CALGARY, Canada – August 11, 2022, High Arctic Energy Services Inc. (TSX: HWO) (the “Corporation” or “High Arctic”) released its’ second quarter results today.
Mike Maguire, Chief Executive Officer commented:
“The sale of our Canadian well servicing business provided a compelling opportunity to monetize a substantive part of our business rooted in a competitive market with lower operating margins. The transaction with Team Snubbing creates a contractor of scale with a high margin bespoke offering capable of generating profits in the Canadian energy services sector and positioned for growth internationally.
As a result, High Arctic can focus on the growth opportunities we expect to see materialize in PNG. The announcements this year of key developments in both the Papua LNG project and for the PNG-LNG joint venture’s P’nyang gas field has the country primed for multi-year sustained development and exploration activity. These projects will stimulate drilling and other substantive work activity that requires high quality PNG focused and experienced contractors. High Arctic has a history of success in PNG and is well placed to be a key service provider to each project.
High Arctic retains high quality businesses in Canada. The proceeds from the Sale Transactions will provide a means to pursue opportunities in PNG and to optimize the return from the remaining Canadian businesses. The Corporation also has a history of returning surplus cash to shareholders, and we will continue to consider that option.”
The following highlights the Corporations results for Q2-2022 and YTD-2022:
• Activity in PNG continued with an increased personnel count to over 200 employees and the successful completion of customer well abandonment work with Rig 115, while maintaining safety excellence.
• After the Quarter, High Arctic successfully renewed a 3-year contract for Drilling Services with a core customer in PNG and expects drilling to commence in Q4 2022.
• After quarter end on July 27, 2022, the Corporation sold its Canadian well servicing business for an aggregate purchase price of $38.2 million, and also sold its Canadian snubbing business for 42% equity ownership of Team Snubbing Services Inc. (“Team”), the acquiring company, and a note receivable of $3.4 million (“Sale Transactions”).
o the Sale Transactions represent the effective divestment of High Arctic’s Production Services segment;
o the well servicing business was purchased in August 2016 for $42.8 million in cash and recorded a non-cash bargain purchase gain of $12.7 million, higher than the $8.2 million non-cash impairment recognized on the sale during the Quarter;
o the Corporation also recorded a non-cash $7.7 million write-down of deferred tax assets to reflect the divestments of its main Canadian businesses; and
o the Corporation retains over $130 million of operating tax loss carry-forward in Canada.
• Revenues for Q2-2022 were $25.7 million, an increase of 57% from $16.4 million in Q2-2021, due to higher revenues in each of the Drilling, Ancillary Services and Canadian Production Services segments.
• Oilfield operating services margin as a percent of revenue increased in Q2-2022 to 23.1% versus 20.0% in Q2-2021.
• Adjusted EBITDA for the three and six-month periods ended June 30, 2022 was $3.1 million and $6.0 million respectively (2021: $0.8 million and $1.7 million, respectively).
• Net loss for the three and six-month periods ended June 30, 2022 was $20.3 million and $22.9 million, respectively.
High Arctic Energy Services Inc. Q2-2022 Results 2
o Adjusted for removal of one-off impairment and deferred tax write downs, Net loss was $3.9 million and $6.5 million respectively, lower compared to $4.0 million and $9.2 million loss in the respective 2021-periods.
• During Q2-2022, High Arctic commenced payment of a $0.005 per share monthly dividend with $0.5 million dividend payments during the quarter.
• Maintained a strong balance sheet, with a working capital balance of $27.5 million, including cash of $15.1 million, and total debt (current and long-term) of $7.9 million on June 30, 2022.
Our 2022 strategic priorities build on the platform we created in 2021 and include:
• Safety excellence and quality service delivery,
• Actions aimed at generating free cash flow including:
• Increased utilization of the Corporation’s world-class fleet of equipment,
• Improved efficiency and work force productivity, and
• Operating cost control.
• Development of new and existing employees to grow our workforce to meet demand,
• Pursuit of opportunities that secure the Corporation’s future as a lower emissions energy services provider,
• Pursuit of opportunities for growth and corporate transactions in well understood markets that enhance shareholder value, and
• Disciplined capital stewardship to improve returns for shareholders including divestitures, dividends and common share buybacks.
Canadian Production Services Segment Divestments
On July 28, 2022, High Arctic announced the first closing of the sale of its Canadian well servicing business for an aggregate purchase price of $38,200 payable in cash. Additionally, on the same date the Corporation announced the closing of the sale of High Arctic’s Canadian Snubbing business to a private entity for consideration consisting of 42% ownership in the outstanding shares in Team and a note receivable of $3,365. High Arctic will appoint two directors to the 5-person board of Team.
High Arctic retains its Ancillary Services Segment in Canada comprised of the Nitrogen Pumping business and a Rentals business focused on pressure control. High Arctic also retains its snubbing assets in the USA.
The Well Servicing Transaction resulted in the reclass of the following to Assets held-for-sale: property and equipment of $41,231, right-of-use asset of $4,662, prepaids of $185 and lease liability of $7,695. The Well Servicing Transaction resulted in the write down of property and equipment as non-cash impairment expense of $8,236 as at June 30, 2022. The well servicing business was purchased in August 2016 for $42,800 with a non-cash $12,700 gain on the acquisition booked to PP&E.
The Snubbing Transaction consideration comprises of 420,000 common voting shares in Team a private company, representing 42% of the post-closing total outstanding shares, and a convertible promissory note for $3,365 with a five-year term, interest accruing at 4.5% from January 1, 2023, and principal repayments commencing July of 2024. The Snubbing Transaction resulted in the reclass of property and equipment of $11,102 to assets held-for-sale on the Statement of Financial Position as at June 30, 2022. The Snubbing Transaction resulted in the write down of property and equipment as a non-cash impairment expense of $443 as at June 30, 2022. Investment in the share capital of the private company represents a joint arrangement whereby High Arctic has significant influence of the private entity operations and rights to the net assets of the private company.
As a result of the Well Servicing Transaction and Snubbing Transaction, the Corporation has a significantly reduced Canadian business and has written down the deferred tax assets while retaining in excess of $130,000 of operating tax loss carry-forward in Canada. Additionally, the Corporation has no funding available under its current undrawn revolving credit facility and the facility has been cancelled effective July 27, 2022.
At second closing of the Well Servicing Transaction in January 2023, the Corporation will transfer title to real estate locations owned by the Corporation to the purchaser and the Corporation will be required to repay $3.6 million of mortgage principal related to these properties.
The unaudited interim consolidated financial statements (“Financial Statements”) and management discussion & analysis (“MD&A”) for the three and six-month periods ended June 30, 2022 will be available on SEDAR at www.sedar.com, and on High Arctic’s website at www.haes.ca. Non-IFRS measures, such as EBITDA, Adjusted
High Arctic Energy Services Inc. Q2-2022 Results 3
EBITDA, EBITDA for purposes of long-term debt covenants, Adjusted net earnings (loss), Oilfield services operating margin, Operating margin %, Percent of revenue, Funds provided from operations, Working capital and Net cash are included in this News Release. See Non-IFRS Measures section, below. All amounts are denominated in Canadian dollars (“CAD”), unless otherwise indicated.
Within this News Release, the three-months ended June 30, 2022 may be referred to as the “Quarter” or “Q2-2022”, and similarly the six months ended June 30, 2022 may be referred to as “YTD-2022”. The comparative three-months ended June 30, 2021 may be referred to as “Q2-2021”, and similarly the six months ended June 30, 2021 may be referred to as “YTD-2021”. References to other quarters may be presented as “QX-20XX” with “X” being the quarter/year to which the commentary relates. All amounts are expressed in thousands of Canadian dollars, unless otherwise noted.
About High Arctic Energy Services
High Arctic is an energy services provider. High Arctic is a market leader in Papua New Guinea providing drilling and specialized well completion services and supplies rental equipment including rig matting, camps, material handling and drilling support equipment. In western Canada High Arctic provides nitrogen services and pressure control equipment on a rental basis to exploration and production companies.
For further information contact:
Lance Mierendorf, Chief Financial Officer
P: +1 (403) 508-7836
P: +1 (800) 688 7143
High Arctic Energy Services Inc.
Suite 2350, 330 – 5th Ave SW
Calgary, Alberta, Canada T2P 0L4