Q1 2024 High Arctic Energy Services Inc Earnings Call

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Speaker Change: This conference is being recorded so it's going to stay home if they don't go as you see.

Operator: All participants, please stand by. Your conference is now ready to begin. Good morning, ladies and gentlemen.

Speaker Change: All participants please standby your conference is now ready to begin.

Speaker Change: Ladies and gentlemen, welcome to the high Arctic Energy Services' 2020 for Q1.

Operator: Welcome to the High Arctic Energy Services 2024 Q1 Results Conference Call. I would now like to turn the meeting over to High Arctic Chief Executive Officer Mike Maguire. Please go ahead, Mr. Maguire.

Speaker Change: <unk> Conference call I would now like to turn the meeting over to him.

Speaker Change: Right.

Speaker Change: Steve Executive Officer, Mike Mcguire. Please go ahead Mr Mcguire.

Michael Joseph Maguire: Thank you, Melanie, and good morning to everyone. Welcome to High Arctic's first quarter conference call. Today, I'll be providing an update on the press release we issued after markets closed yesterday, May 15th, including a discussion of our financial performance for the first quarter of 2024. Following my remarks, I will hand the call over to our Interim Chief Financial Officer, Lonn Bate.

Speaker Change: Thank you Melanie and good morning to everyone and.

Michael Joseph Maguire: Welcome to high Ethics first quarter conference call today, I'll be providing an update on the press release, we issued after market closed yesterday.

Including discussion.

Michael Joseph Maguire: Performance for the first quarter of 2024.

al: Following my remarks, I'll hand, the call over to al.

Speaker Change: Interim Chief Financial Officer long bite lawn will be discussing our financial performance for the quarter in more detail.

After our formal comments, we'll open the call to answer any questions that you may have.

Michael Joseph Maguire: Lonn will be discussing our financial performance for the quarter in more detail. After our formal comments, we'll open the call to answer any questions that you may have. 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 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 statement. For additional information on these risks, see

Before we begin I'd like to remind you that certain information presented today may include forward looking statements.

Speaker Change: Such statements reflect current expectations estimates projections and assumptions.

Speaker Change: These forward looking statements are not guarantees of future performance.

Speaker Change: Subject to certain risks.

Speaker Change: Which could cause actual performance and financial results to vary materially from those contemplated in the forward looking statements.

Speaker Change: For additional information on these risks please take a look at our management's discussion and analysis and the.

Michael Joseph Maguire: Please take a look at our management's discussion and analysis and the 2024 Annual Information Form, available on our website or on CDARplus, under the heading, Risk Factor, starting with operations in Papua New Guinea. And during the quarter, Rig 103 had strong operational performance. This represents the fourth 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 again saw a strong deployment of rental assets through the quarter, including those pulled through by drilling operations, as well as rental to the wider market.

Speaker Change: The 2024 annual information form available on our website or on SEDAR plus.

Speaker Change: Look under the heading risk factors.

Michael Joseph Maguire: 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 PNG. Full utilisation of our drilling services and asset rentals associated with customer-owned Rig 103 had a significant impact on our earnings when compared to the same period in 2023, when we were mostly preparing for drilling operations. We have completed the drilling of the fourth and final of the approved wells in our customers' program.

Speaker Change: Starting with operations in Papua New Guinea.

Speaker Change: During the quarter rig 103 had strong operational performance. This represents the fourth full quarter of drilling activity for the corporation since the suspension of operations in early 2020.

Speaker Change: As well as the full quarter of drilling operations with rig 103, we again saw strong deployment of rental assets through the quarter, including those pulled through by drilling operations as well as rentals to the wider market.

High Arctic: High Arctic also provided rental material handling equipment and 100.

Speaker Change: And a large quantity of worksite.

Speaker Change: To support other ongoing field activities without two main customers in PNG.

Speaker Change: Full utilization, Nevada drilling services and asset rentals associated with customer owned rig.

Speaker Change: <unk> had a significant impact on our earnings when compared to the same period in 2023.

Speaker Change: When we were mostly preparing for drilling operations.

Speaker Change: Yeah.

Speaker Change: We have completed the drilling of the fourth and final of the approved wells you know customers program.

Michael Joseph Maguire: And as of today, we are transporting the rig and associated equipment packages for them to be placed into cold stack storage. The term of the RIG 103 contract runs through to July 2025, with options for the customer to extend.

Speaker Change: Or is that today, we are transporting the rig and associated equipment packages for them to be placed into cold stack storage.

Speaker Change: The term of the rig 103 contract runs through to July 2025 with options for the customer to extend.

Michael Joseph Maguire: Presently, there is no confirmed drilling activity in the remaining contract period, but we continue to work with our customer to advance plans for potential future work. At the macro scale, we are optimistic about future drilling in PNG. This optimism is based upon an expectation that the advancement of the Papua LNG project, led by French multinational Total Energy, will stimulate exploration and appraisal activity in much the same way as the first PNG-LNG project did ten years ago. We are, however, disappointed that a final investment decision on the Papua LNG project has been pushed out into 2025.

Speaker Change: Presently there is no confirmed drilling activity in the remaining contract period, but we continue to work with our customer to advance plans for potential future work.

Speaker Change: At the macro scale, we are optimistic for future drilling in PNG. This optimism is based upon 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.

Speaker Change: Project did a decade ago.

Speaker Change: We are however, disappointed that a final investment decision on the Papua LNG project has been pushed out into 2025.

Michael Joseph Maguire: This follows the joint statement in April reaffirming commitment to the project by the Government of Papua New Guinea and the project operating partner, Total Energy. The Papua LNG project is expected to be followed by the Pinyang gas field development in the western province of Papua New Guinea, which is anticipated to result in the addition of further gas liquefaction capacity in the world-class Papua New Guinea LNG export facility. State-owned Kumul Petroleum is advancing appraisal of other gas discoveries onshore PNG to progress their aim to contribute to growing domestic energy needs and additional LNG export processing facilities.

Speaker Change: This follows the joint statement in April reaffirming commitment to the project by the government of Papua New Guinea, and the project operating partner total entities.

Speaker Change: The Papua LNG project is expected to be followed by the opinion gas field development in the western provinces of PNG, which is anticipated to result. In addition, a further gas liquefaction liquefaction capacity in the World class PNG LNG export facility.

Speaker Change: State owned cable petroleum is advancing appraisal of all the gas discoveries onshore PNG to progress their aim to contribute to growing domestic energy needs and additional LNG export processing facilities.

Michael Joseph Maguire: ExxonMobil and their partners are also advancing the backfill of the PNG LNG plant and have announced intentions to appraise a significant prospect that they have named Wildebeest. 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. Through PIMS, P&G Industry Manpower Solutions, we have added the provision of recognized safety training, competency verification, and equipment licensing services. We have long provided these training and competency solutions in-house. PIMS also taps into our large pool of talent to provide manpower, skilled and semi-skilled labor, trades qualified personnel, and professionals in PNG.

Speaker Change: Exxonmobil and their partners are also advancing the backfill of the PNG LNG plant and have announced intentions to appraise a significant prospects that they have named wildebeest.

Speaker Change: 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 PNG today.

Speaker Change: Through team's PNG industry manpower solutions, we have added the provision of recognized safety training competency verification and equipment licensing services.

Speaker Change: We have long provided these training and competency solutions in house.

Speaker Change: <unk> also taps into a large pool of talent to provide manpower skilled and semiskilled labor trades qualified personnel and professionals in PNG.

Michael Joseph Maguire: We are excited to be playing a significant role in preparing Papua New Guinean citizens to be job ready for the major projects we anticipate in the latter part of this decade and beyond. In Canada, we have completed the first quarter of our activity, which includes the business of Delta Rental Services. The acquisition of Delta in late December last year, its amalgamation with High Arctic, and its integration with our legacy rental business in Canada have delivered the scale for a cash positive operation. Delta has blended seamlessly with High Arctic's rentals, and the combined rental business is now marketed under the Delta brand.

Speaker Change: We are excited to be playing a significant role in preparing Papa New Guinea citizens to be job ready for the major projects, we anticipate in the latter part of this decade and beyond.

Speaker Change: In Canada, we have completed the first quarter of activity, which includes the business of Delta rental services.

Speaker Change: The acquisition of Delta in late December last year, it's amalgamation with high Arctic and its integration with our legacy rental business in Canada has delivered the scale for cash positive operation.

Speaker Change: Delta has blended seamlessly with high Arctic rentals and the combined rentals business is now marketed under the Delta brand.

Michael Joseph Maguire: The first quarter results are in line with our pre-acquisition expectations, with a strong contribution to revenue and positive cash flow that Delta Acquisition contemplated, and the structure of the consideration, with a large earn-out, was reflective of High Arctic's intention to reorganize and separate the Canadian and PNG business. The success of this modest but important growth step provides us with confidence that this transaction is symbolic of the prospects for a purely Canadian entity and how additional accretive transactions could be realized. Over the past two years, the corporation has divested underperforming and non-core assets from its business.

Speaker Change: The first quarter results are in line with pre acquisition expectations with a strong contribution to revenue and positive cash flow.

Speaker Change: The Delta acquisition contemplated in the structure of the consideration with a large earn out was reflective of hunting optics intention to reorganize and separate the Canadian in PNG businesses.

Speaker Change: The success of this modest but important growth step provides us with confidence that this transaction is symbolic of the prospects for a purely Canadian entity and how additional accretive transactions could be realized.

Speaker Change: Over the past two years, the corporation has divested underperforming and non core assets and businesses.

Michael Joseph Maguire: Now the corporation's Canadian business consists of a high-margin equipment rental business centered on pressure control, a minority interest in Team Snubbing Services Inc., Canada's largest oilfield snubbing services business, and Industrial Properties at Claremont and Whitecourt in Alberta, Canada. High Arctic has a 42% equity stake in Team Snubbing, and it has had another outstanding quarter in Q1. Setting new high-water marks in terms of hours worked, snubbing packages deployed, and available crews, this is translated into a sizable equity pickup for High Arctic.

Speaker Change: Now the Corporation's Canadian business consists of a high margin equipment rental business centered on pressure control.

Speaker Change: The minority interest in team Snubbing services, Inc. Canada's largest oilfield snubbing services business.

Speaker Change: And industrial properties, a claim on and whiteboard in Alberta, Canada.

High Arctic: High Arctic has a 42% equity stake in team snubbing.

Speaker Change: Team has had another outstanding quarter in Q1.

Speaker Change: Setting new high watermarks in terms of hours worked snubbing packages deployed in available crews.

High Arctic: This is transposed into a sizable equity pick up for high Arctic.

Michael Joseph Maguire: During the quarter, TEAM completed a reorganization of its international partnership. The result of this cashless arrangement sees TEAM holding a fraction over 90% of the international business and complete control of all decision making. The result is a more efficient overall team structure and overhead. After shutting down in December, the two snubbing packages deployed in Alaska remained shut down through much of the quarter, through the deepest parts of the cold weather, with both packages recommencing 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. Thank you, Mike.

Speaker Change: During the quarter team completed a reorganization of its international partnership.

Speaker Change: The result of these cashless arrangement CS team holding a fraction over 90% of the team's snubbing services International business.

Speaker Change: In complete control of all decision making.

Speaker Change: The result is a more efficient overall team structure and overhead.

Speaker Change: After shutting down in December the two snubbing packages deployed in Alaska under under remaining.

<unk> remained shut down through much of the quarter.

Speaker Change: The deepest parts of the cold weather with both packages Recommencing operations in March.

Speaker Change: I'd like now like to pass the call over to loan by high Arctic interim Chief Executive Chief Financial Officer to discuss key financial highlights from the quarter in more detail.

Lonn Bate: Great. Thank you, Mike, and good morning or afternoon to you all joining the call today. Before I begin, I just want to state that all the dollar amounts mentioned on this call for me will be in Canadian dollars unless otherwise mentioned.

Great. Thank you, Mike and good morning afternoon to you all joining the call today.

Speaker Change: Before I begin I just want to state that all the dollar amounts mentioned on this call for me it will be in Canadian dollars.

Speaker Change: Unless otherwise mentioned.

Lonn Bate: Looking at our first quarter financial results from continuing operations and on a consolidated basis, High Arctic generated revenues of $18 million, and adjusted EBITDA of $4.5 million, or 25% of revenue. In the quarter, High Arctic generated net income of $3.5 million, which equates to $0.07 per share.

Speaker Change: But looking at our first quarter financial results from continuing operations and on a consolidated basis high Arctic generated revenues of $18 million.

Speaker Change: Adjusted EBITDA of four and a half million dollars or 25% of revenue.

Speaker Change: In the quarter high Arctic generated net income of $3 5 million, which equates to 7% seven pardon me for sure.

Lonn Bate: This Improvement in Profitability for High Arctic was a result of continued full utilization of our drilling services and asset rental business in P&G, as Mike already mentioned, combined with a full quarter results from the Delta rentals business we acquired in late December 2023. In addition, the positive quarterly results were driven by meaningful investment income from short-term investments we hold and the strong quarterly contribution from Team Snubbing's Q1 results, recorded as income from equity investments on our income statement.

Speaker Change: This improvement in profitability for high Arctic.

Speaker Change: As a result of the continued full utilization of our drilling services and asset rental business in PNG that Mike already mentioned.

Speaker Change: Combined with a full quarter results from the dental Delta rentals business, we acquired in late December 2023.

Speaker Change: In addition, the positive quarterly results were driven by meaningful investment income from short term investments we hold.

Michael Joseph Maguire: And the strong quarterly contribution from team Snubbing Q1 results recorded as income from equity investment.

Michael Joseph Maguire: On our income statement.

Lonn Bate: In the quarter, a great deal of effort was undertaken by the Canadian operations team to integrate the operational aspects of the Delta Rental Services business. And, as mentioned, our Canadian rental business now operates under the Delta Rental Services banner in Canada, leveraging the platform we acquired.

Speaker Change: In the quarter a great deal of effort was undertaken by the Canadian operations team to integrate the operational aspects of the Delta rental services business and as mentioned our Canadian rentals business now operates under the Doe Delta rental services banner in Canada, leveraging the platform, we acquired and then combining the two business we've been able to acquire.

Lonn Bate: And in combining the two businesses, we've been able to acquire new customers in the space and, in doing so, deploy a meaningful amount of rental assets that were idle prior to the acquisition. Now, turning back to the quarter itself, as mentioned. The business performed well, generating $4.5 million in adjusted EBITDA, 40% more than the $3.2 million in adjusted EBITDA reported in Q4 2023. Consistent with the past three consecutive quarters, customer-owned rig 103 in Papua New Guinea continued to be fully utilized.

Doe Delta: New customers in the space and in doing so deploy a meaningful amount of rental assets that were idled prior to the acquisition.

Speaker Change: Now turning back to the quarter itself has mentioned.

Speaker Change: The business performed well generating a four and a half million in adjusted EBITDA, 40% more than the $3 2 million and adjusted EBITDA reported in Q4 2023.

Speaker Change: Consistent with the past three consecutive quarters customer owned rig 103.

Speaker Change: Papua New Guinea continue to be fully utilized our ancillary services segment continues to perform at or above expectations and as a result higher tick produce a consolidated oilfield services operating margin of over 40% in the quarter well above the 33% margin achieved from the prior quarter and higher than <unk>.

Lonn Bate: Our ancillary services segment continues to perform at or above expectations, and as a result, High Arctic produced a consolidated oil field services operating margin of over 40% in the quarter, well above the 33% margin achieved for the prior quarter and higher than any other consolidated operating margin for High Arctic for quite some time. This margin performance of over 40% has been achieved through the culmination of strategic efforts taken at High Arctic to shed underperforming businesses over the past few years, adding Delta services to the portfolio, and through excellent operational execution in P&G that, in the quarter, saw exceptional margin performance driven by excellent operational execution at the rig site and discipline cost. DNA costs were $2.8 million in the quarter, consistent with prior quarters' spending.

Speaker Change: Any other consolidated operating margin for Arctic for quite some time.

Speaker Change: This margin performance above or over 40% has been achieved through the culmination of a strategic efforts taken at high Arctic to shed underperforming businesses over the past few years, adding delta services into the portfolio and through excellent operational execution and P&G, but in the quarter.

Speaker Change: Saw exceptional margin performance driven by.

Speaker Change: Excellent operational execution at the rig site and disciplined cost controls.

Speaker Change: G&A costs were $2 8 million in the quarter consistent with prior quarters spend.

Lonn Bate: The costs for the quarter represent 15.6% of revenues, again consistent with both Q4 and Q3 2023. DNA for the business has remained elevated, and it has incurred corporate professional fees related to its work towards the recently announced reorganization plan. Some additional one-time costs integrating Delta are also included in the quarter, as a result of the meeting the corporation held on January 10th. Additionally, as and where possible, management continues to evaluate its G&A burn and right-size the administrative support to align with the expected operations going forward in both P&G and Canada.

Speaker Change: The costs for the quarter, representing 15, 6% of revenues again, consistent with both Q4 and Q3 2023.

Speaker Change: G&A for the business has remained elevated.

High Arctic: As high Arctic is incurred corporate professional fees related to its work towards the recently announced reorganization plan.

High Arctic: Some additional one time cost to integrate delta.

High Arctic: Are also included in the quarter.

As a result of the meeting the corporation held on January 10th.

Speaker Change: Hasnt, where possible management continues to evaluate its G&A burn and rightsize the administrative support to align with expected operations going forward in both PNG in Canada.

Lonn Bate: That being said, it is anticipated that with a recently announced reorganization plan, Q2 2024, our GNA will likely be a high watermark in our spending at High Arctic. Now, assuming the reorganization goes ahead, as per our current timelines, meaningful G&A reductions will be realized in the second half of 2024 collectively. As mentioned earlier, Jussie D. Bedeaux earned $4.5 million in Q1, or 25.2% of revenues.

Speaker Change: That being said it is anticipated that.

Speaker Change: With the <unk>.

Speaker Change: Our recently announced reorganization plan Q2, 2024, our G&A will likely be a high watermark in our spending at high Arctic.

Speaker Change: Now assuming the reorganization goes ahead as per our current timelines meaningful G&A reductions will be realized in the second half of 2024 collectively.

Speaker Change: As mentioned earlier adjusted EBITDA was four and a half million dollars in Q1 or 25, 2% of revenues.

Lonn Bate: Comparing favorably to adjusted EBITDA of just one million, just shy of one million, or 11% of revenues in Q1 2023. This better performance in 2024 was due primarily to the fact that we were considerably busier in 2024 versus last year, plus some of the additional optimization mentioned earlier.

Speaker Change: Comparing favorably to adjusted EBITDA of just 1 million, just shy of $1 million or 11% of revenues in Q1 2023.

Speaker Change: This better performance.

Speaker Change: Performance in 2024.

Speaker Change: Yes. It was due primarily to the fact that we were considerably busier in 2024 versus last year.

Speaker Change: Plus some of the additional optimization mentioned earlier.

Lonn Bate: Specifically, in the drilling services segment, we generated 12.4 million of revenue in the quarter, higher than the 6.3 million in Q1 2023. This increase was due primarily to the fact, as mentioned, our customer-owned rig 103 was only operational for one partial month in Q1 of last year. Preparatory work to ready that rig for service last year is captured in the P&G revenue tally for 2023 Q1, but this activity was nowhere near the revenue level we experienced when rig 103 was fully operational.

Speaker Change: Specifically in the drilling services segment, we generated $12 4 million of revenue in the quarter higher than the $6. Three in Q1 2023. This increase was due primarily to the fact.

Speaker Change: As mentioned our customer owned rig 103 was only operational for one partial month.

Speaker Change: One of last year PREPA.

Speaker Change: Preparatory work to ready that rig for service last year.

Speaker Change: He is captured in the PNG revenue tally for 'twenty 'twenty through Q1 of this activity was nowhere near the revenue level, we experienced when rig 103 is fully operational.

Lonn Bate: As expected, our Q1 2024 operating margins in the drilling services segment were also higher at over 29% in the quarter, driven by this increased activity, and considerably better than the 19% achieved in Q1 2020. Our ancillary services segment spans both PNG and Canada and continues to be our highest operating margin generator. We achieved operating margins of 66% on 5.6 million of revenue in Q1 2024 as compared to the 68% margin achieved in Q1 2023.

Speaker Change: As expected our Q1 2020 for operating margins in the drilling services segment were also higher at over 29% in the quarter driven by this increased activity.

Speaker Change: Considerably better than the 19% achieved in Q1 2023.

Speaker Change: Our ancillary services segment spans ball PNG in Canada and continues to be our highest operating margin generator.

Speaker Change #100: We achieved operating margins of 66% on $5 6 million of Rev.

Speaker Change #100: In Q1, 2024 as compared to the 68% margin achieved in Q1 2023.

Lonn Bate: Increased revenue as a result of increased deployment of our rental equipment in P&G and the additional revenue driven from the Delta business. Impacting the Canadian result, There was no activity in our production services segment again this quarter, with only a small expense being booked related to storage and preservation costs for the remaining assets in this segment, including our production services segment, just for our readers. For everybody's benefit is our 42% equity investment in team snubbing and our involvement in the Cichenni partnership, where High Arctic holds a 49% stake. Mr. Cheney's partnership has experienced limited business activity since the 2022 Canadian sales transaction. But the partnership does still remain active, and we, along with our partner, continue to work to reposition its customer offerings and are exploring other avenues for this business activity and this platform.

Speaker Change #100: The increased revenue as a result of increased deployment of our rental equipment in PNG and the additional revenue driven from the Delta business.

Speaker Change #101: The Canadian results.

There was no activity in our production services segment again, this quarter with only a small expense being booked related to storage preservation cost with the remaining assets in this segment.

Speaker Change #102: Included in our production services segment, just for our readers for it.

Speaker Change #103: Please benefit as our 42% equity investment in team snubbing and our involvement in the search any partnership.

Speaker Change #104: High Arctic holds a 49% stake.

Speaker Change #104: This is Jenny partnership has experienced limited business activities since about 2022 Canadian sales transactions, but the partnership does still remain active and we along with our partner continue to work to reposition its customer offerings and are exploring other avenues for this business activity in this platform.

Lonn Bate: On the CapEx side, you're in the quarter. CapEx totals just over a million dollars. This spending was focused on both growth and Capital Upgrades performed on our Rental Equipment Fleet, both in P&G and Canada, plus costs associated with building out and modernizing our financial and operating systems, again both in P&G and Canada. We expect to continue with only modest capital spending in 2024, as it stands right now, and that will mostly be focused on maintaining and growing our rental fleet, both here and abroad.

Speaker Change #105: On the Capex side during the quarter Capex totaled just over $1 million.

Speaker Change #106: Spending was focused on both growth.

Speaker Change #107: And capital upgrades performed in our rental equipment fleet, both in PNG, and Canada, plus costs associated with building out and modernizing our financial and operating systems again, both in PNG in Canada.

Speaker Change #107: We expect to continue with only modest capital spending in 2024 as it stands right now.

Speaker Change #108: Will mostly be focused on maintaining and growing our rental fleet.

Speaker Change #108: Here and abroad.

Lonn Bate: The company entered the quarter with $57 million of cash on hand, and with over $40 million of that invested in secure, interest-bearing, short-term investments, which generated interest income for us of $570,000 in the quarter. Our working capital position improved slightly in the quarter at the end of March and stood at $67.6 million at March 31, although reported cash and working capital balances did experience a positive translation impact at the end of March 2024.

Speaker Change #109: The company ended the quarter with $57 million of cash on hand, and over with over $40 million of that invested in secure interest bearing and short term investments, which generated interest income for us of $570000 in the quarter.

Speaker Change #110: Our working capital position improved slightly in the quarter at the end of March instead at $67 6 million at March 31.

Speaker Change #111: Our reported cash and working capital balances did experience a positive translation impact at the end of March 2024. This was due to the appreciation of the U S dollar vis vis the Canadian dollar in the quarter just reported.

Lonn Bate: This is due to the appreciation of the US dollar vis-a-vis the Canadian dollar in the quarter just reported. Consistent with past quarters, our only source of debt is the mortgage financing we hold. At the end of March, the total long-term and short-term portion combined was a total of $3, and a half million, and that's secured against our land and buildings that we hold in Alberta.

Speaker Change #112: Consistent with past quarters, our only source of that is the mortgage financing we hold.

Speaker Change #113: At the end of March and total long term short term portion combined to total $3 5 million.

Speaker Change #114: And that secured against our land and buildings that we hold in Alberta.

Lonn Bate: Well, that's my report. And with that, I'll turn this back over to Mike. Thank you.

Speaker Change #114: Well that is my report and with that I'll turn this back over to Mike.

Michael Joseph Maguire: Thank you Laura.

Michael Joseph Maguire: A couple of days ago, we announced the setting of June 17th, 2024 for an annual general and special meeting of shareholders for the purpose of, among other things, approving the reduction of the capital account maintained by the corporation in respect of the High Arctic common shares in an amount of up to 76 cents per share multiplied by the number of common shares issued and outstanding, and the distribution of a tax-efficient return of capital to shareholders up to a maximum The maximum distribution relates to the sale of High Arctic's Canadian wealth servicing assets in July 2022.

A couple of days ago, we announced the setting of June 17th 2024 for an annual general and special meeting of shareholders for the purpose of among other things approving the reduction of the capital account maintained by the corporation in respect of the high Arctic common shares.

Speaker Change #115: Mount of up to 76 cents per share multiplied by the number of common shares issued and outstanding.

Speaker Change #116: And the distribution of a tax efficient return of capital to shareholders to a maximum of $38 $2 million.

The maximum distribution relates to the sale of high Arctic is Canadian well servicing assets in July 2022.

Michael Joseph Maguire: Further, at the meeting, shareholders have been asked to vote upon the reorganization of the corporation via a court-approved plan of arrangement. The arrangement will transfer High Arctic's P&G business to a separate, dedicated, and independent publicly traded company named High Arctic Overseas Holding Corp., while the corporation will continue to own and operate the existing North American business, including Delta Rental.

Speaker Change #117: But at the meeting shareholders have been asked to vote. Upon the reorganization of the corporation by a court approved plan of arrangement.

Speaker Change #118: The arrangement will transfer high Arctic PNG business to a separate dedicated an independent publicly traded company named high Arctic overseas holding Corp.

While the corporation will continue to own and operate the existing North American business, including Delta rentals.

Operator: Each of the two companies will have its own management and operational teams and separate board of directors. Under the proposed arrangement, for each common share of High Arctic held, every shareholder of High Arctic will receive one quarter of one common share of the new company, High Arctic Overseas Holdings Corp., and one quarter of one new common share of the corporation post-arrangement. This separation is aimed at addressing the lack of synergies and inefficiencies of managing two small businesses on opposite sides of the world and allowing senior management to concentrate where they have had the most success in the past.

Speaker Change #119: Each of the two companies will have its own management and operational teams and separate board of directors.

Speaker Change #120: Under the proposed arrangement for each common share of high Arctic held every shareholder of high Arctic will receive one quarter of one common share of the new company High Arctic Overseas Holdings Corp.

Speaker Change #120: And one quarter of one new common shares of the Corporation post arrangement.

Speaker Change #121: This separation is aimed at addressing the lack of synergies and inefficiencies of managing to small businesses on opposite sides of the world.

Speaker Change #122: Senior management to concentrate where they have had the most success in the past.

Operator: High Arctic's board and management believe value can be created for shareholders. For the holders of spin code common shares, separation provides the opportunity for, International, High Arctic Overseas Holdings to consider transactions with a wider group of PNG-focused companies, and Michael Binnion, Douglas Strong, Unknown Executive, Murray Weimer, Patrick Tang, Lonn Bate, High Arctic, For the holders of post-arrangement High Arctic common shares, the transaction opens up opportunities, for High Arctic to participate in Canadian mergers and acquisition activities, where the P&G business may have been perceived as an impediment to a creative transaction.

Speaker Change #123: Biotics Board and management believe value can be created for shareholders.

Speaker Change #124: The holders of <unk> common shares separation provides the opportunity for <unk>.

Speaker Change #125: High Arctic International if I could.

These holdings to can see the transactions with a wider group of PNG focused companies and greater flexibility to relocate in the future to a market that better understands Papua New Guinea and is likely to ascribe greater value to the company.

Speaker Change #126: For the holders of post arrangement high Arctic common shares the transaction open up opens up opportunities for high Arctic to participating Canadian mergers and acquisition activities, where the P&G business may have been perceived as an impediment to accretive transactions.

Operator: Both the return of capital and the reorganization by plan of arrangement require approval by a minimum of two-thirds of the votes cast by High Arctic shareholders, voting in person at the meeting or by proxy. The arrangement is also subject to the approval of the Toronto Stock Exchange and the Court of King's Bench of Alberta, and applicable regulatory approvals and certain other conditions customary for transactions of this nature. An application has been made to the TSX Venture Exchange for the listing of the new company's common shares upon completion of the arrangement, while we expect High Arctic to maintain its listing on the main Toronto Stock Exchange Board. I will now turn the conference over to Melanie, the operator, who will open the line for questions. Thank you; we will now take

Speaker Change #126: Both the return of capital and the reorganization by plan of arrangement require approval by a minimum of two thirds of the votes cast by high Arctic shareholders.

Speaker Change #127: Quoting in person at the meeting or by proxy.

Speaker Change #127: The arrangement is also subject to the approval of the Toronto stock exchange and the court of King's bench of Alberto.

Speaker Change #127: And applicable regulatory approvals and certain other conditions customary for transactions of this nature.

Speaker Change #128: And application has been made to the T. S X venture exchange for the listing of the new company's common shares upon completion of the arrangement, while we expect high Arctic to maintain its listing on the main.

Speaker Change #128: Toronto Stock Exchange Board.

Melanie: I will now turn the conference over to Melanie the operator, who will open the line for questions.

Operator: Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1 on your device's keypad. If at any time you wish to cancel your question, please press star 2. Please press star 1 at this time if you have a question. There will be a brief pause while the participants register for questions. We thank you for your patience. The first question is from...

Melanie: Thank you we will now take questions from the telephone lines. If you have a question. Please press star one on your devices keypad.

Melanie: If at any time you wish to cancel your question. Please press star two.

Operator: Mike Schimmick

Please press star one at this time, if you have a question.

Speaker Change #130: There will be a brief pause while the participants register for questions. We thank you for your patience.

Speaker Change #131: The first question is from.

Mike Schmidt: Mike Schmidt.

Operator: Please go ahead; your line is now open.

Mike Schmidt: Please go ahead. Your line is now open.

Unknown Executive: Yeah, hi, I have a question with regard to the deferred tax asset. Unknown Speaker, are the different types of asset proceeded as having monetary value in discussions with potential M&A partners, and the second part to that question is with the realization of the value of that asset be most easily achieved through a merger with a large partner.

Mike Schmidt: Oh, Yeah, Hi, I have a question with regards to the deferred tax asset.

Mike Schmidt:

Mike Schmidt: Is the deferred tax asset.

Speaker Change #133: Perceived as having monetary value and discussions with potential M&A partners.

Speaker Change #134: And the second part to that question.

Is what the realization of the value of that asset the most easily achieved through merger with a large partner.

Lonn Bate: Mike, it's Lonn CFO. I'll, I'll take that. So perceived value. So you're, I just want to make sure that we haven't recorded a deferred tax asset on the books of High Arctic. So I mean, it was historically right, but the last few years, it's, we take something called an evaluation allowance against it.

Mike: Mike its long CFO I'll I'll take that so perceived value. So your I just want to make sure that we haven't recorded a deferred tax asset on the books of high Arctic.

Mike: Yeah. So I mean, it was historically right, but the last few years. It's it's we take something called a valuation allowance against it. So obviously, we do have non capital losses in the Canadian entity. The parent company. That's listed on the T effects.

Lonn Bate: So obviously, we do have non-capital losses in the Canadian entity, the parent company that's listed on the TSX. And certainly, there is I'm not going to speculate on what the perceived value of those tax non-capital loss carry forwards is. Is there a market for them generically? Yes.

Speaker Change #136: And certainly there is.

Speaker Change #137: I'm not going to speculate on what the perceived value of those of those tax are non capital loss carryforwards are.

Speaker Change #138: Is there a market for them generically yes.

Lonn Bate: It is something we talk about in our press releases. It is factual. They do exist, and under the right structure, going forward into a transaction, or just through our organic growth in the Canadian business as we build out the Canadian platform, assuming the transaction and the reorganization go ahead, they certainly will have value. Certainly Delta, the acquisition we did there in December of last year, they were cash taxable on the day before we completed that transaction, and subsequent to the amalgamation, they and their Canadian operations are no longer subject to tax on that business. So the perceived value, we're not marketing these tax losses carried forward. We don't do that.

Speaker Change #139: It is something obviously in our press releases, we talked about it is factual they.

Speaker Change #140: They do exist and under the REIT structure.

Speaker Change #141: Going forward into a into a transaction or just through our organic growth in the Canadian business has as we build out the Canadian platform, assuming the transaction and the reorganization goes ahead, they certainly will have value.

Speaker Change #142: Certainly delta the acquisition, we did there in December of last year. They were cash taxable. Upon you know the day before we completed that transaction and subsequent to the amalgamation.

Speaker Change #142: They're folded in with the operations here.

Speaker Change #143: And the Canadian the Canadian operations are no longer subject to tax on that business.

Speaker Change #144: So the perceived the perceived value we're not marketing these tax losses carried forward. We don't do that it's just going to be part of the of the go forward entity.

Lonn Bate: That's just going to be part of the go-forward entity, and we just call it a feature for the entity going forward. And it will, you know, it will be there on any transaction we do. There are a lot of regulations around how those are used with change of control and the like, going forward into certain transactions. You referenced a large transaction. Again, depending on the regulation, whether those survive or not is sort of up to the regulations and CRAs.

Speaker Change #144: Colorado.

Speaker Change #144:

Speaker Change #145: You know a feature for the entity going forward and it will it will be there on any transaction. We do there are a lot of.

Speaker Change #145:

Speaker Change #145: Regulations around how those are used in our.

Speaker Change #146: With change of control and the like.

Speaker Change #145: <unk>.

Speaker Change #147: Going forward into certain transactions. So you you referenced a large transaction.

Speaker Change #147:

Speaker Change #147: Again, depending on the regulation.

Speaker Change #148: Whether those survive or not is sort of up to the regulations and see are easy.

Lonn Bate: I think it is clear that we intend to take steps aimed at protecting and retaining those non-capital tax loss carry-forwards, and we do believe that it could be potentially attractive to other businesses, like it was for Delta Rental Solutions, or Delta Rental Services, as I should say, to be amalgamated in or merged with a company such as ours where those tax losses then provide some further protection for the distribution of earnings out of the company.

Speaker Change #149: I was talking to wait till the end of that.

Speaker Change #150: I think that to be clear that we.

Speaker Change #151: Intend to take steps aimed at protecting and retaining those known capital tax loss carryforwards.

Speaker Change #152: And we do believe that it could could be potentially attractive to other businesses like it was the delta rental solutions were.

Speaker Change #153: Built around the services I should say.

Speaker Change #154: But amalgamated into merge with a company such as ours, where those tax losses, then provide some further protection.

Speaker Change #154: For the distribution of earnings out of the business.

Unknown Executive: Great, thank you very much. That's pretty much how I perceived everything, and that confirms what I thought.

Speaker Change #155: Great. Thank you very much that's pretty much how I perceive it everything and that confirms what I thought thank you.

Mike: Thanks, Mike.

Operator: Once again, please press star 1 on your telephone's keypad if you have a question. The next question is from

Once again, please press star one on your telephone keypad, if you have a question.

Speaker Change #156: The next question is from odd things to that.

Operator: [inaudible]

Speaker Change #157: Please go ahead. Your line is now open.

Speaker Change #158: Hello, guys good.

Speaker Change #159: Progress. So thanks for that I've got two questions. The first one can you give a little bit of reasoning behind kind of the short shaft rolled bench.

Speaker Change #159: Trying to do is the organization goes through.

Speaker Change #160: That's one and the second question is could you give a little bit of backgrounds and reasoning on the two new directors scrap niebuhr for godmother and Bruce upon off for the spin co.

Operator: Please go ahead; your line is now open.

Speaker Change #160: Jochen Mike here. Thanks for thanks for your questions and we'll start with the first one the reasoning behind the share rollback. Yeah. It was have you and discussed with our financial advisor.

Speaker Change #160: That on the post arrangement.

Unknown Caller: Hello guys, I've made good progress, so thanks for that.

Tried to potential trading values of the two corporations following what we expect to be a sizable cash distribution out of the business or out of the corporation that we didn't want to see them trading down as low low low digit low sent stocks.

Unknown Caller: I've got two questions. First one, can you give a little bit of reasoning behind kind of the short share rollback? What are we going to do if the organization goes through? That's one. And the second question is, could you give a little bit of background and reasoning on the two new directors, Craig Niebuhr for Canada and Bruce Apana for Spinco?

Michael Joseph Maguire: Sure, Ken. Mike here.

Michael Joseph Maguire: Thanks. Thanks for your questions. And yeah, we'll start with the first one, the reasoning behind the share rollback. Yeah, it was our view, and discussed with our financial advisor, that on the post-arrangement, the potential trading values of the two corporations following what we expect to be a sizable cash distribution out of the business or out of the corporation that we didn't want to see them trading down as low digit, low cent stocks.

Michael Joseph Maguire: Day, etc. determined that a 1 for 4 or a 4 for 1, sorry, 4 for 1 exchange would mean that they should list in a manner that would be much more of a meaningful figure to be trading on the stock.

Speaker Change #161: So we.

Speaker Change #162: Determined that a one for four or four for one sorry for one exchange would mean that they should list in a manner that would be much more of a meaningful figure to be trading on the stock exchange.

Unknown Caller: Okay, the follow-up question on that is also in the back of your mind, reasoning that if there are less shares and, potentially, especially for the Canadian company, it is easier to pay dividends on.

Speaker Change #163: Okay and a follow up question on that is that also in the in the back of your mind.

Speaker Change #164: Listening that they serve.

Speaker Change #165: Less shares and potentially.

Especially for the Canadian company easier to pay dividends all.

Speaker Change #165: Okay.

Michael Joseph Maguire: I don't think that the fact of aiming for less shares was at all part of the consideration. It was more about, you know, after that cash comes out of the business and the two pieces separate, you know, where do we want to see the two companies trading at as far as a dollar figure on the exchange. Okay, so the second question, a bit of background on the two directors. So I was intending, in my closing remarks, to reflect upon Joe Oliver, the Honourable Joe Oliver's service as a director with High Arctic for the past eight years, joining in 2016.

Speaker Change #166: I don't think that's effective aiming for less shares was was it all part of the consideration that was more about them. After that cash comes out of the business into two pieces separate.

Speaker Change #167: What's the where do we want to see that the two companies trading at as far as like a dollar figure change.

Speaker Change #167: Okay.

Michael Joseph Maguire: And, you know, he has determined that having reached the point now where we do look likely, subject to those remaining shareholder approvals and other regulatory hurdles, that we're likely to end up with the reorganization in place, and this was an ideal time for him to step off the board. And in that regard, having concluded the business associated with approving our Q1 financial results and the release then yesterday, Joe has provided us with his resignation.

Speaker Change #168: Okay. So the second question a bit of background on the two directors so.

Speaker Change #169: Well, it's intending on closing remarks to reflect upon the Joe all of US the honorable Joe all of his service as a director with high Arctic for for the past eight years, joining in 2016 and he he has determined that are having reached the point now where we are we do look likely subject to those remaining.

Speaker Change #170: Shareholder approvals and other.

Speaker Change #171: Regulatory hurdles.

Speaker Change #172: We are likely to end up with the reorganization and placing this was an ideal time for him to step off the board.

Speaker Change #172: And in that regard having concluded the business associated with proving up Q1 financial results and in the release then yesterday, Joe has provided us with his resignation.

Michael Joseph Maguire: For a compliant board structure for the TSX that is as lean and cost-effective for our shareholders as possible, we did need to have, We believe we did need to have four directors, with at least a minimum of those having three independent directors to form an audit committee and meet other TSX rules and regulations.

Speaker Change #173: For a compliant board structure for the TSA ex that is as lean and cost effective for our shareholders as possible, we did need to have a.

Joe: We believe we did need to have four directors.

Joe: With a minimum at least a minimum of those having three independent directors to form a and audit committee and to meet other T. Essex.

Speaker Change #175: <unk> and regulations.

Michael Joseph Maguire: So the board conducted a short search and identified Craig Niebauer as a suitable candidate to step in and take the fourth director seat, replacing Joe Oliver, and Craig has consented then to being put forward as a nominee for election at the shareholder meeting. Craig's got a lot of experience. He's a Canadian. He's a resident of Alberta, in Calgary, where the corporation's headquarters is. He's got a lot of experience as a professional in the energy sector, both from energy producers as well as services and other related sub-industries within the energy sector. Lengthy career there. I think that I'd be speaking on behalf of the board, but to say we were excited about what Craig could bring to discussions in the boardroom.

Speaker Change #175: So we the board has conducted a short search and identified <unk> as a as a suitable candidate to stepping in and take the fourth director, replacing Joe all of them and Craig has consented into to being put forward as a nominee for election at the shareholder meeting.

Speaker Change #175: Craig's got a lot of experience in the.

Speaker Change #176: He is a Canadian he's he's residents in Alberta in Calgary, and the corporation's headquarter disease. He's got a lot of experience as a professional in the in the energy sector.

Speaker Change #177: Both as a from the energy producers as well as services.

Speaker Change #177: And and other related sub industries within within the energy sector.

Speaker Change #178: Lengthy career, there I think that.

Speaker Change #179: Speaking on behalf of the board, but to say we're excited about you know will cry could bring to discussions in the boardroom.

Michael Joseph Maguire: The other director of the Papua New Guinean business is Bruce Apana. I've known Bruce for over 10 years. Bruce Apana is a legal professional. He was educated in Australia and has served as a solicitor in the Australian Capital Territory. But for the majority of his career as a Papua New Guinean citizen, he's worked in Papua New Guinea. He is a resident of Port Moresby. He's well connected in business and in political circles and has been a long-term associate of High Arctic.

Speaker Change #179: The other director for the Papua New Guinea and business is Bruce a partner.

Speaker Change #179: I've known Bruce for over 10 years, Bruce upon or is <unk> is a legal professional.

Speaker Change #180: Educated in Australia and has served.

Bruce: As a as a solicitor and in Australian capital territory, but if a majority of his career as a pop into getting a citizen. He he's he's worked in Papua New Guinea. He is resident in Port Moresby. He is well connected and are in the business and and in political circles.

Speaker Change #182: And it has been a longtime associate of high optics he acts as a.

Michael Joseph Maguire: He acts as a resident director of our subsidiaries there and as company secretary to those subsidiaries and has done so for the entire period I've been associated with the company. I'm excited about the idea here of a Papua New Guinean citizen, a man with an impressive background such as Bruce, and a strong association with that company being on the board of the Canadian parent entity.

Speaker Change #183: Our resident director of our subsidiaries, there and as company Secretary to those subsidiaries and has done so for the entire period I've been associated with the company.

Speaker Change #183: I'm excited about the the the idea here of Papua New Guinea, and citizen a man with a with an impressive background in such as Bruce and a strong association with our company being up on.

Bruce: On the board of the Canadian parent entity.

Unknown Caller: Okay, this is clear. Thank you.

Speaker Change #184: Okay, Yeah. Thank you.

Speaker Change #185: Youre welcome.

Speaker Change #185: Hum.

Operator: There are no further questions registered at this time. I would now like to turn the meeting over back to Mr. Maguire.

Speaker Change #185: They are no further questions registered at this time I would now like to turn the meeting over back to Mr. Mcguire.

Michael Joseph Maguire: Well, I must admit, I am a little surprised. I thought there might be more questions about our reorganization and the shareholder meeting, and I'm going to choose to take that as meaning that the materials that we distributed in our press release have very clearly outlined what our intentions are. It has been a long process for us to get to this point, and I appreciate the patience of our shareholders, particularly those who've been with us for a long period and have held High Arctic.

Uh huh.

Michael Joseph Maguire: I must admit I am a little surprised I thought there might be more questions about our reorganization and the shareholder meeting and I'm going to choose to take that as meaning that the materials that we distributed in that press release very clearly outlined what.

Speaker Change #186: What our intentions are.

Speaker Change #187: Has been a long process for us to get to this point I appreciate the patience of our shareholders, particularly those who have been with.

Speaker Change #188: With us for the <unk> for a long period held high Arctic I'm excited about what the potential is for the two separate entities that timeline sees us moving towards them, having the return of capital distributed to shareholders in the second half of July and and to complete the reorganization by the end.

Michael Joseph Maguire: I'm excited about what the potential is for the two separated entities. Our timeline sees us moving towards having the return of capital distributed to shareholders in the second half of July and completing the reorganization by the end of that month, and in doing so, starting the exciting new chapter of High Arctic Energy Services and High Arctic Overseas Holdings. Thank you for your time this afternoon, and have a great day.

Speaker Change #188: Of that month.

Speaker Change #189: And in doing so starting the exciting new chapter.

Speaker Change #190: <unk> energy services in high Arctic overseas Holdings.

Speaker Change #191: Thank you for your time this afternoon and have a great day.

Operator: Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.

Speaker Change #192: Thank you. The conference has now ended please disconnect your lines at this time, we thank you for your participation.