CALGARY, Canada – March 28, 2023, High Arctic Energy Services Inc. (TSX: HWO) (the “Corporation” or “High Arctic”) released its’ fourth quarter and year-end results today. The audited consolidated financial statements, management discussion & analysis (“MD&A”), and annual information form for the year ended December 31, 2022 will be available on SEDAR at www.sedar.com, and on High Arctic’s website at haes.ca. All amounts are denominated in Canadian dollars (“CAD”), unless otherwise indicated. Mike Maguire, Chief Executive Officer commented: “High Arctic enters 2023 well positioned to increase our service activity in Papua New Guinea in support of the significant LNG commitments made by our customers there. High Arctic has developed a strong position in PNG through top-tier equipment, local logistics expertise and a loyal and well-trained local workforce. The divestment of underperforming businesses in Canada has provided funds to pursue opportunistic growth in both our PNG and Canadian businesses and return value to shareholders, while weathering any market turbulence due to high inflation or recession.“ Highlights The following highlights the Corporations results for Q4-2022 and YTD-2022: • Disposition of underperforming assets in Canada for $38.2 million. • Executed a strategic consolidation of the snubbing industry in Canada by partnering with Team Snubbing, a large snubbing specialist. • Retained profitable Rental and Nitrogen Services businesses and real estate in Canada. • After a slowdown prolonged by the pandemic in PNG, rig operations recommenced in 2022. • In April, reinstated a monthly dividend of $0.005 per share and returned $2.2 million to shareholders. • Generated Adjusted EBITDA of $5.7 million YTD-2022 and a negative Adjusted EBITDA of $0.9 million in Q4-2022 while realizing a net loss of $36.6 million YTD-2022 and net loss of $9.1 million Q4-2022. • The significant loss was due to non-cash impairment expense of $9.7 million and elimination of $7.7 million deferred tax asset both associated with the Canadian business sales, a $3.9 million PNG inventory adjustment and obsolescence provision in Q4-2022 in PNG, and $17.7 million in depreciation expense. Strategy High Arctic’s 2023 Strategic Objectives build on the platform we created in 2022, and include: • Safety excellence and quality service delivery, • Redeployment of idled assets in PNG, • Scaling our Canadian business, • Opportunities for growth and corporate transactions that enhance shareholder value, and • Examination of the Corporation’s optimal capital structure and dividend policy. ——————– Papua New Guinea – Drilling and Ancillary Services Drilling Services activities rose in 2022 with PNG seeing drilling rig activity following a long period of relative inactivity during the Covid-19 pandemic. Early in 2022, the Corporation utilized Rig 115 to complete the abandonment of a complex legacy well for a key customer while in Q3-2022 the Corporation executed a three-year renewal of the contract for the provision of drilling services with its principal customer using Rig 103. 2022 also saw the Corporation take steps to formalize the provision of personnel services to the PNG industry following the success of doing the same in 2021. Provision of personnel to both key PNG customers remained strong throughout the year. With higher industry activity, the Corporation increased utilization of its rental equipment including camps, matting, and mobile material handling equipment. The combination of these service activities led to High Arctic achieving revenues of $30.7 million in 2022 as compared to $10.7 million in 2021 in its Drilling Services segment. In 2022, the Papua-LNG joint venture entered front-end-engineering-and-design (“FEED”) and commenced early works activity, foreshadowing a final investment decision (“FID”) in the second half of 2023. The operator of the PNG-LNG joint venture announced the signing of a gas agreement for the development of the P’nyang gas field in the Western Province of PNG, which is anticipated to result in the addition of further gas liquefaction capacity in the world class PNG-LNG export facility. In preparation for year-end verification and active drilling in 2023, High Arctic conducted comprehensive substantive procedures to verify the current asset carrying value of inventory. This resulted in a $3.9 million inventory adjustment in the fourth quarter of 2022. Canada – Production and Ancillary Services On July 27, 2022, High Arctic executed two separate asset sales transactions resulting in the effective divestment of the Corporation’s Production Services segment (the “Sale Transactions”). The Canadian well servicing business was sold for an aggregate purchase price of $38.2 million to be settled in cash consideration. The Well Servicing Transaction involved the sale of well servicing rigs, associated rental equipment, and real estate used in the support of these operations along with the transfer of field personnel and a large majority of the office support personnel. The sale price was $38.2 million, which resulted in impairment of $9.0 million recognized in 2022. The well servicing business was originally purchased by the Corporation in August 2016 for $42.8 million in cash with a non-cash $12.7 million gain on the acquisition booked to PP&E. The Canadian snubbing business was sold to Team Snubbing for a consideration consisting of 42% equity ownership in the post-closing outstanding shares in Team Snubbing, valued at $7.7 million, and a convertible promissory note of $3.4 million. The note has a five-year term, with interest accruing at 4.5% from January 1, 2023, and principal repayments commencing July of 2024. High Arctic’s investment in the share capital of Team Snubbing allows for significant influence of key corporate, strategic and financial decisions and High Arctic has rights to the net assets of Team Snubbing. The sale resulted in a 2022 impairment loss of $0.7 million. High Arctic retains its Ancillary Services Segment in Canada comprised of the Nitrogen Pumping business and a Rentals business focused on pressure control equipment. As a result of the Sale Transactions, the Corporation has a significantly reduced Canadian business and has written down the deferred tax assets of $7.7 million while retaining $126.7 million of operating tax loss carry-forward in Canada. Additionally, the $37.0 million revolving bank loan credit facility was terminated effective July 28, 2022. Outlook The Corporation begins 2023 with a strong balance sheet, access to … Read more
