,424
278
3,702
Non-current lease liability
31,372
278
31,650
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PHX Energy Services Corp. | 2024 Annual Report
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(Stated in thousands of dollars)
Shop and Office
Buildings
Vehicles
Total
Balance at January 1, 2023
$
38,840
835
39,675
Additions and modifications
711
263
974
Derecognition of lease liability
-
(47)
(47)
Finance expense lease liability
2,198
47
2,245
Payments of principal
(2,675)
(338)
(3,013)
Interest paid on lease liabilities
(2,198)
(47)
(2,245)
Effect of movement in exchange rate
(361)
(22)
(383)
Balance at December 31, 2023
$
36,515
691
37,206
Current lease liability
2,956
278
3,234
Non-current lease liability
33,559
413
33,972
iii.
Amounts Recognized in Consolidated Statements of Comprehensive Earnings
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Interest on lease liabilities
$
2,213
$
2,245
Expenses relating to short-term leases
262
505
Expenses relating to leases of low-value assets, excluding short-
term leases of low value
13
40
$
2,488
$
2,790
iv.
Amounts Recognized in Consolidated Statements of Cash Flows
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Total cash outflow for IFRS 16 Leases
$
(5,590)
$
(5,258)
v.
Extension Options
Shop and office leases contain extension options exercisable by the Corporation during the term of the lease. Where
practicable, the Corporation seeks to include extension options in new leases to provide operational flexibility. The
extension options held are exercisable only by the Corporation and not by the lessors.
If the Corporation is reasonably expected to exercise the extension options, the effect of the potential future lease
payments are reflected in the long-term lease liabilities.
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Consolidated Financial Statements & Notes
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21. Related Parties
a) Transactions with Key Management Personnel
Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning, directing and controlling
the activities of the Corporation as a whole. The Corporation determined that key management personnel consists of
members of the Board, the Chief Executive Officer, President, and Senior Vice Presidents reporting directly to the Chief
Executive Officer or President.
In addition to their salaries, the Corporation also provides its executive officers with annual incentives which consist of
bonuses and commissions that the Human Resources and Compensation Committee considers comparable to benefits
provided to executives of other publicly traded oil and natural gas service companies.
Executive officers also participate in the Corporation’s share option program and retention award plan.
The Corporation, either directly or indirectly through its subsidiaries, has entered into executive employment agreements
with certain executive officers that provide for termination payments. These agreements continue indefinitely until
terminated in accordance with the terms thereof and the base salary payable there under is subject to annual review.
Key management personnel compensation comprised:
(Stated in thousands of dollars)
Years ended December 31,
2024
2023
Base salaries, benefits, and directors’ remuneration
$
3,560
$
3,072
Short-term bonuses and commissions
9,405
10,763
Share-based compensation
3,512
3,854
$
16,477
$
17,689
Key management personnel and director transactions
As at December 31, 2024, Directors and Executive Officers of the Corporation control 14 percent of the common shares
of the Corporation.
Independent Directors are entitled to receive an annual retainer as well as a fee for each meeting of the Board or
Committee of the Board attended. The Lead Director receives an additional annual retainer, as do the Chairs of the Audit
Committee, Human Resources and Compensation Committee, and Nomination, Corporate Governance, HSE and
Sustainability Committee. Directors are also entitled to participate in the retention award plan (see Note 11b) and can
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PHX Energy Services Corp. | 2024 Annual Report
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elect to receive certain percentages of these fees as RAs under the retention award plan. As at December 31, 2024, the
Directors held 467,275 of RAs outstanding (2023 – 687,872).
From time-to-time, Directors of the Corporation, or their related entities, may purchase goods or services from the
Corporation. These purchases are on the same terms and conditions as those entered into by other Corporation
employees or customers. For the year ended December 31, 2024, there were purchases of services which totaled less
than $0.1 million from a related party (2023 – less than $0.1 million).
22. Significant Subsidiaries
Country of
Incorporation
Ownership Interest
Functional
Currency
2024
2023
Phoenix Technology Services Inc.
Canada
CAD
100%
100%
Phoenix Technology Services LP
Canada
CAD
100%
100%
Phoenix Technology Services USA Inc.
USA
USD
100%
100%
23. Subsequent Event
On February 1, 2025, the President of the United States issued an executive order directing the United States to impose
new tariffs on imports originating from Canada. This order calls for additional 25 percent duty on imports into the United
States of Canadian origin, except for Canadian energy resources that are subject to an additional 10 percent duty.
On February 2, 2025, the government of Canada responded by announcing counter-tariffs of 25 percent on specified
goods imported from the United States. On February 3, 2025, Canada and the United States agreed to delay the
imposition of tariffs for a period of 30 days.
The Corporation is assessing the direct and indirect impacts to its business of such tariffs, retaliatory tariffs or other trade
protectionist measures implemented as this situation develops, and such impacts could be material.
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Consolidated Financial Statements & Notes
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Corporate Information
Board of Directors
John Hooks
Randolph (“Randy”) M. Charron
Myron Tétreault
Karen David-Green
Lawrence Hibbard
Roger Thomas
Terry Freeman
Officers
John Hooks
CEO
Michael Buker
President
Cameron Ritchie
Sr. Vice President Finance and CFO
Corporate Secretary
Craig Brown
Sr. Vice President Engineering and
Technology
Jeffery Shafer
Sr. Vice President Sales and Marketing
Garrett Wright
Phoenix Technology Services USA Inc.
Vice President US Operations
David Raines
Phoenix Technology Services USA Inc.
Vice President US Sales & Marketing
Legal Counsel
Burnet, Duckworth & Palmer LLP
Calgary, Alberta
Auditors
KPMG LLP
Calgary, Alberta
Bankers
Royal Bank of Canada
HSBC USA N.A.
Transfer Agent
Odyssey Trust Company
Calgary, Alberta
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