Q4 2019 Earnings Call
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All participants please standby your confidence is ready to begin.
Good morning, ladies and gentlemen, welcome to the higher quarterly results Q4 conference call I would now like to turn the meeting over to Cam Bailey. Please go ahead.
Thank you when a good morning, everyone welcome to higher Dixie yearend 2020 conference call today, I'll be providing an update on the press release, we issued yesterday on Thursday.
George 12 cents. Following my remarks, Chris seems our interim Chief financial Officer will be discussing the financial performance for the period.
I'm sure.
Formal comments, we'll open the call do.
To answer some questions.
Are required to remind you that certain information presented today may include forward looking statements and such statements reflect higher Dick's current expectations estimates projections and assumptions.
These forward looking statements are not guarantees of future performance and they are subject to certain risks, which could cause actual performance and financial results to vary materially from those contemplated in the forward looking statements for additional information on these risks. Please look at our annual information form under the heading.
Risk factors.
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The most recent events related to the cobot 19, and OPEC, providing access crude supplies sets and on a predictable and unstable environment for the energy businesses.
[noise] it becomes increasingly difficult to predict or customers response, whoever let's say prediction will likely be further decline in industry activity.
Just as we're beginning to see a return of optimism and industry in the industry activity is improving.
As we came out of the Christmas break producer behavior is now set up for an early and prolonged spring breakup with many having.
An expectation of clear views after.
What the balance of the year may provide not only is a difficult to formulate an appropriate response at this time the information regarding the impact to the events is changing or what by moment.
In this respect it's important to highlight that.
Artix currently.
Hi, Eric that currently.
Hi, Arctic currently has a very strong balance sheet at yearend had 9.3 million of cash from working capital of $36 million subsequent to yearend cash balances increased to approximately 18 million.
And we've increased our working capital.
Based on a current trading prices, our net working capital is greater than the than our current market capitalization.
[noise] as we have mentioned Pos managing in this difficult and uncertain environment requires vigilant attention to reducing cost and minimizing capital expenditures for preserve our strong balance sheet.
We're reviewing all alternatives necessary to configure the business to provide the flexibility to operate and he's on several times and take advantage of unforeseen opportunities that might emerge.
Papa New Guinea negotiations between the state and the partners of PNG LNG.
Continue and field activities are winding down until there's a resolution.
The proposed expansion of the LNG facility is expected to double the LNG export capacity in PNG and the project partners indicated commencement of LNG shipments from expansion production in 2014, it's now becoming unlikely and timelines are being pushed back.
Based on exploration license commitments no. We anticipate the expected ramp up of drilling activity to be pushed out now into 2021.
We're very thankful for the loyalty of our our Canadian clients Im proud of the work that we have performed for them.
<unk> core clients, where we provide services under contract arrangements range was make up 86% of our revenues.
Most of the work is focused on crude oil from heavy in thermal activities.
Albert insist gosh what.
We believe that the large sunk costs partly.
He'd from steaming will provide ongoing sustained activity is shut down the reactivation is just not feasible.
Over the week, we experienced very little in suggests a slowdown of are well servicing activity.
In PNG, Rick one or three was active through the year with a leap frog package and will remain so until mid 2020 beyond this time, we do not have a clear vision on activity levels and do not expect.
I have one until the penny and gas agreements actually settled.
One or two are our hydraulic workover rig has been prepared to work.
Again commencing in the Q3 on Workover and required a bad at work.
Could remain active throughout the balance at the year ending 2021, however, we remain cautious with our expectations.
115, 116 are actively maintained they can return to work immediately without any delays.
Ready to do a possible drilling campaign as as required.
To hold acreage with looming lease expiring a expirees Uh huh.
Needs to be held with drilling activity.
We continued the main us maintain a strong balance sheet.
Offering considerable financial flexibility, allowing us to navigate these choppy waters and general uncertainty.
We endeavor to emerge as an even stronger identity when the environment improves should be able to take advantage of the opportunities that might emerge.
I keep batches are strong relationship with customers. We served in the areas. We have chosen to work, which provides us with steady activity with 80 say, 86% of our county, well service business tied to contract arrangements.
Now turn the conference over to to Chris who will review our financial information.
Thanks Kim.
During Q4 higher to generated 42.8 million in revenues and 185.5 million year to date.
Similar to the third quarter, we saw in Q4 continued benefit from the expansion of our production services segment, which helped offset lower activity in our PNG drilling services segment.
Revenues in our production services Division increased 14% to 24.3 million from 21.4 million in the fourth quarter of 2018.
This increase was driven by the contribution from the Concord, well servicing well servicing and snubbing rigs.
And in particular the growth in U.S. operating hours.
During Q4, Concord service rigs in Canada had 27382 operating hours slightly up from Q4 2018.
And increased utilization of 53%.
Compared to 51% in Q4 2018.
In the U.S. service rig hours increased from 517 in Q4 of 2018 2186.
Resulting in utilization of 119% up over 100% from the same quarter last year.
Our utilization rates were significantly above industry average of 33% for the quarter.
Service rig rates per hour of $607 were steady compared to Q3 of 29 team, but were down from $616 in Q4 20 team.
Nothing operating hours increased by 30% and 33% in each of Canada, and the U.S. over the same quarter last year.
On a year to date basis production services revenues have increased by 9%, although our operating margins as a percent of revenue decreased from 14% to 7% due to lower field operating margins in the snubbing business and costs associated with growing the U.S. business during 2019.
From a sleep number perspective at December 31st 2019 higher to CAD 53 marketed service rigs. This is down from 57 rigs at December 31st 2018, and 23 marketed snubbing rigs in our fleet, which was up from 17 at December 30, Onest 20 <unk>.
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Drilling services revenues decreased by 35% in Q4 2019 compared to Q4 2018.
Primarily due to the movement of rig 104 tomorrow base to be stocked.
Similarly drilling services on a year to date basis are down 23%.
Due in part to the stocking of rig went before but also due to the end of the take or pay contract relating to Rick 116, which ended in Q4 2080.
Operating margins are lower both in Q4 2019 at 21% compared to Q4 2018, 27%.
And your today 2019 operating margins at 21% versus 20 teens operating margins of 40%.
Revenue for the ancillary services segment declined slightly to 5.6 million in the quarter from 6.4 million in the fourth quarter of 2018.
Although the Canadian rental operations and nitrogen services group. This was offset with decreases in PNG rentals due to the end of the take or pay mounting rental contract at the end of 2018.
These events impacted the year to date decrease in revenues by 15% year over year [noise].
As the lost revenues attracted higher margins.
The operating margins associated with ancillary services decreased by 34, and 30% for the quarter and year to date compared to Q4 2018 and year to date 28.
Overall higher pick generated 3.6 million, an adjusted EBITDA in the quarter for a total of 19.4 million year to date.
This compares to 6.6 million and 51.6 million in adjusted EBITDA for the comparable periods in 2018.
General and administrative costs decreased to 3.7 million in the quarter versus 4.4 in the fourth quarter of 20 team and decreased from 17 million year to date 2018 to 15.8 million at the end of December 2019.
This decrease is being through cost control initiatives.
Deep pre depreciation increased by 1.1 million in the fourth quarter, and 2.6 million year to date compared to perspective 2018 periods.
The result of both the adoption of the new <unk> for a 16 least standard with the resulting rate of use asset depreciation as well as the additional depreciation associated with acquisitions during the year.
Other income of 1.1 million related to the release of a contingent payment.
Foreign exchange gains increased by 1.1 million.
Gains realized on the sale of property increased by 2.7 million.
And income tax decreased by 8.5 million, mainly due to the reduction in current taxes.
Cumulatively, we ended the year with a loss per share 18 cents compared to earnings per share of 22 sets with the fourth quarter accounting for a loss of six cents per share.
Hi, Arctic returned 15 million to shareholders through dividends paid of 9.9 million and common shares repurchased amounting to 5.1 million.
We made capital investments of 4.9 million in Q4.
14.8 million year to date.
Up from 3.7 million and 9.8 million in the respective 22 periods.
We continue to maintain a strong balance sheet and exited the quarter with 9.3 million in cash no debt and working capital of 35.8 million.
We have a good working relationship with our bank and have an updated facility agreement with them, where we're in compliance with all covenants at December 31st.
With that let me turn things back over to camp.
Thanks, Chris.
Hi, I can't stress enough that our strong balance sheet is going to help us navigate these.
At times, and we endeavor to.
Configure a business to ensure that we will be a stronger entity when when things become.
Yes, when things improve.
And again I can't stress enough that they are key advantages there strong relationships with their customers in the areas that we work.
With that I'll now turn the conference over the operator.
And for questions.
Thank you we will now take questions from the telephone lines. If you have a question enter using his speakerphone. Please lift your handset before making your selection.
If you have a question. Please press star one on your telephone keypad.
So at any time you wish to cancel your question. Please press the pound sign. Please press star one at this time. If you have a question that will be a brief pause for the participants register thank you for your patience.
The first question is from Tim Mannello. Please go ahead.
Hey, good morning, everyone.
Hmm first question here just wanted to clarify the outlook for Rick witnessed recently made a 2020, it's going to work through does that mean, you expect to work basically all the way through the second quarter.
Good morning, Tim Yes, we do we expect it to the work to the ended the second quarter and as I said, we don't have visibility beyond that time of the certainty of it working.
So there's both one or three and the leap frog package that is associated with.
Then on three that's that without having certainty it will will begin to demobilize the rig.
Okay.
So then if you're to look at those operations and say they go to zero work for that I don't know after that for however, long it takes for a correction commodity prices or a positive development on the PNG LNG front and your to say that the Canadian activity went under contract so 86% of what you read.
Are there.
With the company's still be able to generate positive free cash flow for breakeven free cash flow or would there be a cash burn.
Tim the the who the activity in in in Papa New Guinea is going to be underpinned at that point by activities of rig one owed to our hydraulic workover rig that is planned to do abandonments.
And and Workovers.
The work around that is somewhat uncertain at this point, but we have reasonable expectation that it will commence in the beginning in the third quarter.
Then secondly, we do have a significant amount of rentals that will be maintained throughout the year.
And as a consequence, we see Papa New Guinea actually contributing positive cash flow for the year.
But we're continuing to review.
Circumstances literally day by day to make those assessments.
Okay.
The Canadian up retaining U.S. operations free cash positive at the contract based on their own.
They have and the you know the caveat to that is.
Our capex and the Capex that you might have that we experienced last year was a higher but our capex is being.
Configured to reflect whatever decreased their me that we could potentially incur in 2000.
2020 to ensure that we are cash flow positive.
How much you think you can take off the capex.
On a dollar basis.
Well, we started the year budgeting we.
Finished the year last year with 14 million of Capex, we're going to you know expect that capex will be $8 million prior to events that started the week.
And we think there's still a significant shake out of a reduction of that much of that capex has actually been incurred and it was incurred.
In preparation of Im getting one or two prepared to go to work in the a in the third quarter.
It's essentially behind us for the year.
Okay, great portion of it is fine.
So do you think or what do you think actual cash burn out of that 8 million to be in the 2020 time period.
[noise] really depends it's really hard to determine at this point in time, depending on will flex it with with the rig utilization.
Okay. So that.
It is because I can understand that some of that was spent in the third quarter.
No. It was said spent in the first quarter. Some of our cash was spent oh, sorry I missed.
Gotcha Okay.
Okay that makes sense, then and then [noise] so what's.
I guess the threshold for for assessing the dividend here.
I think its yielding around 30%.
Parents market price.
And obviously you guys have throttled back a little bit on a repurchase program. So I'm just curious to understand what that capital allocation strategy.
And where.
It is something that we're reviewing.
Reviewing continually.
And so we haven't made any decisions at this point, what our capital budget a budget plans are going to be going forward.
Okay would you guys.
You know what comes first would you guys look to increase leverage a little bit at the expense and keep the dividend or would you guys is the balance sheet, Colombia first priority and.
Slip at all.
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I think though the answer yes. The question just does not determined right now and as we as we see things mature and provide a bit more get some more clarity of whats. The outlook is we're really deferring that decision.
Okay.
Okay. That's all for me Thanks Lucas.
Thanks.
Thank you.
Following question is from Brett Watson. Please go ahead.
Yeah, Hi, thanks for the taking the question here just a bit of a follow up to the last month I'm, just very curious about the buyback program and what the philosophy on that is going forward.
Feels like under the current normal course issuer, we could buy back.
10% of the company or.
Not all the money and I'm just curious why the the buybacks have dried up.
Yeah. The [laughter], we with with the downturns that we are seeing into the third second and third quarter, we suspended the the NC I'd be activities. However, we did renew the NC IB and it's a tool that is remaining in our toolbox.
And the as I mentioned in the previous question or capital budgeting with respect to the potential of of dividends Capex and.
And share repurchases are all under consideration at this point.
Okay. Thank you.
Thank you once again, please press star one at this time if you have a question that following question is from Matthew weeks. Please go ahead.
Good morning, My question, just kind of focusing a little bit on on operating margins in production services.
You said part of the reason there was a little bit weaker in 29 team was due to kind of expanding moving units down to the U.S. As we go forward is there any line of sight hurt margins in this segment to improve a little bit.
Okay.
So.
Yes, Matthew and look no we're really analyzing all our cost base with respect to.
Even support costs across the board with production services count might be able to give some more flavor with regards to some of our expansion the U.S., but we're really focusing on is reducing reducing those support costs and really doing laser focus on some of our operations.
Expansion say in the United States in the North Dakota area, So a little bit more of a honed approach.
[noise]. So do you guys just at just add on that the the and I think you touched on some of the issues, but the expansion to in the states the mobilization of equipment in preparation of equipment.
With all Expensed and it was not there was no capitalize component to that it was all expense and then took a hit to our core margins.
We have only mobilized one additional rigs since that time, which took place.
In the second quarter. So we now have three rigs or three service rigs that are operating in the U.S.
And we believe much of those costs are behind us and and that our margins will start to improve as Chris mentioned, we're going through a complete reconfiguration.
Of our cost structures, so that we can maximize our or or potential returns in particularly with an anticipation that we will suffer a slowdown we just don't know how much that maybe.
Okay, Thanks and.
Just building on that a little bit.
We're seeing in.
The pressure that's being put on U.S. shale producers.
Do you think theres, a possibility that sort of mobilization plan and maybe what you were planning say two weeks ago.
Has changed in that mobilization of equipment to the U.S. might slow at this point.
I'm.
No not so much that our mobilization, we're going to be committed to having three rigs there should the rigs are actually focused on production activities.
The third rig is one that is configured for doing completion work. However, we have the flexibility to turn that into production services work.
The and and that's what is anticipated would that rig and our equipment is really being focused in one region, which is the the Williston basin and if you look at the aging wells in the Williston Basin.
You use or you know accrued rule of thumb of approximately five years for intervention.
Start to map out the growth of wells that are required to have workover work.
And to maintain production. So we see that is being continuing as a growth area. Notwithstanding we may see a period of of I hate us of.
Declined activity. So we're trying to configure our business around not completion work, but the production side of the.
Of the equation.
That doesn't necessarily hold for our snubbing work because much of our snubbing is on the completion side.
And that that clearly will suffer.
Okay.
Thanks for the color that's it for me I'll turn it back.
Thank you.
Once again, please press star one at this time, if you have a question.
There are no further questions registered at this time I'll turn the meeting back over to Mr. Manny.
Okay.
Gentlemen, ladies thank you for your attendance and your interest in high Arctic and let's I wish everybody. The the best of health and and we all can suffer through these.
Difficult times together.
Thank you.
Thank you.
The conference has now ended please disconnect your lines at this time, we thank you for your participation.
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