High Arctic Energy Services Inc.

welcome to the high arctic energy services 2023 q3 results conference call i would now like to turn the meeting over to high arctic's chief executive officer mike mcguire please go ahead mr mcguire thank you hosin and good afternoon to everyone welcome to high arctic's third quarter conference call

Today I'll be providing an update on the press release we issued a short time ago today, November 15th, including discussion of our financial performance for the third quarter of 2023. Following my remarks, I'll hand the call over to our Interim Chief Financial Officer, Lon Bate. Lon will be discussing our financial performance for the third quarter. 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 statements. For additional information on these risks, please take a look at our management's discussion and analysis and the amended and restated 2022 annual information form available on our website or on the CDAR website. Look under the heading Risk Factors. Starting with operations in Papua New Guinea, and during this quarter, Rig 103 had strong operational performance This represents the second full quarter of drilling activity for the corporation since the suspension of operations in early 2020. We are currently halfway through the four approved wells in our customers program. Based on this, we expect the rig to continue to operate and generate revenues into the middle of next year, unless additional approved wells are added to the program. The term of the RIG 103 contract runs through to July 2025 with options for the customer to extend it further by two 12-month terms. As well as the full quarter of drilling operations with RIG 103, we have seen strong deployment of rental assets through the quarter, including those pulled through by drilling operations, as well as rentals to the wider market. Pyarctic 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 Papua New Guinea. Full utilization of our drilling services and asset rentals associated with customer-owned RIG 103 had a significant impact on our earnings. which we anticipate will be the case for the remainder of 2023. We are optimistic for future drilling in PNG, and this optimism is based upon expectations 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 project did a decade ago. The Papua LNG project is expected to be followed by the Pinyang gas field development 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. State-owned Kumil Petroleum is advancing appraisal of other gas discoveries in PNG. pursuing seismic contractors for the Kimu and Barakiwa discoveries onshore PNG. This is to progress their aim to contribute to growing domestic energy needs and additional LNG export processing facilities in the future. 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 P&G today. Through PIMS, P&G Industry Manpower Solutions, High Arctic has 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 labour, trades qualified personnel and professionals in PNG. We are excited to be playing a significant role in preparing PNG citizens to be job ready for what we expect of the major projects that's anticipated in the second half of this decade and beyond. In Canada, We closed a transaction to sell out Canadian nitrogen transportation hauling and pumping services business for cash consideration of 1.35 million. The sale delivered a net gain of $615,000 and contributed approximately $1.28 million of cash after transaction expenses and High Arctic harvested the associated working capital of the business at closing. Our pressure control-focused rentals in Canada enjoyed another solid quarter of revenue growth, where revenues are now up 30% over the same period last year. Hayes Rentals is fielding inquiries from an increasingly broad range of customers, including contractors and energy companies alike. Team Snubbing is Canada's largest snubbing provider, and we have a 42% equity stake in Team. Team reaped the rewards of a well-managed breakout period maintenance program in Q3. Team has realized a record revenue mark in excess of $5 million for the quarter. Team has a 50% interest in international partnership marketed under Team Snubbing International. This partnership commenced their first services this year, deploying two snubbing packages to US independent producers in Alaska. Both of these packages operated almost continuously through the third quarter. Team Snubbing International are also looking into opportunities in other foreign jurisdictions. At this juncture, I'd now like to pass the call over to Lon Bate, our interim chief financial officer, to discuss key financial highlights from the quarter in more detail.

Great. Thank you, Mike. Good afternoon to those of you joining on the call today. Now, just before I begin, I'd like to mention that all dollar amounts here mentioned on this call are Canadian dollars unless otherwise stated. Looking at our third quarter results from continuing operations, and on a consolidated basis, high Arctic generated revenues of $17.8 million, up marginally from our second quarter of 2023, and approximately double that achieved during the first quarter of 2023. prior to the commencement of operations with RIG 103 in our P&G drilling service segment. Hirectic generated adjusted EBITDA of 3.2 million, down from 4.4 million in Q2 2023, but up substantially from the approximately 600,000 in the same quarter of 2022, with Q3 2022. In this quarter, Hirectic incurred a net loss of $15 million, which on a per share basis equated to a loss of 31 cents a share. This significant net loss recorded in the quarter related to a non-cash impairment charge of $20.5 million. It was taken against Hierarchics P&G Operations, CGU. The net impact of this charge on our net income after factoring in the associated deferred tax recovery of $3.9 million to $16.6 million. As we've disclosed in our Q3 financial statements, indicators of impairment that were noted in the quarter included our primary customer planning to conclude its drilling after completing the minimum well commitment on their drilling schedule, and also the lack of outstanding customer contract tenders or open bid submissions currently for our Heli portable rigs 115 and 116. These factors have resulted in a reduced activity level reduced level of anticipated drilling activity in that business. After performing an impairment analysis of the P&G operation CGU, it was determined that its recoverable amount was below its estimated carry value of that CGU, and as a result, the corporation recorded the impairment aforementioned. In the quarter, the business performed well, generating $3.2 million in adjusted EBITDA. And it should be noted that High Arctic would have posted a positive net income number had it not been for the non-cash impairment charge. Customer-owned RIG 103 was fully utilized in Q3 2023, and our ancillary services segment continues to perform at expectations. And as a result, High Arctic achieved higher consolidated operating margins of 33% in the quarter versus 26% when compared to the third quarter of last year. This increase in margin is primarily driven by strength in demand for rental equipment, both in Canada and up in New Guinea. The full utilization and charge-out rates associated with RIG 103 operations and an increased supply of high-arctic technical and operation manpower services to our customers in P&G. G&A costs were $2.7 million on the quarter, which is higher than the $2.5 million from last year's comparable quarter. G&A costs as a percentage of revenue was 15%, which was lower than the 21% in the third quarter of last year. The reason, though, for the increase in absolute G&A spend this quarter is a result of one-time severance costs and also legal professional fees that we've incurred mostly related to the reorganization initiative. Management continues to evaluate its G&A costs and cost levels and right-size the support in our business to align with expected operations going forward in both P&G and Canada. So our largest revenue contributor for Hierarchy in the Corridor was generated from our drilling segment. Our drilling services segment, our activities there generated $13.9 million of the revenue achieved in Q3 2023, much higher than the $4.9 million from the segment in Q3 of last year. This increase was due primarily to the fact that our customer-owned rig 103 was fully utilized in the quarter, whereas in last year's Q3, Hieratic had no owned or customer-owned rigs operating, and most of the revenue was derived from manpower provision. Q3 2023 operating margins were 23%, roughly in line with last year's 24%. Our ancillary services segment spreads across both Papua New Guinea and Canada and continues to be our highest operating margin generator. We achieved an operating margin of over 69% on 3.9 million in revenue in this quarter as compared to a 62% margin on 2.3 million of revenue in Q3 2022. Improved margin reflects higher activity levels and more revenue contribution from low maintenance, fully owned assets. Management expects our Q3 margins and the activity levels that delivered this to continue through the remainder of this year and into 2024. There's no top line activity in our production services segment this quarter, with a small expense being booked related to storage and preservation costs for the assets in that segment. Whereas in 2022, the third quarter results included a stub period of operations from the well servicing assets that we sold to Precision Drilling and the snubbing assets sold on to Team Snubbing. During the quarter, capital expenditures totaled $700,000, mainly focused on growth in our rental equipment in Canada and Papua New Guinea, with the addition of deployable pressure control equipment in Canada, light vehicles and other incidental rental equipment that customers are looking for in their field operations and parts of P&G. We expect to continue with modest capital spend for the rest of 2023, mostly focused on maintaining and growing our rental fleet, both in Canada and Papua New Guinea. The company ended the quarter with $46.8 million in cash on hand, with over $37 million of that on-hand balance invested in secure interest-bearing short-term investments, which combined to generate $538,000 of interest income during the quarter. This interest income was directed at supporting our monthly half-cent-a-share dividend, but subsequent to the quarter, Hierarchic elected to suspend its dividend with the view that the corporation can optimize its future ability to find a pending tax-efficient return of capital to its shareholders. Our working capital position increased slightly in the quarter from Q2 of this year, and at the end of September was at $63.5 million. Our only debt on the books is mortgage financing we have of $3.6 million, which is held against our land and buildings in Alberta. With that, I'll turn the call back over to Mike.