High Arctic Energy Services Inc.

Good morning, ladies and gentlemen. Welcome to the High Arctic Energy Services 2021 Q4 Results Conference Call. I would like to turn the meeting over to High Arctic's Chief Executive Officer, Mike McGuire. Please go ahead.

Thank you, Patrick, and good afternoon or good morning to everyone, depending upon where you are. Welcome to High Arctic's fourth quarter conference call. Today, I'll be providing an update on the press release we issued aftermarket yesterday, March 10th. Following my remarks, I'll hand the call over to our Chief Financial Officer, Lance Mierendorf. Lance will be discussing our financial performance for the fourth quarter of 2021. 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 HIACTA's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance, and they are subject to certain risks, which could cause actual performance and financial results to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please take a look at our management's discussion and analysis and the 2021 Annual Information Form that accompanied our release under the heading of Risk Factors. But what a rollercoaster the energy industry is on. Entering 2022, global events have propelled the energy sector into an immediate and significant supply constraint situation. Sanctions against Russia, combined with the actions of global energy and transport corporations, have removed substantial supply of oil and gas, stressing the market at a time of increasing energy demand as COVID-19 restrictions are lifted around the world. High Arctic closed out the 2021 fiscal year in an excellent position. As underlying business fundamentals began to improve, surplus pre-pandemic cash of $9.7 million was paid to shareholders in the form of a special one-time dividend in November. We exited the year with $12 million of cash on hand, a strengthened capital structure with the execution of an $8 million fixed rate mortgage financing, access to a revised $37 million undrawn revolving credit facility, and increasing revenue fueled by positive pricing trends, increasing demand for our services, and the return to work in Papua New Guinea. The return to RIG activity in PNG was a 2021 highlight. Even better was the ability of our team there to prepare, transport, assemble, recommission, and operate RIG 115 without a recordable incident. In the process, increasing our recordable incident free performance after five and a half years and 2.8 million man hours. Another highlight was the above market 43% utilization in our Canadian well servicing against the CAOEC average of 37%. Increasing revenue per hour in Canada through the second half of 2021 is a trend that continues into the first quarter of this year, driven by substantially improved pricing agreements with our key customers. This was somewhat offset by rig deployment and reactivation costs and inflationary cost pressure, particularly the cost of personnel. COVID-19 site shutdowns continued and impacted the fourth quarter more than any prior period. The ongoing sentiment towards living with endemic COVID-19 is increasingly positive, However, some site shutdowns still persist in the first month of 2022, and how this might affect our business into the future does remain somewhat uncertain. But we expect commodity price strength, coupled with the renewed global focus for the security of supply for oil and natural gas, will drive further increases in energy service activity. It is our view that more Canadian oil will be needed to supply foreign markets. Canadian heavy oil is well-placed to supply growing U.S. demand as it strives to meet President Biden's State of the Union commitment this year to start fixing over 65,000 miles of highway and 1,500 bridges in disrepair throughout their country. For the past 18 months, our E&P customers have prioritized balance sheet repair, followed by increased return to shareholders. With a prognosis for continued high oil and gas, we anticipate that these companies now have additional free cash flow to invest back into their assets to increase production, providing High Arctic with optimism for continued increases in utilization and pricing through 2022. LNG is increasingly becoming the mobile, low emissions energy source of choice through this period of energy transition. Demand for LNG is increasing in Asia, Europe and the subcontinent. And Papua New Guinea is ideally positioned as a key source of new LNG supply. The signing of the Pyongyang gas agreement and the progression of the Papua LNG project towards final investment decision are key recent developments here. The project timelines for those two major capital projects looks ideal, given that there are projections of significant supply shortfall from the current and committed LNG projects globally. Pi Arctic is ideally positioned to benefit from a need to drill, complete and service wells in both the Canadian and Papua New Guinean markets. Services aligned with the development of the gas sources for the LNG projects in PNG should be accompanied with a return to exploration and appraisal to discover and delineate the future feedstocks for the existing and new LNG processing facilities. The Saarchene partnership continued to grow in 2021, generating revenues of $2.1 million in Canada. The partnership was particularly successful in the various provincial well abandonment and site closure programs funded by the federal government, for which work will continue through most of 2022. And with that summary, I'd like to now pass the call over to Lance to discuss key financial highlights from the quarter in more detail.

Thank you, Mike. I will touch base on the key financial results and activity for the fourth quarter of this year. On a consolidated basis, Q4 revenues were $23.6 million, up 26% over Q3 and up approximately 40% compared to Q4 2020. Higher revenues were primarily generated from the ramp-up of drilling-related activities in our P&G operations. During the quarter, we moved Rig 115, camps, equipment, and people to the remote location where the well abandonment was to take place. Actual drilling operations commenced in January and the well abandonment program was completed during February of this year. Revenue from our production services segment in Canada remained flat at $13.6 million compared to Q4 2020 and was up only modestly from the $13.1 million generated in Q3. Shutdowns of rig sites due to COVID impacts extreme cold weather and weekend downtimes imposed by a few key customers resulted in over 3,000 less rig hours during the quarter. Operating margins were 20% during Q4 and for all of 2021, down from operating margins of 23% experienced in the previous year. Upward pressures on field labor costs were felt during Q4, partially offset by improving revenue per hour rig rates in Canada. Subsequent to year end, we are seeing a marked increase in demand for our services, opening up opportunities to negotiate higher rate rates, which are in turn expected to improve our operating margins as we proceed through 2022. We continue to be disciplined in our support services and controlling the costs. Cost reduction initiatives throughout the past several quarters has led to a 20% year over year decline in general administrative expenses. We will seek further opportunities to optimize our administrative expenses while effectively supporting growth in our field operations. High Arctic incurred a net loss of $4.6 million per $0.10 a share during Q4 and a loss of $18.6 million or $0.38 a share in 2021. This compares to a 2020 loss of $26 million or $0.52 per share. The non-cash quarterly charge of approximately $6 million for depreciation of our large base of property equipment masks the fact we generate positive funds flow from operations. For the year, we generated $3.7 million compared to $6.3 million in 2020. In terms of EBITDA, we produced $1.1 million during Q4 and $4.4 million during 2021. On November 5th, 2021, The corporation paid $9.7 million in dividends to shareholders while preserving a strong capital structure. The $0.20 per share dividend represented a 13% yield based on the trading value of hierarchic shares at the time the dividend was announced. As Mike mentioned earlier this morning, we announced the recommencement of a monthly dividend of $0.50 per share, payable starting May 12. Also during the quarter, High Arctic mortgaged its company-owned properties in Alberta, adding long-term low-interest debt to the capital structure. The $8.1 million of proceeds from the financing were made available to fund capital expenditures in Canada on equipment and in P&G as well in their operations. As Mike alluded to earlier in the call, at December 31st, the corporation had positive working capital of $30 million. and a working capital ratio of 3.1. We had cash on hand of $12 million, $8 million of long-term debt, and had access to approximately $10 million of an existing undrawn $37 million revolving credit facility. Lastly, a few administrative items to note. We changed external auditors to KPMG late in 2021 and successfully completed the year-end audit of our 2021 results. We also recently moved to Odyssey Trust Company as our transfer agent who will help organize our AGM scheduled to take place in May of this year. With that, I'll turn it back over to Mike.