High Arctic Energy Services Inc. (TSX:HWO) - "High Arctic" or the "Corporation" is pleased to announce its 2017 first quarter.
Thomas Alford, High Arctic's President and CEO stated: "Our contract drilling operations in Papua New Guinea continued to contribute a strong financial footing for High Arctic which was supplemented by the growth in our Canadian business operations. We are pleased with High Arctic's performance in the quarter and are ready for the modest recovery that lies ahead. During the quarter the oilfield services industry in Canada experienced its highest levels of activity since the first quarter of 2015 providing some optimism that the extended downturn in the industry may be beginning to turn. I believe we are well positioned to benefit from this turn and we continue to seek opportunities to further leverage our position for further growth in a recovering industry."
High Arctic's expanded Canadian operations combined with its ongoing contractual drilling activity in PNG positively contributed to the Corporation's financial results during the quarter:
Funds provided from operations was $17.0 million during the quarter versus $18.9 million in the first quarter of 2016. As a result of the Bank of PNG's review of U.S. Dollar accounts in PNG, a delay in the collection of the Corporation's PNG accounts receivables occurred resulting in an increase in net debt to $6.4 million at March 31, 2017 from a net positive cash position of $3.3 million at December 31, 2016. Following the reapproval of the Corporation's U.S. dollar bank account in late March, the Corporation recommenced collections of its outstanding accounts receivable, subsequent to quarter end, and also declared an intercompany dividend to repatriate cash from PNG to Canada in the amount of $20.5 million less dividend withholding taxes of $3.1 million.
As a result of the increased depreciation expense associated with the assets acquired in the Tervita Acquisition, net earnings declined to $9.0 million ($0.17 per share) in the quarter versus $11.2 million ($0.21 per share) in the first quarter of 2016.
High Arctic continues to maintain a strong balance sheet and continues to look for opportunities to expand its business operations in order to position itself for a future increase in industry activity levels.
Headquartered in Calgary, Alberta, Canada, High Arctic provides oilfield services to exploration and production companies operating in Canada and Papua New Guinea ("PNG"). High Arctic is a publicly traded company listed on the Toronto Stock Exchange under the symbol "HWO".
On August 31, 2016, High Arctic acquired Tervita's Production Services Division (the "Tervita Acquisition"). Through this acquisition, High Arctic added a fleet of 85 service rigs and related support equipment, a surface equipment rentals division and an abandonment and compliance consulting division. As a result of the expansion of the Corporation's service offering following the Tervita Acquisition, High Arctic has organized its business into three business segments: Drilling Services; Production Services; and Ancillary Services.
The Drilling Services segment consists of High Arctic's drilling services in PNG where the Corporation has operated since 2007. High Arctic currently operates the largest fleet of tier-1 heli-portable drilling rigs in PNG, with two owned rigs and two rigs managed under operating and maintenance contracts for one of the Corporation's customers.
The Production Services segment consists of High Arctic's well servicing and snubbing operations. These operations are primarily conducted in the Western Canadian Sedimentary Basin ("WCSB") through High Arctic's fleet of well servicing rigs, operating as Concord Well Servicing, and its fleet of stand-alone and rig assist snubbing units. In addition, High Arctic also provides work-over services in PNG with its heli-portable work-over rig.
The Ancillary Services segment consists of High Arctic's oilfield rental equipment in Canada and PNG as well as its Canadian nitrogen and abandonment and compliance consulting services.
The ongoing contribution from High Arctic's PNG operations combined with the recent expansion of the Corporation's Canadian operations has provided High Arctic with the financial ability to continue to seek growth opportunities. With the early signs of a recovering market in the WCSB, High Arctic continues to look for opportunities to position itself to benefit from this long-awaited industry recovery. Drilling rig activity in the WCSB nearly doubled in the first quarter of 2017 versus the first quarter of 2016 and industry well servicing hours in the quarter were the highest since the first quarter of 2015 (source: CAODC).
With the completion of the integration of the Tervita Acquisition into High Arctic, efforts are now focused on implementing growth and operational synergies identified as part of the acquisition. This has been demonstrated through the expansion of the Concord Well Servicing operations into Grande Prairie during the quarter, which has allowed for previously idle equipment to be reactivated. During the second quarter the Corporation has commenced efforts to consolidate its field operating bases allowing for the reduction of overlapping support costs and the repositioning of equipment and personnel into areas to allow for improved efficiencies and the ability to better serve High Arctic's customers.
The recent increase in activity levels has been a positive sign for the industry, however, the prolonged downturn may limit the industry's ability to quickly respond to increased activity levels as staffing reductions and reduced maintenance capital expenditures has limited the available industry fleet capacity. In order to capitalize on these potential capacity shortages, High Arctic continues to evaluate further opportunities to expand its Canadian operations both organically through the marketing and reallocation of its existing equipment fleet, and also through potential acquisitions.
In PNG, Rig 104 remains active on its drilling program with Rig 115 preparing for demobilization to Port Moresby following the completion of its drilling assignment on Antelope-7. Rig 103 is currently stacked in Kiunga with an anticipated drilling assignment commencing in the third quarter of 2017. Rig 116 remains on standby in Port Moresby generating standby revenue under its existing take-or-pay contract.
High Arctic continues to progress discussions with its customer over long-term extensions for the contracts for Rigs 103 and 104 which are scheduled to expire on July 31, 2017. With the recent closing of the ExxonMobil acquisition of InterOil, the Corporation has commenced initial discussions with ExxonMobil regarding their requirements for Rigs 115 and 116 and the associated contracts. High Arctic continues to believe that PNG is well positioned for further growth and long-term development of its natural gas resources, which is expected to provide ongoing demand for the Corporation's drilling rigs in PNG. However, the current low commodity price environment as well as the resulting economic challenges in PNG may curtail industry activity levels in PNG over the short term. Similar to the global oilfield service industry, these lower activity levels in PNG may result in lower pricing for contract renewals.
While PNG continues to be a strong contributor to High Arctic's financial performance, management continues to focus on its strategy to balance High Arctic's global business operations. As part of this strategy, management continues to seek opportunities to position the Corporation to benefit from an anticipated recovery in the North American oilfield services sector. Additional markets may also be considered in order to leverage off High Arctic's existing international presence and redeploy underutilized assets into new markets.
About High Arctic
High Arctic is a publicly traded company listed on the Toronto Stock Exchange under the symbol "HWO". The Corporation's principal focus is to provide drilling and specialized well completion services, equipment rentals and other services to the oil and gas industry.
High Arctic's largest operation is in Papua New Guinea where it provides drilling and specialized well completion services and supplies rig matting, camps and drilling support equipment on a rental basis. The Canadian operation provides well servicing, snubbing services, nitrogen supplies and equipment on a rental basis to a large number of oil and natural gas exploration and production companies operating in Western Canada.
SOURCE: High Arctic Energy Services Inc.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.