Q4 2023 High Arctic Energy Services Inc Earnings Call
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[noise] on participants please continue to standby the country.
This conference is being recorded so it's going to stay home if they don't go as you see.
None: All participants thank you for standing by the conference is ready to begin.
None: Good afternoon, ladies and gentlemen, welcome to the high Arctic Energy services 20, twenty-three Q4 results conference call.
I would now like to turn the meeting over to high Arctic <unk>, Chief Executive Officer, Mike Mcguire. Please go ahead.
Michael Joseph Maguire: Thank you Patrick.
None: And good afternoon everybody.
None: Welcome to <unk> fourth quarter conference call.
None: Today I'll be providing an update on the press release, we issued before market.
Morning.
None: Thank you.
None: Including discussion about financial performance for the fourth quarter.
<unk> is 2020.
None: 'twenty three.
None: Following my remarks.
None: Yes.
None: So one by one.
None: We will be discussing our financial performance for the quarter and full year 2023.
None: After our formal comments, we'll open the call to answer any questions that you may have.
None: Before we begin.
None: I'd like to remind you that certain information presented today may include forward.
None: Or would you be statements.
None: Such statements reflect current expectations.
None: Estimates projections and assumptions.
None: These forward looking statements are not guarantees of future performance.
None: Subject to certain risks, which could cause actual performance and financial results to vary materially from those contemplated.
None: These statements.
None: For additional information on these risks please take a look at our management's discussion and analysis and the 2023 annual information form.
None: Available on our website.
None: Plus you go under the heading risk factors.
Starting with operations in Papua New Guinea.
None: During the quarter read one of three had strong operational performance.
None: This represents the third straight quarter of drilling activities. The corporation since the suspension of operations in early 2020.
None: As well as the full quarter of drilling operations.
None: We have seen strong deployment.
None: For the quarter.
None: Those pull through.
None: <unk> as well as rentals to the wider market.
None: <unk> also provided rental material handling equipment, and 100 million by both Ken and a large quantity of work so I.
None: To support other ongoing field activities without your bank customers.
None: Yeah.
None: Full utilization gradually services asset rent.
In our rental assets associated with customer owned rig one of three had a significant impact on your earnings which we anticipate will be the case for the first half of 'twenty 'twenty four.
None: We are currently on the fourth and final of the approved wells you know customers program.
None: Friday.
None: The notice confirming the drilling operations will be suspended off that as well.
None: Place due to cold stack storage.
None: John I'm going to read one of three.
None: One track runs through to just past the middle of next year.
None: We are optimistic for future drilling in PNG. This optimism is based on an expectation that advancement of the Papua LNG project led by French multinational total energies will stimulate exploration and appraisal activity in much the same way as the first PNG LNG project.
None: Yeah.
None: We are however, disappointed to observe the works towards a final investment decision on the Papua LNG project has been further delayed.
None: On the weekend, the government of Papua New Guinea, and the project operating partner total energies issued a joint statement reaffirming <unk> commitment to the project, it's guiding towards a decision in 2025.
None: The Papua LNG project is expected to be followed by the opinion gas field development in the western provinces of P&G.
None: This is anticipated to result in the addition of further gas liquefaction capacity in the World class PNG LNG export facility.
None: State owned Trimble petroleum is advancing appraisal of all the gas discoveries in PNG.
None: Turning to seismic surveys of the chemo with Barracuda discoveries onshore Papua New Guinea.
None: Progress there I did contribute to growing domestic energy needs.
None: Additional an additional LNG export processing facilities.
These LNG projects and other large scale mining and infrastructure projects moving through the pipeline will require tens of thousands of new workers and more skilled and supervisory personnel that do not exist in Papua New Guinea today.
None: Through teams.
None: Angie industry manpower solutions.
None: High Arctic has added the provision, but recognize safety training competency verification and equipment licensing services.
None: We have long provided these training and competency solutions in house team.
None: He was also taps into a large pool of talent to provide manpower skilled and semiskilled labor trades qualified personnel are professionals in Papua New Guinea.
We are excited to be playing a significant role in preparing PNG citizens to be job ready for the major projects, we anticipate in the second half of this decade and.
None: And beyond.
None: Turning to Canada.
None: In Canada, we closed the transaction to acquire and then amalgamate Delta rental services.
The acquisition of Delta in December and its integration with our legacy rental business in Canada has delivered scale free cash positive operation.
None: Doctor is blended seamlessly with high Arctic rentals.
None: The combined business is marketed under the Delta brand.
None: The Delta acquisition is expected to increase Canadian revenues straight to full fall and contributes strongly to positive cash flow.
The Delta acquisition closed in place and the structure of the consideration is reflecting both higher optics intention to reorganize and separate the Canadian P&C businesses.
None: I am confident that this transaction is symbolic of the prospects for purely Canadian entity and how additional accretive transactions can be all of us.
None: Over the past two years, the corporation has drug tested underperforming and non core assets and businesses.
Now the cooperations Canadian business consists of a high margin equipment rentals business centered upon pressure control.
None: A minority interest in Kansas largest oilfield snubbing services business seemed snubbing services.
None: And industrial properties, a claim what's been whiteboard in Alberta, Canada.
None: Team snubbing as Canada's largest snubbing provider and we have a 42% equity stake in tea.
None: Jim has had an outstanding fourth quarter.
None: Adding new records in terms of hours worked snubbing package is deployed and available crews.
None: It's just transposed into record revenue levels in earnings.
None: At the end of the quarter team declared its first dividend since acquiring only optics Canadian assets.
None: The two snubbing packages deployed in Alaska or other teams snubbing international operated almost continuously through the fourth quarter.
None: Shutting down in December and remaining shut down through the deepest of the cold weather.
None: But now both packages have recommenced operations in March.
None: I would now like to pass the call over to <unk>, <unk> interim Chief financial officer to discuss key financial highlights from the quarter in more detail.
None: Thank you, Mike and good afternoon to all of you joining on the call today I'll just before I begin just want to remind everybody you can state that all the mounts dollar amounts mentioned on this call are Canadian dollars.
None: Looking at our fourth quarter financial results from continuing operations and on a consolidated basis.
None: High Arctic generated revenues of $18 1 million.
And adjusted EBITDA of $3 2 million, that's about a 130000 on capital expenditures in the quarter.
None: Also in the quarter high Arctic generated net income of $2 $75 million, which equates to six cents per share.
This return to profitability for high Arctic as a result of a full utilization of our drilling services.
None: Asset rentals in both PNG.
None: Canada.
None: In addition to positive quarterly results were driven by meaningful investment income from the short term investments Arctic holds the equity income recorded from teams strong Q4 results.
None: $912000 deferred income tax recovery that was recorded in the quarter.
By far the most notable events in the quarter was the acquisition of Delta rental services that Mike just spoke to a bug.
Some of the key details on this transaction are as follows.
None: Total purchase price for Delta It was $6 4 million and consisted of $3 4 million in cash paid at closing and the remaining roughly $3 billion.
None: As an earn out our contingent consideration payable and a combination of cash and shares of high Arctic over a three year period post close.
None: Our contingent consideration payables based on the Delta business achieving specific profitability targets.
And is adjusted for capital expenditures incurred.
None: The assets acquired include property and equipment valued at over $3 $6 million.
And about 600000 in working capital.
None: That was part of this acquisition high Arctic also recorded additional assets that consist of $1 5 million in intangibles.
None: For some of the branding customer relationships acquired on the business and over $800000 in goodwill.
None: So these values associated with the assets and goodwill acquired on the purchase liabilities assumed in the contingent consideration payable post close.
None: Based on our best estimates of fair values on the transaction date.
None: Within a year of the transaction date, new information is obtained by Arctic rigs.
None: The facts and circumstances of the transaction and it turns out the transaction date that require us to adjust fees. This purchase price will be adjusted.
None: And given that the acquisition of Delta was also done right at the end of 2023 of the results that we're speaking to today from the Delta operation really had no material impact on our results for the fourth quarter of 2023.
None: Yeah.
None: I'll turn it back to the quarter itself as I already mentioned the quarter business performed well generating $3 2 million and adjusted EBITDA.
None: Consistent with Q3 of 2023.
None: Customer owned rig 103 was fully utilized in the quarter, our ancillary services business continued to perform at or above expectations.
None: And as a result high Arctic producing a steady consolidated oilfield services margin of 33, 4% in the quarter consistent with the Q3.
None: Pardon me with the 34, 34% pardon me oilfield services operating margin achieved for the full year of 2023.
None: These 2023 margins compare very favorably to the 2022, well field services' operating margins that were a negative 27% in Q4 2022.
None: And only 14, 4% for the full year of last year or 2022.
None: Much of it is higher margin generation as a result of the 2022 disposition of the Canadian well servicing assets and snubbing.
None: That's.
None: The sale of our nitrogen business is also driving these higher margins in 2023.
None: And EBITDA generation is that sale of that business. The closing of Q3 in the third quarter of 2023.
None: Eliminated a service line that was negative impacting our bottom lines.
None: Turning to G&A, our G&A costs were $2 8 million in the quarter, which is higher than the $2 seven.
None: Incurred in the previous quarter.
G&A costs for the quarter, representing 15, 5% of revenue also consistent with Q3 2023.
None: And consistent with the fourth quarter of 2020, 'twenty 2022.
None: G&A for the business was elevated in the quarter.
None: To conclude corporate professional fees relating towards our work.
None: Towards that revised reorganization plan costs associated with the Delta acquisition.
None: The cost is a result of the special meeting we held on January 10th of this year.
None: In addition, we recorded an increase in our expected credit loss provision for some Canadian receivables in the quarter.
None: But with that said management continues to evaluate our G&A costs.
We need to rightsize, our administrative support to align with expected operations going forward in both PNG and candidates.
None: I mentioned earlier adjusted EBITDA being 3.2 on the quarter $3 2 million.
None: This compares favorably to the negative adjusted EBITDA of $1 2 million or negative 10% of revenue in Q4 2022.
None: Q4, 2022 was negatively impacted just want to remind readers.
None: By this one by a one time inventory impairment charge of $3 7 million taken.
None: Taken right at the end of last year.
None: Yes.
None: And general activity levels in PNG at that point in time are also not as robust as they were.
None: When compared to 2023.
None: Our largest revenue generator in the quarter for high Arctic was from the drilling segment, which is no surprise trillium.
None: Trillium services activities generated $14 3 million of revenue in Q4.
None: Higher than the $10 1 million in Q4 of 2022. This increase was due primarily to the fact that our customer owned rig vinyl tree was fully utilized in the quarter.
None: Whereas in Q4 of 2022, we had no one went to four customer owned rigs operating attorney and most of the revenue that was derived from manpower provision.
None: Q4, 2023 operating margins were 22%.
For the segment.
None: Consider really higher than the negative 33% in Q4 2022.
None: And that was obviously impacted by the inventory impairment I mentioned earlier.
Our ancillary services segment spans both Papua New Guinea in Canada and continues to be our highest operating margin generator.
None: We achieved an operating margin of 76% on $3 9 million in revenues from continuing continuing operations in Q4 2023.
None: As compared to 28% margin on $2 million of revenue in.
In Q4 2022.
None: This improved margin reflects more revenue contribution from low maintenance fully owned assets.
None: Management expects that Q4 margins and activity levels that delivered this highly profitable.
None: To continue into 2024.
None: Especially with the addition of the Delta business here in Canada.
None: Consistent with last quarter, there were no there was no activity in our production services segment.
None: But we did incur some small expenses related to storage and preservation costs for the assets that do exist in that segment.
None: During the quarter Capex totaled 130000.
None: And the spending was mainly focused on growth in our rental equipment and Papua New Guinea, plus some additional costs associated with building out our new financial and operational.
None: Systems.
We expect to continue with modest capital spending through 2024, mostly focus on maintaining and growing our rental fleet, both in Canada, and Papua New Guinea.
None: Finally, your company ended the quarter here with just over $50 million of cash on hand.
None: Approximately $33 million of that invested in secure interest bearing short term investments.
None: It's generated over 550000.
None: In interest income during the quarter.
Our working capital position stayed steady in the quarter ends at the end of December stood it stood at $63 million.
None: Working capital would have been higher than this but do keep in mind that we did deploy $3 $4 million in cash.
None: Quite a delta in the quarter.
None: Consistent with past quarters, our only source of debt as our mortgage financing, which stands at $3 5 million and that's up mortgages on our land and buildings in Alberta.
None: Our mountain White cards, it's Mike.
None: Mentioned those assets over here.
None: Yes.
And with that I'll turn the call back over to you Mike.
Mike: Thanks, Tom.
Mike: Yeah.
Mike: With today's results. We also provide an update on our planning for reorganization.
Mike: As a reminder, in May last year, we announced an intention to recommend to shareholders and tax efficient return of capital to a maximum of $38 2 million relating to the third quarter 2022, silos Biotics Canadian well servicing assets.
Mike: And the reorganization of the cooperation involving the spin off of the Papua New Guinea and business.
Mike: The separation was aimed at addressing the inefficiencies of messaging to small businesses on opposite sides of the world with few synergies, allowing senior management to concentrate with have had the most success in the past.
Mike: Later, we suspended work on the previously announced transaction and in October we announced that we were working to address and incorporate feedback of the corporation received from several shareholders.
Mike: Yeah.
Mike: The feedback generally related to the opportunistic nature of the higher international holding company.
Mike: And concerns about corporate governance and minority shareholder protections in a foreign jurisdiction.
Mike: I am pleased to inform listeners that we are working towards a special meeting of shareholders to be held prior to the end of the second quarter of 2024.
Mike: At that meeting I anticipate that the board will recommend to shareholders. A reorganization that would include the following elements.
Mike: Spin off of the P&G business to shareholders as a Canadian publicly listed company.
Mike: Maintaining the high Arctic Corporation, and the Canadian publicly listed company focused on growing the Canadian business.
Mike: The distribution of our return of capital to shareholders of between 33 and $38 2 million before July 26 this year.
Mike: And the right sizing of the general administrative infrastructure to align with that new corporate structures.
Mike: I'll now turn the call conference call back over to Patrick the operator, who will open the line for questions.
Patrick: Thank you, we'll now take questions from the telephone lines. If you have a question. Please.
Patrick: Please press star one on your devices.
Patrick: When prompted by the system. Please clearly state your name to register your question.
Patrick: You may cancel your question at any time by pressing star two.
Patrick: Please press star one at this time, you kind of a question.
Patrick: Be a brief pause while the participants register for questions. Thank you for your patience.
Patrick: Thank you we'll take the first question. Please go ahead Josef Schachter.
Good afternoon, Mike.
Josef I. Schachter: The afternoon, Joseph good to hear from you.
Can you talk about the go forward strategy.
Operator: All participants, please continue to stand by. The conference will begin momentarily. Once again, please continue to stand by. We thank you for your patience. We thank you for your patience. The conference will begin shortly. We ask you to wait for a few moments, and we thank you for your patience.
Josef I. Schachter: Will there be cash in both companies to grow.
Josef I. Schachter: Well, we have the Canadian Navy.
Josef I. Schachter: Go with the Delta name was because that's our biggest part of the business that will stay high Arctic.
Josef I. Schachter: Have you.
Josef I. Schachter: Started thinking about.
Josef I. Schachter: Separate tickets ticker symbols will there be a separate management team offer each company how should we perceive.
Josef I. Schachter: You know this going forward.
Josef I. Schachter: Will they be will the management's overlap for awhile and then separate as you build the team and maybe make acquisitions on the Canadian side, maybe just give us a little color on how you see things unfolding in 'twenty four.
None: Sure. Thanks, Thanks for that question.
None: And of course these questions will be answered in detail when we distribute the materials food contemplated shareholder meeting.
None: But with a high level quick a quick overview.
Let's start with the name so high Arctic Energy services will remain the name of the Chemical Corporation.
None: We do trade the.
None: Rental services business under the Delta brand and we do expect and anticipate to be active in the M&A markets.
Operator: All participants, please continue to stand by. This conference is being recorded. All participants, thank you for standing by. The conference is ready to begin. Good afternoon, ladies and gentlemen, welcome to the High Arctic Energy Services 2023 Q4 Resolves conference. I would now like to turn the meeting over to High Arctic's Chief Executive Officer, Mike Maguire. Please go ahead.
None: The Canadian business to grow it.
None: In a matter that would.
None: Ensure that it protects and utilizes the value of its large.
None: Total non capital.
None: Operating tax losses.
None: <unk>.
None: The ticket would remain unchanged so essentially for the Canadian entity it would be a carve out of the four.
In Papua New Guinea, and business and the rest of the business would look like it does today as far as the management teams go and.
Michael Joseph Maguire: Thank you, Patrick. And good afternoon, everybody. Welcome to High Arctic's fourth-quarter conference call. Today, I'll be providing an update on the press release we issued before markets opened this morning. April 8th, including a discussion of our financial performance for the fourth quarter and full year of 2023. Following my remarks, I'll hand the call over to our Interim Chief Financial Officer, Lonn Bate. Long will be discussing our financial performance for the quarter and full year 2023. After our formal comments, we'll open the call to answer any questions that you may have.
None: And interaction between the two entities they will of course be some transition.
<unk> put in place.
None: So that.
None: Because we will we will need to make sure that both businesses can can operate effectively on a standalone basis in two way to ensure that that happens that transition has gone smoothly that would be.
None: Some transition to your arrangements in place, which would include some some sharing local lab management.
None: But to the larger degree do your expectation is for us to transition into two distinctly separate management teams.
As far as the cash guidance, we are working towards trying to optimize up to the top end of the guidance. We provided today for a return of capital to you.
None: We've provided guidance because we can see that we can comfortably meet the bottom end of that $33 million at this point in time, but we're working towards trying to optimize it to the maximum.
Michael Joseph Maguire: Before we begin, I'd like to remind you that certain information presented today may include forward-looking statements. Such statements reflect High Arctic's current expectations, estimates, projections, and assumptions. These forward-looking statements are not guaranteed to result in 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 statement.
None: Same time planning to retain cash in both businesses. So that they can meet their working capital requirements at <unk>.
None: One of the.
None: Key points for consideration the areas, what Papua New Guinea will need.
None: For ramping back up drilling operations after the contemplated.
None: Expansion of read one of three <unk> for the second half of the year.
None: And he's going to need access to liquidity to go into Richmond operations.
None: It's a key consideration.
Michael Joseph Maguire: For additional information on these risks, please take a look at our management's discussion and analysis in the 2023 Annual Information Forum, available on our website or on SegoePlus, who come to the hearing, Miss Schachter, starting with operations in Papua New Guinea. During the quarter, Rig 103 had strong operational performance. This represents the third full quarter of drilling activity for the corporation since the suspension of operations in early 2020. As well as the full quarter of drilling operations with Rig 103, we have seen strong deployment of rental assets through the quarter, including those pulled through by drilling operations, as well as rental to the wider market. High Arctic also provided rental material handling equipment, a 100 man mobile camp, and a large quantity of worksite matting to support other ongoing field activities with our two main customers in Papua New Guinea.
None: There will also be cash left in the Canadian business. So that he can maintenance working capital obligations in the cards.
None: Land.
Maintenance capital.
None: Yes.
None: Rest of the day.
None: Ticker symbols and and things associated with this phone it and it will all be.
None: See in the meeting materials once we get through regulatory approvals.
None: Approvals.
None: What makes its decision that it is going to move forward with the recommendation to shareholders and more.
None: Materials have been released for the meeting.
None: Okay.
None: Thing.
None: Is there any further.
None: For the Canadian company.
None: Are there any lines of business that you guys kind of feel that would make a good growth vehicle for the Canadian operations and would you be.
None: Comfortable using equity as well so that between the moderate cash that's in the company and the equity would that be the leavers youre used to grow the company.
Michael Joseph Maguire: Full utilization of our drilling services and our rental assets associated with customer-owned rig 103 had a significant impact on our earnings, which we anticipate will be the case for the first half of 2024. We are currently on the fourth and final of the approved wells in our customers' program. And on Friday, they issued us with a notice confirming the drilling operations will be suspended after this well, and the rig will be placed into cold stack storage. The term of the RIG 103 contract runs through to just past the middle of next year.
None: Yeah good questions both since in the first part.
None: We've as we've done for the last two years divested generic services based businesses that we're very cost heavy.
None: And leaned in margins.
None: Beautiful.
M&A activity would be to continue on the journey here.
Higher margin lower operating costs look people intensive businesses, so yes provision of.
None: The rental equipment fits into that mold very very neatly. So certainly we'd be looking at opportunities to grow our way out of them.
Michael Joseph Maguire: We are optimistic about future drilling in PNG. This optimism is based on an expectation that the advancement of the Papua LNG project, led by French multinational Total Energies, will stimulate exploration and appraisal activity in much the same way as the first PNG LNG project did a decade ago. We are, however, disappointed to observe that work towards a final investment decision on the Papua LNG project has been further delayed.
Rentals business, but also.
None: The potential to acquire or merge with them.
None: Other businesses.
None: Boyd.
None: Potentially other equipment, including equipment used in the capital construction of wells or other sources of.
None: Hum.
None: Of energy. So so looking at businesses that may be a little bit broader than and it spreads than simply the traditional oil and gas energy services, but looking also to.
Michael Joseph Maguire: On the weekend, the Government of Papua New Guinea and the project operating partner Total Energies issued a joint statement reaffirming commitment to the project but guiding towards a decision in 2025. The Papua LNG project is expected to be followed by the Pinyang gas field development in the western province of PNG. This is anticipated to result in the addition of further gas liquefaction capacity in the world-class PNG LNG export facility. State-owned Kumul Petroleum is advancing appraisal of other gas discoveries in PNG, planning for seismic surveys of the Kimu and Barrakiwa discoveries onshore Papua New Guinea.
None: Potential businesses that are exposed to the emerging LNG business, including carbon capture and storage.
None: And when it comes to the.
None: When it comes to the.
None: Need for <unk>.
None: Providing further.
None: I guess color on.
None: On.
None: Yes.
None: What what businesses would actually look like I think that I can only really provide that kind of high level at the moment, we are not actively pursuing.
None: An acquisition or merger to die, but certainly with the work we're undertaking here is to create it.
Michael Joseph Maguire: Progress with their aim to contribute to growing domestic energy needs and the additional of an additional LNG export processing facility. These LNG projects and other large-scale mining and infrastructure projects moving through the pipeline will require tens of thousands of new workers and more skilled and supervisory personnel that do not exist in Papua New Guinea today. The Group, PIMMS, P&G Industry Manpower Solutions, has added the provision of recognized safety training, competency verification, and equipment licensing services. We have long provided these training and competency solutions in-house. PIMMS also taps into our large pool of talent to provide manpower, skilled and semi-skilled labor, trades-qualified personnel, and professionals in Papua New Guinea. We are excited to be playing a significant role in preparing PNG citizens to be job ready for the major projects we anticipate in the second half of this decade and beyond.
None: Free up the Canadian business remove the tie to the PMG business, which has been an impediment for doing transactions in Canada in the past.
None: And make sure that it's opened in for.
None: Transactions that would be.
None: Accretive to all would provide.
None: Alternative.
None: <unk>.
Beneficial return.
None: Or.
Perhaps shareholders will create value for aircraft shareholders in Canada.
None: A long winded answer, but I think to a short question, but.
None: Net loss peaks their debt cash and an equity I think Joseph the answer would be that would be nothing would be off the tightened. The main thing would be ensuring that sits in the best interest of shareholders.
None: Oh My God.
None: I like the progress you've made I like the fact that there'll be two public companies out of this for our shareholders and I look forward to seeing future announcements thanks very much.
None: Thank you Joseph.
Michael Joseph Maguire: Turning to Canada, in Canada, we closed a transaction to acquire and then merge Delta Rental Services. The acquisition of Delta in December and its integration with our legacy rentals business in Canada has delivered scale for a cash positive operation. Delta is blended seamlessly with high Arctic rentals, and the combined business is marketed under the Delta brand. The Delta acquisition is expected to increase Canadian revenues three to fourfold and contribute strongly to positive cash flow. The Delta acquisition contemplates, and the structure of the consideration is reflective of, High Arctic's intention to reorganize and separate the Canadian and PNG business, and is confident that this transaction is symbolic of the prospects for a purely Canadian entity and how additional accretive transactions can be unearthed.
Thank you as a reminder, you May press star one if you have a question.
We'll take the next question. Please go ahead your ankle chunk of it.
None: Well Hi, Mike.
I'm not quite sure.
None: Alright on the PNG contract, that's coming to an end now in 2024.
None: Are you getting any compensation for it ending a year early or standby rates or anything like that.
Mike: Yes, let me be clear the contract is not ending the contract runs still until the middle of next year.
So this is suspension under the terms of the contract.
Mike: As we were suspended under the terms of the predecessor contract in 2020, there is a small revenue stream that comes through the suspension, but it is very lane.
Mike: Basically covers the the direct costs associated with the.
Mike: Cold stacking of the equipment and its ongoing preservation.
Michael Joseph Maguire: Over the past two years, the corporation has divested underperforming and non-core assets and businesses. Now, the corporation's Canadian business consists of a high-margin equipment rental business centering upon pressure control. A minority interest in Canada's largest oilfield snubbing services business, Team Snubbing Services, and Industrial Properties at Claremont and Whiteport in Alberta, Canada. Team Snubbing is Canada's largest snubbing provider, and we have a 42% equity stake in Team Snubbing. The team has had an outstanding fourth quarter, setting new records in terms of hours worked, snubbing packages deployed, and available crews. This is transposed into record revenue levels and earnings. At the end of the quarter, Team declared its first dividend since acquiring High Arctic's Canadian snobbing assets. The two snubbing packages deployed in Alaska under Team Snubbing International operated almost continuously through the fourth quarter, shutting down in December and remaining shut down through the deepest of the cold weather, but now both packages have resumed operations in March. I'd now like to pass the call over to Lonn Bate, High Arctic's Interim Chief Financial Officer, to discuss key financial highlights from the quarter in more detail.
None: Okay. Okay. Good.
None: Okay.
None: <unk> came snapping.
None: But it appears like its running independent zero is there a date or any I guess okay.
None: Long term plan from high architecture perspective.
None: Yeah.
None: From.
None: Well look.
None: Uh huh.
None: You know as you go.
None: And Paul put up.
None: Alrighty.
None: Yeah. Good question. Thank you break out the.
The investment team Snubbing was was at the time on the basis of assisting.
None: Assisting the two entities joined together to pursue significant growth potential.
None: And it seems nothing has been delivering upon that when we when we merged the two entities together James Nobody had.
None: Three crews to units deployed not quite 100% active and we had two units deployed that's probably maybe three.
Crews and putting these two together I'm out of the blocks. We went not an additional unit to work. So that was a feature in the other operating and <unk>.
And then you know up to the point to having 10 active crews in Canada.
So there's been some some some quite substantive growth for team something that they've also now expanded.
Lonn Bate: Thank you, Mike, and good afternoon to all of you joining the call today. Now just before I begin, just want to remind everybody in the state that all the amounts, dollar amounts, mentioned on this call are Canadian dollars. Looking at our fourth quarter financial results from continuing operations and on a consolidated basis, we generated revenues of $18.1 million, and Justin Ibeda earned $3.2 million.
None: You mentioned in the last couple of quarters into Alaska.
Lonn Bate: They spent $130,000 on capital expenditures in the quarter. Also, in the quarter, High Arctic generated a net income of $2.75 million, which equates to $0.06 per share. This return to profitability for High Arctic is a result of the full utilization of our drilling services and asset rentals in both P&G and Canada. In addition, the positive quarterly results were driven by meaningful investment income from the short-term investments that Arctic holds, the equity income recorded from teams, strong Q4 results, and $912,000 Deferred Income Tax Recovery that was recorded in the quarter. By far the most notable event in the quarter was the acquisition of Delta Rental Services that Mike just spoke about above. Some of the key details on this transaction are as follows.
None: Through the teams selling international partnership.
None: And pursuing some opportunities.
None: These boasting elsewhere in North America and internationally.
We expect teams nothing to be more focused on growth over the near term.
None: Couple of years, but in the longer term, where we're also anticipating it to be.
None: <unk> sources of distribution.
None: Earnings.
Dividends to high Arctic as a significant shareholder.
Which we will be utilizing them also for to ensure that we're providing.
None: Returns for our shareholders.
None: Okay.
None: Just looking at the little information of this call.
It does.
None: Everything gets hurt.
None: Working capital medical.
None: It looks like you've got a.
None: Randall.
None: Lower input.
None: Long term assets, which are planned up I guess.
None: We're also now got.
Cash loans on.
None: On the note receivable.
None: Oh interesting.
None: Thank you.
Lonn Bate: The total purchase price for Delta was $6.4 million and consisted of $3.4 million in cash paid on closing and the remaining roughly $3 million as an earn-out or contingent consideration payable in a combination of cash and shares of High Arctic over a three-year period post-close. The contingent consideration payable is based on the Delta business achieving specific profitability and is adjusted for capital expenditures incurred. The assets acquired include property and equipment valued at over $3.6 million and about $600,000 in working capital. As part of this acquisition, High Arctic also recorded additional assets that consist of $1.5 million in intangibles. Some of the branding customer relationships acquired for the business and over $800,000 in goodwill. So these values associated with the assets and goodwill acquired on the purchase liabilities assumed in the contingent consideration payable post-closed, while based on our best estimates of fair values on the transaction date. But if within a year of the transaction date, new information is obtained by us regarding the facts and circumstances of the transaction and the transaction at the transaction date that require us to adjust the Purchase Prices Will Be Adjusted.
None: Talking this year I won't principle.
None: I'm gonna be adequately findings.
None: Thanks.
None: Yeah, and just to be clear when you say you're talking about seems nothing.
None: Yeah.
None: Oh, yes, yes.
You guys are all well.
None: All right.
None: Majority of it.
None: But.
None: Yes, I just noticed the debt.
None: And you got low teen et cetera coming.
None: You've got a growing business too so it's gonna be anymore.
None: Entering a acquired on.
Working capital and receivables and that the fact that R&D.
None: But what $5 million.
None: Oh gosh.
None: Got it.
None: How about a 13 million I think.
None: Yeah.
None: Liabilities current and non current that's probably.
None: Robert.
None: Right.
That's right.
None: Basically why I think it does have its own bank debt as well.
None: As a.
None:
None: Overdraft facility to them.
We were expecting based on the budget has been approved at team Snubbing M, which is being borne out in the results we've seen in the early.
Lonn Bate: Now, given that the acquisition of Delta was also done right at the end of 2023, the results that we're speaking about today from the Delta operation really had no material impact on our results for the fourth quarter of 2023. Turning back to the quarter itself, as I already mentioned, the quarter business performed well, generating $3.2 million in adjusted EBITDA consistent with Q3 of 2023. Customer Owned Rig 103 was fully utilized in the quarter. Our ancillary services business continued to perform at or above expectations, and as a result, High Arctic produced a steady consolidated oil field services margin of 33.4% in the quarter. Consistent with the Q3.
Early part of this year we're.
None: We're expecting teams, hoping to be in a robust financial position, we expect them to be making good inroads into servicing.
None: Servicing that debt.
None: Drive facility of the payments of the promissory note to high Arctic.
None: Trees, which commences in July.
None: And then it goes for another four to five years.
None: <unk>.
None: And the.
None: Uh huh.
None: The mortgage that they've taken on for that.
Property that they won't keep party in Red deer.
None: I mean did mortgage.
None: So again, we're very very confident in our team's stubbings performances for 2024, we expected. This is going to be a record year. Following a record year of 2023 unit performance.
Lonn Bate: Pardon me cute, with 34% 34% pardon me, well field services operating margin achieved for the full year of 2020. These 2023 margins compare very favorably to the 2022 oilfield services operating margins that were a negative 27% in Q4 2022 and only 14.4% for the full year of last year. Much of this higher margin generation as a result of the 2022 disposition of the Canadian wealth servicing assets and snubbing assets, sales, and nitrogen business is also driving these higher margins in 2023, and Evita Generation, as that sale of that business that closed in the Q3 in the third quarter of 2023 eliminated a service line that was negatively impacting our bottom line. Turning to G&A, our G&A costs were $2.8 million in the quarter, which is higher than the $2.7 million incurred in the previous quarter.
None: Anticipate that there will be opportunity for payment of more dividends in the future.
None: The repayment of the spin.
None: The debt.
None: The repayment, but the payments owed.
None: On the debt servicing the debt is is paramount.
None: For me I view appointing Arctic collection on that promissory notes and ensuring to do they are a customer of announced the engineered equipment assuring that they remain current.
None: Payments on those as the top priority.
None: Okay sounds good thanks, very much for the update.
None: Thanks, Mike I appreciate your questions.
None: Thank you.
None: We will take the next question. Please go ahead.
None: Pat.
Hello, Mike.
Lonn Bate: GMA costs for the quarter represent 15.5% of revenue, also consistent with Q3 2023 and consistent with the fourth quarter of 2020-2022. GNA for the business was elevated in the quarter. The High Arctic incurred corporate and professional fees relating to our work. Towards a Revised Reorganization Plan, and costs associated with the Delta Acquisition. This is a result of the special meeting we held on January 10th of this year.
Pat: I hope you're well.
Pat: My question is.
Pat: Government is first of all I'd like to do.
Pat: I'd like to thank you for listening to shout out older students very clear if it's a good bet.
None: Thanks for that.
And also that you are in good standing and looks like a solid quarter I think that the.
None: And he said as well so that's my first comment.
None: The question is then if the following do I understand it correctly that language.
None: With the company, it's a straight split and that will not be any rights or for us to be pulled back. So you will just issue outs P&G SaaS right.
Lonn Bate: In addition, we recorded an increase in our expected credit loss provision for some Canadian receivables in the quarter. But with that said, management continues to evaluate our G&A costs, and we continue to right-size our administrative support to align with expected operations going forward in both PNG and Canada.
None: That's correct that will that is the intention is what I should probably say.
None: Things are not.
None: Not quite through through those final approvals and things, but yes that is the way we were intending to proceed.
Lonn Bate: I've mentioned earlier just the depth of the in 3.2 on the quarter 3.2 million. This compares favorably to the negative adjusted EBITDA of $1.2 million or a negative 10% of revenue in Q4 2022. Q4 2022 has negatively impacted, I want to remind readers, by a one-time inventory impairment charge of $3.7 million taken right at the end of last year, and general activity levels in PNG at that point in time were also not as robust as they were when compared to 2020. The largest revenue generator in the quarter for High Arctic was the drilling segment, which is no surprise.
None: Okay, that's great designates and will P&G.
None: Oh.
None: Business real estate positives and H two independents the fee that you get from a Santos.
None: Our anticipation is that in the second half of this she we will be cutting back substantially on some of the our and our discretionary.
Discretionary costs in an effort to ensure that we minimize the potential impact of the suspension and drilling services.
Okay, so you'll be close to that on that booked close to that.
None: Yeah.
None: Okay.
None: Hum.
Lonn Bate: Trilling Services activities generated $14.3 million of revenue in Q4, higher than the 10.1 million in Q4 of 2020. This increase was due primarily to the fact that our customer-owned rig 103 was fully utilized in the quarter. Whereas, in Q4 2022, we had no owned or customer-owned rigs operating and turning, and most of the revenue then was derived from manpower provision. Q4 2023 operating margins were 22% for the segment. It's considerably higher than the negative 33% in Q4 2022. And that was obviously impacted by the inventory impairment I mentioned earlier.
I need to say that you did already get a dividend from our teams did I hear that correctly.
Yes, it seems snubbing declared a dividend just at the end of Q 857000, Canadian dollars, which pointed out deep received 360000.
None: Yeah.
None: With just the straight 42%.
None: Okay.
None: Yeah.
None: Okay. That's good.
None: Hum.
None: Yeah.
None: The stock of <unk>.
None: Let me split teams and from our Canadian business, that's that will increase our ability to get a source of cost efficient technical things fly what it is and what kind of interest have you ever done before.
Lonn Bate: Our ancillary services segment spans both Papua New Guinea and Canada and continues to be our highest operating margin generator. We achieved an operating margin of 76% on $3.9 million in revenues from continuing operations in Q4 2023, as compared to 28% on 2 million of revenue in Q4 2022. This improved margin reflects more revenue contribution from low maintenance fully owned assets. Management expects the Q4 margins and activity levels that delivered this highly profitable segment to continue into 2024, and especially with the addition of the Delta business year. Consistent with last quarter, there was no activity in our production services segment.
Lonn Bate: But we did incur some small expenses related to storage and preservation costs for the assets that do exist in that segment. During the quarter, CapEx totaled $130,000, and this spending was mainly focused on growth in our rental equipment in Papua New Guinea, plus some additional costs associated with building out our new financial and operational system. We expect to continue with modest capital spending through 2024, mostly focused on maintaining and growing our rental fleet both in Canada and Papua New Guinea. Finally, our company ended the quarter here with just over $50 million of cash on hand, approximately 33 million of that invested in secure interest-bearing short-term investments. Generated over $550,000 in interest income during the quarter. Our working capital position stayed steady in the quarter and, at the end of December, stood at $63 million.
None: So we're talking specifically about Canada here.
None: Yeah.
None: Specifically talking about <unk>.
None: D G.
None: So accident and so you've got to take.
Capital B for PNG is not is not as straightforward as it is for Canada.
None: A guinea as we pile on for quite some time there is currency restrictions in the in the Central Bank of P&G has been.
None: Controlling the decline in value of the <unk>.
None: Dana for quite some time.
None: We can access.
None: So we can access debt inside Papua New Guinea, but that that would be in the company getting in China.
None: And as we've also highlighted for quite some time most of our expenditure in transacting in U S dollars for that business.
None: In accessing that there is some there are some further complications and things that may make accessing debt for Papua New Guinea, a little more expensive and a little less straightforward than it used to Canada.
At the moment, we are working towards ensuring we're retaining an adequate amount of cash in that business and be.
None: You're right there is cash in the banking pumping in Guinea at the moment.
None: Were in the vicinity and maybe you can.
None: Verify this thinking but I think somewhere in the vicinity of around 8 million Canadian dollars equivalent.
None: <unk> Hills Bank accounts in Papua New Guinea.
None: We're in the pumping of any business and we will ensure that we have adequate access to cash once we've habits harvesting some of the receivables in the latter part of this year.
Lonn Bate: Marine capital would have been higher than this. But do keep in mind that we did deploy 3.4 million in cash when we acquired Delta in the quarter. Consistent with past quarters, our only source of debt is our mortgage financing, which stands at 3.5 million. And that's mortgages on our land and buildings in Alberta, Claremont, and White Court, as Mike mentioned those assets earlier. And with that, I'll turn the call back over to you.
None: To ensure that we can see.
None: Staying out business and recommence drilling operations.
None: In 2025.
None: Yes.
Okay.
None: Closer to $9 million.
None: Paul at about $8 settled at the end of the year.
Paul: Thank you Laura.
Paul: Yeah.
Paul: That was a good man, so and in Canada, it's easier and it's.
Michael Joseph Maguire: Thanks, Lonn. With today's results, we also provided an update on our planning for a reorganization. As a reminder, in May last year, we announced an intention to recommend to the shareholders a tax efficient return of capital to a maximum of $38.2 million relating to the third quarter 2022 sale of High Arctic's Canadian wealth servicing asset and a reorganization of the corporation involving the spin-off of the Papua New Guinean business. This separation was aimed at addressing the inefficiencies of managing two small businesses on opposite sides of the world with few synergies and allowing senior management to concentrate where they had the most success in the past.
Paul: It also at a rate that's kind of reasonable sometimes you see for the oil and gas guys, they're going up to eight 9%. That's not the interest that we can have access to we said like four 5%.
Paul: The readiness is the interesting thing to me.
Paul: Canadian loves.
Paul: So we are the interest payments on their mortgage facility are around 4%.
Paul: <unk>.
Market has moved a bit since we put that in place, but the emphasis would be in place I would expect that the cost of the debt would be between the two numbers.
Paul: You mentioned, a number of knowing though I don't mind.
I would anticipate it to be between those numbers.
Michael Joseph Maguire: Later, we suspended work on the previously announced transaction, and in October, we announced that we were working to address and incorporate feedback on the corporation received from several shareholders. The feedback generally related to the unlisted nature of the High Arctic International Holding Company and concerns about corporate governance and minority shareholder protections in a foreign jurisdiction. I am pleased to inform listeners that we are working towards a special meeting of shareholders to be held prior to the end of the second quarter of 2024. At that meeting, I anticipate that the board will recommend to shareholders a reorganization that would include the following elements: spin-off of the P&G business to shareholders as a Canadian publicly listed company. Maintaining the High Arctic Corporation as a Canadian publicly listed company focused on growing the Canadian business; the distribution of a return of capital to shareholders of between $33 and $38.2 million before July 26 this year; and the right-sizing of the general administrative infrastructure to align with that new corporate structure. I'll now turn the conference call back over to Patrick, the operator, who will open the line for questions.
Paul: But it but there is much more ready sources of.
Paul: Of that available to us here in Canada, the Canadian dollar is very liquid.
Paul: Our Canadian business transaction has most of its expenditures in Canadian dollars.
That perspective, but it's a lot simpler than for Papua.
How come you're getting but at the same.
Paul: Time, we were also mindful of holding an adequate amount of cash in the Canadian business to ensure that we can meet our working capital requirements and planned.
Paul: Capital investments for 2024.
None: Okay. That's clear thanks for answering my questions.
None: Oh no.
None: Thank you all have a great day.
None: Okay great.
Alright.
None: Thank you.
Michael Joseph Maguire: There are no further questions at this time I would like to turn the meeting back over to Mr. Mcguire.
Michael Joseph Maguire: Yeah.
Mcguire: Thank you Patrick.
Mcguire: Thank you to all who joined our call.
Mcguire: This afternoon.
Mcguire: And.
Mcguire: Yes.
Mcguire: I'd like to wish everybody, a good weekend and look forward to making some further announcements in the coming weeks around reorganization and return of capital.
None: And that concludes our call. Thank you Patrick.
Patrick: Youre welcome.
None: Conference has now ended please disconnect your.
Operator: Thank you. We'll now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. When prompted by the system, please clearly state your name to register your question. You may cancel your question at any time by pressing star 2. Please press star one at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. Thank you. We'll take the first question. Please go ahead. Joseph Schachter.
Your lines at this time and thank you for your participation.
Josef I. Schachter: Joseph Schachter Good afternoon, Mike.
Michael Joseph Maguire: Good afternoon, Joseph. It's good to hear from you.
Josef I. Schachter: Yeah. Can you talk about the go forward strategy? You know, will there be cash in both companies to grow? Will we have, will the Canadian name go with the Delta name, because that's the biggest part of the business, or will it stay as High Arctic? Have you started thinking about separate ticket symbols? Will there be a separate management team for each company? How should we perceive, you know, this going forward? Will the managements overlap for a while and then separate as you build the team and maybe make acquisitions on the Canadian side? Maybe just give us a little color of how you see things unfolding in 24.
Michael Joseph Maguire: Sure, thanks. Thanks for that question.
Michael Joseph Maguire: And, of course, these questions will be answered in detail when we distribute the materials for the contemplated shareholder meeting. But, at a high level, a quick overview. Let's start with the name.
Michael Joseph Maguire: So High Arctic Energy Services will remain the name of the corporation, although we do trade the rental services business under the Delta brand. And we do expect and anticipate to be active in the M&A market with the Canadian business to grow it, in a manner that would ensure that it protects and utilizes the value of its large non-capital operating tax losses. The ticker would remain unchanged, so essentially, for the Canadian entity, it would be a carve out of the foreign Papua New Guinean business, and the rest of the business would look like it does today. As far as the management teams go and the interaction between the two entities, there will, of course, be some transitionary arrangements put in place. We will need to make sure that both businesses can operate effectively on a stand-alone basis and to ensure that the transition happens smoothly, there will be some transitionary arrangements in place which would include some sharing and overlap of management, but to a larger degree, the expectation is for us to transition into two distinctly separate management teams.
Michael Joseph Maguire: As far as cash goes, we are working towards trying to optimize up to the top end of the guidance we've provided today for a return on capital figure. We've provided guidance because we can see that we can comfortably meet at the bottom end of that at $33 million at this point in time, but we're working towards trying to optimize it to the maximum, while at the same time planning to retain cash in both businesses so that they can meet their working capital requirements. One of the key points for consideration there is what Papua New Guinea will need to ramp back up drilling operations after the contemplated suspension of Rig 103 here for the second half of the year. It is going to need access to liquidity to be able to recommence operations, and that's a key consideration. There will also be cash left in the Canadian business so that it can meet its working capital obligations and its current plan. Maintenance Capital
Michael Joseph Maguire: Union.
Josef I. Schachter: [inaudible]
Josef I. Schachter: The rest of the details on ticker symbols and things associated with the spun identity will all be clear in the meeting materials once we get through regulatory approvals. The board makes its decision that it is going to move forward with the recommendation to shareholders, and materials are then released for the meeting.
Josef I. Schachter: One last thing. Is there anything for the Canadian company? Are there any lines of business that you guys kind of feel that would make a good growth vehicle for the Canadian operations? And would you be comfortable using equity as well? So between the moderate cash that's in the company and equity? Would that be the levers you'd use to grow the company?
Michael Joseph Maguire: Yeah, good questions both. So in the first part, we've, as we've done for the last two years, divested services-based businesses that were very cost heavy and lean on margins. Our view for any M&A activity would be to continue on the journey here of higher margin, lower operating costs, low people intensive businesses. So, you know, the provision of rental equipment fits into that mold very, very neatly. So certainly, we'd be looking at opportunities to grow our rental business, but also the potential to acquire or merge with other businesses that provide potentially other equipment, including equipment used in the capital construction of wells or other sources of energy. So looking at businesses that may be a little bit broader in their breadth than simply the traditional oil and gas energy services but looking also at potential businesses that are exposed to emerging energy businesses, including carbon capture and storage. And when it comes to the... Need for providing for the elderly, I guess color on on. What businesses would actually look like? I think that I can only really provide that kind of high level at the moment.
Michael Joseph Maguire: We're not actively pursuing an acquisition or a merger today, but certainly, the work we're undertaking here is to free up the Canadian business, remove the tie to the PMG business, which has been an impediment to doing transactions in Canada in the past, and make sure that it's open then to transactions that would be accretive to, or would provide an alternative source of better beneficial return for our shareholders or create value for our shareholders. A long-winded answer, I think, to a short question, but that last piece there about cash and equity, I think, Joseph, the answer would be that nothing would be off the table. The main thing would be ensuring that it's in the best interest of shareholders.
Josef I. Schachter: Super. Well, Mike, I like the progress you've made. I like the fact that there will be two public companies out of this for shareholders, and I look forward to seeing future announcements. Thanks very much.
Michael Joseph Maguire: Thank you, Joseph.
Operator: Thank you. As a reminder, you may press star one if you have a question. We'll take the next question. Please go ahead.
Unknown Attendee: [inaudible] Oh, hi, Mike. I have a question about the PNG contract that's coming to an end now in 2024. Are you getting any compensation for it ending a year early or, you know, standby rates or anything like that?
Michael Joseph Maguire: Yeah, let me be clear, the contract is not ending. The contract runs until the middle of next year. So this is suspension under the terms of the contract, as we were suspended under the terms of the predecessor contract in 2020. There is a small revenue stream that comes from the suspension, but it is very low; it basically covers the direct costs associated with the cold stacking of the equipment and its ongoing preservation.
Unknown Attendee: Okay, okay, good. Okay, then a question on team snubbing. That appears to be running independent.
Unknown Attendee: Is there a mandate or any, I guess? Okay, let's see, long term plan from a high Arctic perspective. What are you hoping to see from that or whether, you know, if you go in public or whatever, it just strays.
Michael Joseph Maguire: Yeah, a good question. Thank you, Branko. The investment in Team Snubbing was at the time on the basis of assisting the two entities joined together to pursue significant growth potential, and Team Snubbing has been delivering on that. When we merged the two entities together, Team Snubbing had, I think, three crews, two units deployed, not quite 100% active. We had two units deployed, and the best part, maybe three crews. And putting those two together, out of the blocks, we went and added an additional unit to work.
Michael Joseph Maguire: So that was a fifth, and now they're operating a sixth. And they're now up to having 10 active crews in Canada. So there's been some quite substantial growth for Team Snubbing there. They've also now expanded, as we've mentioned, in the last couple of quarters into Alaska through the Team Snubbing International Partnership. And pursuing some opportunities, both elsewhere in North America and internationally. We expect Team Snubbing to be more focused on growth over the nearer term, the next couple of years. But in the longer term, we're also anticipating it to be a regular source of distribution of earnings or dividends to High Arctic as a significant shareholder, which we would be utilizing then also to ensure that we're providing quite good returns for our shareholders.
Unknown Attendee: Okay, so just looking at the little bit of information this close, like here, and evidently, hard working capital is negative. It looks like you've had to reinvest cash flow into Unknown Speaker, Unknown Attendee, Lance Mierendorf, Murray Weimer, Patrick Tang, Lonn Bate, High, and you've also now got, I guess, cash demands on the note receivable that you're going to be paying Interest, I think. College, and then principal, mid-year. Are you going to be adequately financed on that side?
Unknown Attendee: And just to be clear, when you say we, are you talking about Team Snowing?
Unknown Attendee: Speaker 1 You're welcome. Yeah. Yeah. Yeah.
Unknown Attendee: Weekend. You guys are all...
Unknown Attendee: You guys are all, I'll consider you once, I don't even know.
Unknown Attendee: The majority is not there. But yeah, just notice, with the Debra Ann, you've got no payments that are coming due. And then you've got a growing business, too. So, there's going to be more financing required. You know, working capital and receivables. The fact that it's already negative, I think you got, what, 5 million of our receivables in cash, and you got... You know, about 13 million, I think, liabilities, current and non-current. I realize non-current is probably... Lovers of the High Arctic, I guess, right?
Michael Joseph Maguire: That's right, the largest piece of the UI Arctic. But it does have its own bank debt as well. And it has an overdraft facility too. We're expecting, based on the budget that's been approved at Team Snubbing, which has been borne out in the results we've seen in the early part of this year, we're expecting Team Snubbing to be in a robust financial position. We expect them to be making good inroads into servicing that debt, the overdraft facility, the payment of the promised note to High Arctic, which commences in July and then goes for another four and a half years, and the mortgage that they've taken on for their property that they've occupied in Red Deer. It's owned and mortgaged.
Michael Joseph Maguire: So yeah, we're very confident in Team Snubbing's performances for 2024. We expect that this is going to be a record year following the record year of 2023 in their performance. We anticipate that there will be opportunity for payment of more dividends in the future. The repayment of the debt, well, not the repayment, but the payments owed on the debt, servicing the debt is paramount, and from our view, High Arctic collection on that promissory note and ensuring that they are a customer of ours, renting our equipment, and ensuring that they remain current with payments on those are the top priority.
Unknown Attendee: Okay, well, that sounds good, Mike. Thanks very much for the update.
Michael Joseph Maguire: Thanks, Frank. I appreciate your questions.
Operator: We'll take the next question. Please go ahead.
Unknown Attendee: [inaudible] Hello, Mike. [inaudible] My question is, or my comment is, first of all, I'd like to thank you for listening and giving us our orders. To me, it's very clear that you did that. So, thanks for that. And also that you're in good standing and it looks like a solid quarter. I think that can be said as well. So that's my first comment. The question then is the following: do I understand correctly that when we split the company, it's a straight split, and there will not be any rights for us to be brought back? So you will just issue out P&G as shares, right?
Michael Joseph Maguire: That's correct. Well, that is the intention, is what I should probably say. Things are not quite through those final approvals and things, but yes, that is the way we're intending to proceed.
Unknown Attendee: Okay, that's good, that's good. And will P&G, with all the other businesses, stay positive in H2 and what kind of fee that you get from Santos?
Michael Joseph Maguire: Our anticipation is that in the second half of this year, we will be cutting back substantially on some of our discretionary costs in an effort to ensure that we minimize the potential impact of the suspension of our drilling services.
Unknown Attendee: Okay, so you'll be close to that, on that, or close to that?
Michael Joseph Maguire: Great. And then I hear you say that you did already get a dissident from Team Schnelling. Did I hear that correctly?
Michael Joseph Maguire: Yeah, Team Snobbing declared a dividend just at the end of last year of $857,000 Canadian dollars, of which High Arctic received $360,000 and booked.
Unknown Attendee: Which is the trade-off for the 2%, right? If I need to calculate those things out.
Michael Joseph Maguire: Yeah.
Unknown Attendee: Okay, that's, that's good, and them. When we split P&G from the Canadian business, that will increase our ability to get a source of cost-efficient capital. Can you explain what that is and what kind of interest that you are then looking at?
Michael Joseph Maguire: So we're talking specifically about Canada here. Yeah, I was
Unknown Attendee: [inaudible]
Michael Joseph Maguire: So access to capital for PNG is not as straightforward as it is for Canada. Papua New Guinea, as we've highlighted for quite some time, there are currency restrictions, and the central bank of PNG has been controlling the decline in the value of the kina for quite some time. We can access debt inside Papua New Guinea, but that debt would be in the Papua New Guinean kina, and as we've also highlighted for quite some time, most of our expenditure on transacting is in US dollars for that business. So in accessing that, there are some further complications and things that may make accessing debt for Papua New Guinea a little more expensive and a little less straightforward than it is for Canada. At the moment, we are working towards ensuring we're retaining an adequate amount of cash in that business, and there is cash in the bank in Papua New Guinea at the moment, somewhere in the vicinity, and maybe Lonn can just verify this figure, but I think somewhere in the vicinity of around $8 million Canadian equivalent held in bank accounts in Papua New Guinea or in the Papua New Guinean business. And we will ensure that we have adequate access to cash once we've harvested some of the receivables in the latter part of this year to ensure that we can sustain our business and recommence drilling operations in 2025.
Lonn Bate: Yeah, Mike is okay, put closer to $9 million. Nom, Paul DeBugge, 8.7 at the end of the year. Unknown Speaker, Unknown Attendee, Unknown Speaker,
Michael Joseph Maguire: So we, the interest payments on our mortgage facility are at 4%. The market has moved a fair bit since we put that in place, put that facility in place. I'd expect that the cost of debt would be between those two numbers. I think you mentioned a number of nine, eight, or nine. I'd anticipate it to be between those numbers.
Michael Joseph Maguire: But there are much more ready sources of debt available to us here in Canada. The Canadian dollar is very liquid. Our Canadian business transacts and has most of its expenditures in Canadian dollars. So from that perspective, it's a lot simpler than for Papua New Guinea. But at the same time, we're also mindful of holding an adequate amount of cash in our Canadian business to ensure that we can meet our working capital requirements and our planned capital investments for 2024.
Unknown Attendee: Okay, that's clear. Thanks for answering my questions and upwards and onwards. Thank you all. Have a great day. I've got you too. Okay.
Michael Joseph Maguire: Thank you. There are no further questions at this time. I would like to turn the meeting back over to Mr. Maguire.
Michael Joseph Maguire: Thank you, Patrick. Thank you to all who joined our call this afternoon. I'd like to wish everybody a good week and look forward to making some further announcements in the coming weeks about our reorganization. And that concludes our call.
Operator: You're welcome. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.