High Arctic Energy Services Inc.

good afternoon ladies and gentlemen welcome to the high arctic energy services 2022 q4 results conference call i would now like to turn the meeting over to high arctic's chief executive officer mike mcguire please go ahead thank you chris and good morning everyone good afternoon to those in canada i'm talking to you from brisbane at the moment and thank you for your patience waiting for us to begin as i experienced a few technical difficulties getting online uh welcome to high arctic's fourth quarter conference call Today I'll be providing an update on the press release we issued early this morning, March 28th. Following my remarks, I will hand the call over to our Chief Financial Officer, Lance Mierendorff, and Lance will be discussing our financial performance for the fourth quarter of 2022. 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 hierarchics, current expectations, estimates, projections, and assumptions. These forward-looking statements are not guarantees of future performance, and they're 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 in the 2022 annual information form available on our website or on CDAR. Look under the heading Risk Factors. Well, following the divestments of our Canadian production services segment in the third quarter, we have focused on Papua New Guinea in this fourth quarter. PNG is a market where we have a dominant energy services position, a history of high profit margins and free cash flow generation. Papua New Guinea is now central to High Arctic's long-term business strategy. And during the fourth quarter, we ramped up both our deployed operational personnel and crews as we readied Rig 103 to commence operations and filled key managerial and support positions within our P&G operations. We took a deep dive into the large inventory of spare parts, equipment and consumables to ensure we have a solid understanding of our capacity to support our growing operations in P&G. We also progressed preparations for Rig 103 to commence drilling activity with a work scope that was expanded to include an upgrade of its top drive. and I'm pleased to confirm the upgraded rig is currently operating again, having returned to the well that drilling was suspended on back at the beginning of the COVID travel restrictions in 2020. High Arctic anticipates Rig 103 will operate consistently through the term of the contract, which runs through to July 2025. This recommencement of drilling operations follows the recent announcement in P&G that the total energies led Papua LNG project has commenced downstream front end engineering and design work or feed. This follows certain upstream feed work that commenced last year and continues the progress towards the final investment decision expected later this year. Indication suggests the Papua LNG project will be based on four electric driven LNG liquefaction trains housed in the existing export facility in Port Moresby, the capital city of Papua New Guinea. This facility is operated by Papua LNG partner ExxonMobil for the country's other LNG project. Total Energies has recently outlined plans to bury almost a million tonnes per annum of carbon dioxide with the Papua LNG project and a major tree planting project to boot. We expect the sequestration of CO2 to require additional wells to be drilled on top of those planned for gas production. Last week, Mr. Wapu Songk, the managing director of the national oil company Kumult Petroleum, was quoted as stating that they are in early talks with potential partners to build their own LNG processing unit. Mr. Songk said the proposed 1 million ton a year unit would be in addition to the new units to be built by the Papua LNG venture. and would be fed from undeveloped gas that Kummel Petroleum have secured retention licenses over. These developments support management's optimistic outlook on the gas development activities in PNG, which are expected to lead to increased demand for drilling and related services. I'd now like to pass the call over to Lance to discuss key financial highlights from the quarter in more detail.

Thank you, Mike, and good afternoon to those joining on the call today. Our fourth quarter results are the first complete quarter without contribution from the production services segment, which was divested in July of 2022. On a consolidated basis, Hierarchic generated revenues of $13 million and incurred a net loss of $9.1 million, or $0.19 a share, in Q4. Q4 oil field operating margins were significantly impacted by inventory adjustments, which led to a operating loss of $2.4 million, while on a full year basis, the oil field operating margin was $11.9 million, or 15% of revenue. During Q4, we recorded a net provision of $3.9 million, stemming from an extensive evaluation and counting of inventory, materials, and supplies located at various sites in Papua New Guinea. The adjustment included $4.5 million inventory write-down offset by a $600,000 reversal of a provision for obsolescence. Not only did we examine and assess our own inventory, we conducted extensive counts of inventory that we manage on behalf of a main customer in Papua New Guinea. We finally utilized some of this inventory both from our stock and from our customers' own stock, on the ongoing operations of RIG 103. In Q4, we recognized a liability of $3.3 million relating to customer inventory, which we were obliged to replenish pursuant to contractual obligations. This liability forms part of the total contingent liability of $8.3 million, which we reflected in the notes to our financial statements in the contingency sections. Following this evaluation, and again, as Mike pointed out, we are confident that we have sufficient and appropriate materials and supplies on hand at present to support our ongoing operations in Papua New Guinea. The company recorded negative 892,000 of adjusted EBITDA in the quarter and generated 5.7 million of adjusted EBITDA for 2022, up from 4.9 in 2021. In 2022, High Arctic experienced a $0.75 loss per share, of which 44% relates to non-cash items of impairment, reversal of deferred income tax, asset, and inventory provision. During the fourth quarter, High Arctic provided personnel, materials handling equipment, and associated rental equipment, including a 100-man camp and a large quantity of dirt-based mats, in support of customers' field operations with our two primary customers in Moffett, New Guinea. In addition, we increased drilling personnel deployed to prepare Rig 103 for the recommencement of development drilling activities. These activities in our drilling services segment generated 10.1 in the quarter, and we surpassed $30 million Canadian of drilling service equipment for the year. The drilling segment margins have been impacted by the previously discussed inventory adjustments and low margin reimbursable cost contribution associated with the supplying and installing the top drive on Rig 103. When adjusted to back out the impact of the provision of inventory write-down, the drilling services segment margin increases from 4.4% to 15.4%. I figure that's comparable to the 15.6% experienced in 2021. Our facility services segment spreads across both P&G and Canada and continues to be our highest operating margin generator. We achieved 44% operating margin during the quarter and 54% across 2022 on revenues of $2.9 million and $14.9 million, respectively. With increased activities in P&G and consistent demand for pressure control rentals and nitrogen services in Canada, we do anticipate this segment to continue to grow in revenue as we move through 2023. The company continues to be prudent with its capital management and maintains a strong balance sheet. During the quarter, capital expenditures were limited to under $100,000, and we spent $4.1 million on capital during the year. We expect modest capital spending in 2023, mostly focused on maintaining rental equipment and our drilling fleet. With the cash proceeds from the sale of the well servicing business last July, the company ended the year with $19.6 million cash on and cash equivalents. Inclusive of the... Precision receivable, our working capital ratio increased to 7.7 to 1 at the end of the year. This year and following year, and we did collect the $28 million from the sale of the well servicing to precision, and we placed that in interest-bearing accounts, earning between 4.5% and 5%. hierarchy continues to pay monthly dividend of half a penny per share and in q4 2022 we renewed our ncib to repurchase shares throughout 2023. we continue to assess financial options in line with our strategic objectives moving forward the company has a history of returning surplus cash to shareholders and will continue to consider our capacity to distribute surplus funds while exploring opportunities to invest into strategic growth activities as they emerge With that, I'll pass it back over to Mike. You want to meet there, Mike?

Thank you, Lance.