Fourth Quarter Highlights
- For the
three-month period ended December 31, 2023, PHX Energy generated
consolidated revenue of $165.3 million, the highest level of fourth
quarter revenue on record and the third highest level of quarterly
revenue in the Corporation’s history. Revenue in the third and
first quarter of 2023 are the first and second highest quarterly
revenue on record, respectively. Consolidated revenue in the
2023-quarter included $10.3 million of motor rental revenue and
$0.9 million of motor equipment and parts sold.
- Earnings from
continuing operations increased by 63 percent to $33.1 million,
$0.68 per share, in the 2023-quarter from $20.3 million, $0.39 per
share, in the 2022 three-month period. The 2023-quarter’s earnings
are the highest level of quarterly earnings in the Corporation’s
history. Earnings from continuing operations in the 2023-quarter
included $9.5 million of recovery of income taxes that primarily
resulted from the recognition and utilization of previously
unrecognized deferred tax assets in the Canadian jurisdiction.
- In the 2023
three-month period, adjusted EBITDA(1) from continuing operations
was $35.4 million, 21 percent of consolidated revenue(1) and is 4
percent higher compared to $33.9 million, 21 percent of
consolidated revenue, in the same 2022-period. Included in the
2023-quarter’s adjusted EBITDA is $4.6 million in cash-settled
share-based compensation expense (2022 - $6.9 million). Adjusted
EBITDA excluding cash-settled share-based compensation expense(1)
in the fourth quarter of 2023 was $40 million, 24 percent of
consolidated revenue(1) (2022 - $40.8 million, 26 percent of
consolidated revenue).
- PHX Energy’s US
division revenue in the fourth quarter of 2023 was $122.1 million,
only 3 percent lower compared to the record $125.7 million
generated in the fourth quarter of 2022. US division revenue in the
2023-quarter represented 74 percent of consolidated revenue.
- PHX Energy’s
Canadian division reported $42.4 million of quarterly revenue, 38
percent higher compared to $30.7 million in the 2022-quarter and is
the highest level of fourth quarter revenue for the Canadian
division since 2014.
- In the
2023-quarter, the Corporation generated excess cash flow(2) of
$22.3 million, after deducting capital expenditures(3) of $15.5
million offset by proceeds on disposition of drilling and other
equipment of $11 million. This level of excess cash flow is a 57
percent increase over the fourth quarter of 2022.
- In the fourth
quarter of 2023, PHX Energy continued to deliver additional returns
to its shareholders and purchased and canceled 1,322,100 common
shares for $11.3 million through its current Normal Course Issuer
Bid (“NCIB”).
- For the
three-month period ended December 31, 2023, PHX Energy paid $7.3
million ($0.15 per share) in dividends, which is 50 percent, or
$0.05 per share, more than the quarterly dividends paid in the same
2022-quarter. On December 15, 2023, the Corporation declared a
dividend of $0.20 per share or $9.5 million, paid on January 15,
2024 to shareholders of record on December 29, 2023.
Year End Highlights
- With PHX Energy
achieving record revenue for three of the quarters in 2023, the
Corporation’s 2023 annual consolidated revenue of $656.3 million is
the highest in the Corporation’s history and an increase of 23
percent from 2022. Consolidated revenue in the 2023-year included
$47 million of motor rental revenue (2022 - $33.3 million) and $11
million of motor equipment and parts sold (2022 – nil).
- Earnings from
continuing operations, adjusted EBITDA(1) from continuing
operations, and adjusted EBITDA as a percentage of consolidated
revenue(1) are all the best annual results on record. Earnings from
continuing operations more than doubled to $98.6 million, $1.96 per
share, in the 2023 twelve-month period from $44.3 million, $0.87
per share, in 2022. Adjusted EBITDA from continuing operations
increased by 63 percent year-over-year to $150.7 million, $2.86 per
share, which represented 23 percent of consolidated revenue, an
increase compared to 17 percent of consolidated revenue in 2022.
Included in the 2023-year’s adjusted EBITDA is $13.5 million in
cash-settled share-based compensation expense (2022 - $24.6
million). Adjusted EBITDA excluding cash-settled share-based
compensation expense(1) in the 2023-year was $164.2 million, 25
percent of consolidated revenue (2022 - $117.3 million, 22 percent
of consolidated revenue).
- The
Corporation’s US division achieved its highest annual revenue for
the second consecutive year. US revenue in 2023 increased by 17
percent to $496.5 million and represented 76 percent of
consolidated revenue.
- PHX Energy’s
Canadian division generated annual revenue of $155.5 million (2022
- $108.5 million), the highest level since 2014.
- For the year
ended December 31, 2023, PHX Energy generated excess cash flow(2)
of $92.8 million, after deducting capital expenditures of $64.9
million offset by proceeds on disposition of drilling and other
equipment of $43.7 million. This level of excess cash flow is more
than four times the amount generated in the 2022-year. As at
December 31, 2023, the Corporation had $4.4 million of remaining
distributable balance under the Return of Capital Strategy
(“ROCS”)(2). This balance will be carried forward into 2024 and is
targeted to be used for future NCIB purchases.
- In the 2023
twelve-month period, through its previous and current NCIB, the
Corporation purchased and canceled 4,032,600 common shares for
$30.4 million.
- PHX Energy paid
$30.2 million in dividends ($0.60 per share) in the 2023-year which
is double the dividend amount paid in 2022.
- The Board has
previously approved a preliminary 2024 capital expenditure budget
of $70 million. With $5 million of the 2023 capital expenditure
budget carried forward into 2024, the Corporation now anticipates
spending $75 million in capital expenditures during 2024.
- As at December
31, 2023, the Corporation had working capital(2) of $93.9 million
and net cash(2) of $8.9 million with credit facility capacity in
excess of $107 million.
Financial Highlights (Stated in
thousands of dollars except per share amounts, percentages and
shares outstanding)
|
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2023 |
2022 |
% Change |
|
2023 |
|
2022 |
% Change |
|
Operating Results – Continuing Operations |
|
|
|
|
|
|
|
|
Revenue |
165,332 |
157,758 |
5 |
|
|
656,341 |
|
535,745 |
23 |
|
|
Earnings |
33,134 |
20,333 |
63 |
|
|
98,580 |
|
44,311 |
122 |
|
|
Earnings per share – diluted |
0.68 |
0.39 |
74 |
|
|
1.96 |
|
0.87 |
125 |
|
|
Adjusted EBITDA (1) |
35,388 |
33,874 |
4 |
|
|
150,717 |
|
92,719 |
63 |
|
|
Adjusted EBITDA per share – diluted (1) |
0.70 |
0.66 |
6 |
|
|
2.86 |
|
1.83 |
56 |
|
|
Adjusted EBITDA as a percentage of revenue (1) |
21% |
21% |
|
|
23% |
|
17% |
|
|
Cash Flow – Continuing Operations |
|
|
|
|
|
|
|
|
Cash flows from operating activities |
36,754 |
8,970 |
310 |
|
|
96,723 |
|
38,338 |
152 |
|
|
Funds from operations (2) |
28,167 |
25,068 |
12 |
|
|
119,317 |
|
72,482 |
65 |
|
|
Funds from operations per share – diluted (3) |
0.56 |
0.49 |
14 |
|
|
2.26 |
|
1.43 |
58 |
|
|
Dividends paid per share (3) |
0.15 |
0.10 |
50 |
|
|
0.60 |
|
0.30 |
100 |
|
|
Dividends paid |
7,277 |
5,078 |
43 |
|
|
30,189 |
|
15,148 |
99 |
|
|
Capital expenditures (3) |
15,474 |
21,474 |
(28 |
) |
|
64,932 |
|
73,525 |
(12 |
) |
|
Excess cash flow (2) |
22,347 |
14,269 |
57 |
|
|
92,813 |
|
21,113 |
340 |
|
|
Financial Position, December 31, |
|
|
|
|
|
|
|
|
Working capital (2) |
|
|
|
|
93,915 |
|
94,339 |
- |
|
|
Net debt (Net cash) (2) |
|
|
|
|
(8,869 |
) |
4,484 |
n.m. |
|
|
Shareholders’ equity |
|
|
|
|
209,969 |
|
176,878 |
19 |
|
|
Common shares outstanding |
|
|
|
|
47,260,472 |
|
50,896,175 |
(7 |
) |
n.m. – not meaningful
OutlookWe believe the record
results set in the past two years are a testament to the strength
of our technology, people and commitment to providing our customers
with unmatched services and value. Our positive momentum through
the 2023-year and the cumulative results of the strong quarterly
results led to an all-time record year on many fronts. This high
level of performance allowed us to leverage our ROCS and distribute
$60.6 million of our excess cash flow to reward
shareholders through NCIB purchases and dividends.
- Entering 2024,
we continue to be a provider of choice for 12 of the top 15 US
operators, however, a few of these customers have recently altered
their well profiles which has impacted our RSS utilization and
average revenue per day. We do believe with the strength of our
operations and marketing teams we will be able to deploy more RSS
assets to new and other existing clients in upcoming quarters,
especially with the addition of the iCruise technology.
- Currently, our
US motor rental business’ activity levels are in line with the
fourth quarter of 2023. We continue to believe there is a market
opportunity to deploy more rental motors and foresee further growth
in later quarters of 2024. This growth will be driven by both the
creation of a dedicated rental fleet that is included in our 2024
capital spending program and the current marketing strategies
underway.
- The revenue
stream generated from our Atlas sales business will continue in
2024 as existing customers place ongoing orders for parts to
maintain their fleet. Additionally, there could be potential for
further motor sales from our existing customers if they expand
their fleets and possibly to new customers.
- Thus far in
2024, the strong activity levels in Canada from the fourth quarter
have continued as we work for 9 of the 10 top operators. We foresee
the second quarter being more resilient than typical in spring
break-up, as our customer mix is currently focused on areas that
are less impacted. However the weakness in natural gas prices may
have an impact on the third and fourth quarter. We will continue to
increase the deployment of our premium technology in Canada, and
leverage recently commercialized technologies our R&D efforts
have produced to gain market share and improve revenue per
day.
- In 2023, our
R&D expenditures increased 40 percent compared to 2022, with a
significant focus on developing real-time communications technology
that allows our RSS to transmit data to our MWD systems. This is a
technology that Operators utilizing RSS are demanding and with our
unique RSS fleet it further entrenches us as an industry leader. We
believe this ancillary technology will create advantages and
opportunities to seize more market share even with the static
industry activity predicted.
- The strong
operating and financial results in 2023, supported our ROCS program
where we created $60.6 million of shareholder returns in the form
of share buy backs and dividends payments. We are committed to
continuing the ROCS program in 2024, and will continue to focus on
delivering value to our shareholders.
With the US industry appearing to have leveled
off and the Canadian industry remaining flat we are cautiously
optimistic for 2024. We know we have many operational advantages
and our drive to remain at the forefront of directional technology
remains strong. Although we have seen a slight weakening in 2024
thus far, we foresee the first quarter 2024 on a historical basis
continuing to be a top performing quarter, albeit not at the
all-time records seen in 2023.
Michael Buker, PresidentFebruary 27, 2024
Overall PerformanceIn the
fourth quarter of 2023, the Corporation generated consolidated
revenue of $165.3 million, an increase of 5 percent as compared to
$157.8 million in the 2022-quarter. This level of quarterly revenue
is the third highest level in the Corporation’s history and is the
record level of fourth quarter revenue. Despite the North American
rig count softening further in the 2023-quarter, PHX Energy’s
consolidated revenue grew which was supported by strong activity in
Canada and increased capacity in its fleet of premium
technologies.
For the quarter ended December 31, 2023, the
Corporation’s US division’s revenue slightly decreased by 3 percent
to $122.1 million compared to the record $125.7 million in the same
2022-quarter. In the 2023 three-month period, US industry drilling
activity continued to decline and during the period PHX Energy’s US
operating days(3) decreased by 15 percent to 4,114 days from 4,843
in the fourth quarter of 2022. The impact of the lower operating
days was cushioned by the 15 percent improvement in the average
revenue per day(3) for directional drilling services. Rotary
Steerable (“RSS”) services accounted for a larger portion of the
division’s activity during the 2023-quarter, and this partly
contributed to the increased average revenue per day for
directional drilling services quarter-over-quarter. Included in the
US division revenue for the 2023 three-month period is $9.9 million
of motor rental revenue and $0.9 million of motor equipment and
parts sold (2022-quarter - $11.4 million and nil, respectively). In
the 2023-quarter, revenue from the Corporation’s US division
represented 74 percent of consolidated revenue (2022 – 80
percent).
The Corporation’s Canadian division generated
its highest level of fourth quarter revenue since 2014 despite the
Canadian industry drilling activity declining quarter-over-quarter.
Canadian division revenue in the 2023 three-month period grew to
$42.4 million, a 38 percent increase from $30.7 million in the same
2022-period. The Canadian segment recorded 3,099 operating days in
the 2023-quarter, a 21 percent increase from the 2,571 operating
days realized in the comparable 2022-quarter. Average revenue per
day realized by the Canadian division also improved by 15 percent
quarter-over-quarter.
For the three-month period ended December 31,
2023, earnings from operations were $33.1 million (2022 - $20.3
million) and adjusted EBITDA from continuing operations(1) was
$35.4 million (2022 - $33.9 million), 21 percent of consolidated
revenue. Earnings from operations in the fourth quarter of 2023 is
the highest level of quarterly earnings in the Corporation’s
history. Included in the 2023-quarter earnings is $9.5 million of
recovery of income taxes that primarily resulted from the
recognition and utilization of previously unrecognized deferred tax
assets in the Canadian jurisdiction. Included in the 2023
three-month period adjusted EBITDA from continuing operations is
cash-settled share-based compensation expense of $4.6 million (2022
- $6.9 million). For the three-month period ended December 31,
2023, adjusted EBITDA excluding cash-settled share-based
compensation expense is $40 million (2022 - $40.8 million).
In each quarter of 2023, PHX Energy set the
records for that particular quarter in revenue, earnings from
continuing operations, and adjusted EBITDA from continuing
operations, which accumulated to the highest annual results in the
Corporation’s history. For the year ended December 31, 2023, the
Corporation’s consolidated revenue increased by 23 percent to
$656.3 million from $535.7 million in 2022. Earnings from
continuing operations for the 2023-year more than doubled to $98.6
million from $44.3 million in the 2022-year. Adjusted EBITDA from
continuing operations was $150.7 million (23 percent of revenue), a
63 percent improvement compared to the $92.7 million (17 percent of
revenue) reported in the 2022-year. Included in the 2023
twelve-month period adjusted EBITDA from continuing operations is
cash-settled share-based compensation expense of $13.5 million
(2022 - $24.6 million). For the year ended December 31, 2023,
adjusted EBITDA excluding cash-settled share-based compensation
expense is $164.2 million (2022 - $117.3 million).
In November 2023, the Corporation increased the
borrowing capacity in the syndicated facility from CAD $50 million
to CAD $80 million and in the US operating facility from USD $15
million to USD $20 million. The Corporation also extended the
maturity date of the syndicated loan agreement to December 12,
2026. With the increased borrowing capacity, the Corporation has
approximately CAD $87 million and USD $20 million available to be
drawn from its credit facilities. As at December 31, 2023, the
Corporation had working capital(2) of $93.9 million and net cash(2)
of $8.9 million.
Dividends and ROCSIn November
2023, the Board approved an increase to the Corporation’s quarterly
dividend to $0.20 per common share from $0.15 per common share,
which commenced with the dividend payable January 15, 2024 to
shareholders of record at the close of business on December 29,
2023. An aggregate of $9.5 million was paid on January 15, 2024.
This is the fifth dividend increase since the dividend program was
reinstated in December 2020 and is a 700 percent increase from the
dividend payable on December 31, 2020.
The Corporation remains committed to enhancing
shareholder returns through its Return of Capital Strategy (“ROCS”)
that includes multiple options including the dividend program and
the NCIB. In 2023, 70 percent of PHX Energy’s excess cash flow(2)
was $65 million, $30.4 million of which was used to repurchase
shares under the NCIB and $30.2 million was used to pay dividends
to shareholders. The remaining distributable balance under ROCS(2)
of $4.4 million will be carried forward into 2024 and is targeted
to be used for future NCIB purchases.
(Stated in thousands of dollars)
|
|
|
Year ended December 31, 2023 |
|
|
Excess cash flow(2) |
|
92,813 |
|
| 70% of excess cash flow |
|
64,969 |
|
| |
|
|
| Deduct: |
|
|
|
Repurchase of shares under the NCIB |
|
(30,366 |
) |
|
Dividends paid to shareholders |
|
(30,189 |
) |
|
Remaining Distributable Balance under ROCS(2) |
|
4,414 |
|
Normal Course Issuer Bid During
the third quarter of 2023, the TSX approved the renewal of PHX
Energy’s NCIB to purchase for cancellation, from time-to-time, up
to a maximum of 3,552,810 common shares, representing 10 percent of
the Corporation’s public float of Common Shares as at August 2,
2023. The NCIB commenced on August 16, 2023 and will terminate on
August 15, 2024. Purchases of common shares are to be made on the
open market through the facilities of the TSX and through
alternative trading systems. The price which PHX Energy is to pay
for any common shares purchased is to be at the prevailing market
price on the TSX or alternate trading systems at the time of such
purchase.
Pursuant to the previous and current NCIB,
4,032,600 common shares were purchased by the Corporation for $30.4
million and cancelled in the year-ended December 31, 2023. Pursuant
to the previous NCIB, no common shares were purchased during the
2022-year by the Corporation and cancelled.
Capital SpendingFor the year
ended December 31, 2023, the Corporation spent $64.9 million in
capital expenditures, of which $34.4 million was spent on growing
the Corporation’s fleet of drilling equipment, $14.6 million was
spent to replace retired assets, and $15.9 million was spent to
replace equipment lost downhole during drilling operations. With
proceeds on disposition of drilling and other equipment of $43.7
million, the Corporation’s net capital expenditures(2) for the
2023-year were $21.2 million. Capital expenditures in the 2023-year
were primarily directed towards Atlas High Performance motors
(“Atlas”), Velocity Real-Time systems (“Velocity”), and RSS. PHX
Energy funded capital spending primarily using proceeds on
disposition of drilling equipment, cash flows from operating
activities, and its credit facilities when required.
(Stated in thousands of dollars)
|
|
Three-month period ended December 31, 2023 |
|
|
Year ended December 31, 2023 |
|
|
Growth capital expenditures(3) |
7,026 |
|
|
34,382 |
|
| Maintenance capital
expenditures(3) to replace retired assets |
3,066 |
|
|
14,609 |
|
|
Maintenance capital expenditures(3) to replace equipment lost
downhole during drilling operations |
5,382 |
|
|
15,941 |
|
|
|
15,474 |
|
|
64,932 |
|
| Deduct: |
|
|
|
|
Proceeds on disposition of drilling equipment |
(10,997 |
) |
|
(43,686 |
) |
|
Net capital expenditures(2) |
4,477 |
|
|
21,246 |
|
As at December 31, 2023, the Corporation had
capital commitments to purchase drilling and other equipment for
$42.7 million, $35.2 million of which is growth capital and
includes $20 million for performance drilling motors, $11 million
for Velocity systems, and $4.2 million for other equipment.
Equipment on order as at December 31, 2023 is expected to be
delivered within the first half of 2024.
The Board has approved a preliminary 2024
capital expenditure program of $70 million. Of the 2023 capital
expenditure budget, $5 million was not spent in 2023 and will be
carried forward into 2024. As a result of this carry over, the
Corporation now anticipates spending $75 million in capital
expenditures during 2024. Of the total expenditures, $47 million is
anticipated to be spent on growth and expected to be allocated
towards: building larger fleets of recently commercialized
supplementary technologies that create value added capabilities
within the premium fleet and are already in high demand; additional
motor capacity to grow the Atlas rental division; and add required
Velocity systems, RSS and Atlas motors to continue to meet demand
for full service operations. The remaining $28 million is
anticipated to be spent to maintain capacity in the fleet of
drilling and other equipment and replace equipment lost downhole
during drilling operations.
The Corporation currently possesses
approximately 741 Atlas motors, comprised of various configurations
including its 5.13", 5.25", 5.76", 6.63", 7.12", 7.25", 8.12",
9.00" and 9.62" Atlas motors, and 115 Velocity systems. The
Corporation also possesses the largest independent RSS fleet in
North America with 63 RSS tools and the only fleet currently
comprised of both the PowerDrive Orbit and iCruise systems.
Sale and Licensed Use of Atlas
Motors In the second and third quarter of 2023, the
Corporation agreed upon the sale and licensed use of its Atlas
motors to allow an existing US and international client to
establish their own fleet. Under these agreements, the purchasers
must exclusively use components manufactured by the Corporation for
the maintenance of their fleets of Atlas motors. For the year ended
December 31, 2023, $11 million of motors and parts were sold. PHX
Energy anticipates ongoing orders for parts and the purchasers
could potentially place subsequent orders for additional Atlas
motors in the upcoming year. Non-GAAP and Other Financial
Measures
Throughout this document, PHX Energy uses
certain measures to analyze financial performance, financial
position, and cash flow. These Non-GAAP and other specified
financial measures do not have standardized meanings prescribed
under Canadian generally accepted accounting principles (“GAAP”)
and include Non-GAAP Financial Measures and Ratios, Capital
Management Measures and Supplementary Financial Measures
(collectively referred to as “Non-GAAP and Other Financial
Measures”). These non-GAAP and other specified financial measures
include, adjusted EBITDA, adjusted EBITDA per share, adjusted
EBITDA excluding cash-settled share-based compensation expense,
adjusted EBITDA as a percentage of revenue, gross profit as a
percentage of revenue excluding depreciation and amortization,
selling, general and administrative (“SG&A”) costs excluding
share-based compensation as a percentage of revenue, funds from
operations, funds from operations per share, excess cash flow, net
capital expenditures, net debt (net cash), working capital, and
remaining distributable balance under ROCS. Management believes
that these measures provide supplemental financial and other
information that is useful in the evaluation of the Corporation’s
operations and may be used by other oil and natural gas service
companies. Investors should be cautioned, however, that these
measures should not be construed as alternatives to measures
determined in accordance with GAAP as an indicator of PHX Energy’s
performance. The Corporation’s method of calculating these measures
may differ from that of other organizations, and accordingly, such
measures may not be comparable. Please refer to the “Non-GAAP and
Other Financial Measures” section of this document for applicable
definitions, rationale for use, method of calculation and
reconciliations where applicable.
| Footnotes throughout
this document reference: |
|
|
(1) |
Non-GAAP financial measure or ratio that does not have any
standardized meaning under IFRS and therefore may not be comparable
to similar measures presented by other entities. Refer to Non-GAAP
and Other Financial Measures section of this document. |
| |
(2) |
Capital management measure that does not have any standardized
meaning under IFRS and therefore may not be comparable to similar
measures presented by other entities. Refer to Non-GAAP and Other
Financial Measures section of this document. |
| |
(3) |
Supplementary financial measure that does not have any standardized
meaning under IFRS and therefore may not be comparable to similar
measures presented by other entities. Refer to Non-GAAP and Other
Financial Measures section of this document |
RevenueThe Corporation
generates revenue primarily through the provision of directional
drilling services which includes providing equipment, personnel,
and operational support for drilling a well. Additionally, the
Corporation generates revenue through the rental and sale of
drilling motors and associated parts, particularly Atlas.
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
2023 |
2022 |
% Change |
|
|
2023 |
2022 |
% Change |
|
Directional drilling services |
154,125 |
146,047 |
6 |
|
|
598,339 |
502,416 |
19 |
|
Motor rental |
10,332 |
11,711 |
(12 |
) |
|
47,009 |
33,329 |
41 |
|
Sale of motor equipment and parts |
875 |
- |
n.m. |
|
|
10,993 |
- |
n.m. |
|
Total revenue |
165,332 |
157,758 |
5 |
|
|
656,341 |
535,745 |
23 |
n.m. – not meaningful
In the three-month period ended December 31,
2023, PHX Energy achieved its third highest level of quarterly
revenue in its history, with the third quarter of 2023 being the
all-time highest and the first quarter of 2023 being the second. As
a result of the record quarterly achievements, the Corporation’s
consolidated revenue for the 2023-year is the greatest-ever annual
revenue in its history. Consolidated revenue in the fourth quarter
increased by 5 percent to $165.3 million compared to $157.8 million
in the corresponding 2022-quarter and annual consolidated revenue
was $656.3 million, an increase of 23 percent compared to $535.7
million in 2022.
In the fourth quarter of 2023, rig counts in
both Canada and the US continued to decline. The average number of
horizontal and directional rigs operating per day in the US dropped
by 19 percent to 608 in the 2023 three-month period from 752 in the
corresponding 2022-period. In Canada, the average rig count in the
2023-quarter declined by 3 percent to 181 from 187 in the fourth
quarter of 2022 (Source: Baker Hughes, North American Rotary Rig
Count, Jan 2000 – Current,
https://rigcount.bakerhughes.com/na-rig-count). In comparison, PHX
Energy’s consolidated operating days(3) held relatively steady,
only decreasing 3 percent to 7,277 days in the 2023-quarter from
7,509 days in the 2022-quarter. On an annual basis, the Canadian
rig count held steady year-over-year whereas the US rig count
declined 5 percent year-over-year. For the year-ended December 31,
2023, PHX Energy recorded 29,192 consolidated operating days which
is 3 percent more than the 28,368 days in the 2022-year. The
Corporation was able to outpace the industry trends as a result of
its strong position as premium technology provider and the
increased capacity and utilization of these technologies along with
the strength of its marketing and operations teams. Additionally,
these strengths also contributed to improvements to the
Corporation’s average consolidated revenue per day(3) for
directional drilling services. In particular, the portion of
activity in the US that utilizes RSS services grew especially with
the recent addition of a second brand of RSS technology, and the
cumulative impact of previous pricing increases. Average
consolidated revenue per day for directional drilling services
improved by 9 percent to $21,178 in the 2023-quarter (2022-quarter
– $19,449) and 17 percent to $20,497 in the 2023-year (2022 –
$17,448).
During the 2023-year, PHX Energy expanded its
Atlas rental and sales divisions. For the year ended December 31,
2023, revenue generated from the Atlas motor rental division grew
by 41 percent to $47 million from $33.3 million in 2022. In the
2023-quarter, Atlas motor rental revenue declined by 12 percent
mainly due to the quarter-over-quarter drop in the US industry rig
count. In the 2023 twelve-month period, $11 million was generated
from the sale of Atlas motors and parts under PHX Energy’s two
existing sales agreements.
Operating Costs and
Expenses
(Stated in thousands of dollars except
percentages)
|
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
|
2023 |
2022 |
% Change |
|
2023 |
2022 |
% Change |
|
|
Direct costs |
129,240 |
121,906 |
6 |
|
506,236 |
426,107 |
19 |
|
|
Depreciation & amortization drilling and other
equipment (included in direct costs) |
10,056 |
8,876 |
13 |
|
38,861 |
32,119 |
21 |
|
|
Depreciation & amortization right-of-use asset
(included in direct costs) |
841 |
805 |
4 |
|
2,898 |
3,235 |
(10 |
) |
|
Gross profit as a percentage of revenue excluding
depreciation & amortization (1) |
28% |
29% |
|
|
29% |
27% |
|
Direct costs are comprised of field and shop
expenses, costs of motors and parts sold, and include depreciation
and amortization on the Corporation’s equipment and right-of-use
assets. For the three-month period and year ended December 31,
2023, direct costs increased by 6 percent to $129.2 million (2022 -
$121.9 million) and 19 percent to $506.2 million (2022 - $426.1
million), respectively.
The increase in direct costs in both
2023-periods is mainly due to:
- greater servicing costs and
equipment rentals associated with higher levels of RSS
activity,
- higher volume of motor servicing
and related costs associated with increased Atlas motor rental
activity,
- addition of the costs of motors and
parts sold that were nil in both 2022-periods, and
- rising personnel-related
costs.
In addition, the Corporation’s depreciation and
amortization on drilling and other equipment for the 2023 three and
twelve-month period increased by 13 percent and 21 percent,
respectively, mainly as a result of the additions to fixed assets
throughout 2023.
For the three-month period and year ended
December 31, 2023, gross profit as a percentage of revenue
excluding depreciation and amortization(1) was 28 percent and 29
percent, respectively, compared to 29 percent and 27 percent in the
corresponding 2022-periods. The slight decrease in profitability in
the 2023-quarter is partly attributable to lower motor rental
activity in the US and increasing equipment rental costs. For the
2023 twelve-month period, greater profitability was largely driven
by higher margins from the Corporation’s premium technologies and
additional profits realized from PHX Energy’s growing Atlas motor
rental and sales divisions.
(Stated in thousands of dollars except
percentages)
|
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
|
2023 |
2022 |
% Change |
|
|
2023 |
2022 |
% Change |
|
|
Selling, general and administrative (“SG&A”) costs |
18,004 |
19,365 |
(7 |
) |
|
68,915 |
68,901 |
- |
|
|
Cash-settled share-based compensation (included in
SG&A costs) |
4,572 |
6,938 |
(34 |
) |
|
13,470 |
24,568 |
(45 |
) |
|
Equity-settled share-based compensation (included in
SG&A costs) |
60 |
58 |
3 |
|
|
491 |
451 |
9 |
|
|
SG&A costs excluding share-based compensation as
a percentage of revenue(1) |
8% |
8% |
|
|
8% |
8% |
|
For the three-month period and year ended
December 31, 2023, SG&A costs were $18 million and $68.9
million, respectively, as compared to $19.4 million and $68.9
million in the corresponding 2022-periods. In the 2023-quarter, the
decrease in SG&A costs of 7 percent was mainly due to lower
cash-settled share-based compensation expense during the period
compared to the 2022-quarter. In the 2023-year, SG&A costs were
largely comparable to the prior year as increases in
personnel-related costs were offset by decreases in compensation
expenses related to cash-settled share-based awards.
Cash-settled share-based compensation relates to
the Corporation’s retention awards and is measured at fair value.
For the three-month period and year ended December 31, 2023, the
related compensation expense recognized by PHX Energy was $4.6
million (2022 - $6.9 million) and $13.5 million (2022 - $24.6
million), respectively. Changes in cash-settled share-based
compensation expense in the 2023-periods were mainly driven by
fluctuations in the Corporation’s share price, the number of awards
granted in the period, and changes in the estimated payout
multiplier for performance awards. In 2023, the number of retention
awards granted was lower compared to 2022 and the number of units
that vested during the 2023-periods was also fewer. There were
2,160,151 retention awards outstanding as at December 31, 2023
(2022 – 2,845,191). SG&A costs excluding share-based
compensation as a percentage of revenue(1) for the 2023 three and
twelve-month periods were 8 percent in both periods, the same level
as in both corresponding 2022-periods.
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2023 |
2022 |
% Change |
|
2023 |
2022 |
% Change |
|
Research and development expense |
1,393 |
1,184 |
18 |
|
5,210 |
3,722 |
40 |
For the three-month period and year ended
December 31, 2023, PHX Energy’s research and development
(“R&D”) expenditures increased to $1.4 million and $5.2
million, respectively, from $1.2 million and $3.7 million in the
corresponding 2022-periods. During both 2023-periods, the
Corporation’s R&D department focused on developing
supplementary technologies that would create value added
capabilities within PHX Energy’s suite of premium fleet. Greater
personnel-related costs and prototype expenses were necessary to
support these initiatives. The Corporation also remained focused on
supporting new and ongoing initiatives aimed at continuously
improving the reliability of its equipment and reducing the costs
of operations.
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
2023 |
2022 |
% Change |
|
|
2023 |
2022 |
% Change |
|
Finance expense |
448 |
487 |
(8 |
) |
|
2,422 |
1,360 |
78 |
|
Finance expense lease liabilities |
551 |
525 |
5 |
|
|
2,245 |
2,032 |
10 |
Finance expenses mainly relate to interest
charges on the Corporation’s credit facilities. For the three-month
period and year ended December 31, 2023, finance expenses decreased
to $0.4 million (2022 - $0.5 million) and increased to $2.4 million
(2022 - $1.4 million), respectively. The decrease in finance
expenses in the 2023-quarter was primarily due to lower drawings on
the credit facilities in the period. In the 2023-year, finance
expenses increased mainly due to higher amounts of loans and
borrowings in the first part of the year that were used to fund PHX
Energy’s capital spending, and rising variable interest rates on
the Corporation’s operating and syndicated facilities.
Finance expense lease liabilities relate to
interest expenses incurred on lease liabilities. For the three and
twelve-month periods ended December 31, 2023, finance expense lease
liabilities increased to $0.6 million and $2.2 million,
respectively (2022 - $0.5 million and $2 million, respectively),
primarily due to new premise leases entered in the fourth quarter
of 2022 and first quarter of 2023 for a new facility in Midland,
Texas and additional head office space in Calgary, Alberta.
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
|
2023 |
2022 |
|
|
2023 |
|
2022 |
|
|
Net gain on disposition of drilling equipment |
7,444 |
8,693 |
|
|
31,347 |
|
19,492 |
|
|
Foreign exchange gains (losses) |
533 |
(5 |
) |
|
1,107 |
|
(287 |
) |
|
Recovery of (provision for) bad debts |
- |
11 |
|
|
(117 |
) |
13 |
|
|
Other |
- |
- |
|
|
- |
|
512 |
|
|
Other income |
7,977 |
8,699 |
|
|
32,337 |
|
19,730 |
|
For the three-month period and year ended
December 31, 2023, the Corporation recognized other income of $8
million and $32.3 million, respectively (2022 - $8.7 million and
$19.7 million, respectively). In both periods, other income was
mainly comprised of net gain on disposition of drilling equipment.
The recognized gain is net of losses, which typically result from
asset retirements that were made before the end of the equipment’s
useful life. Throughout 2023, a larger percentage of PHX Energy’s
activity involved utilizing premium technologies, particularly RSS
in the US. In the 2023-year, more instances of high dollar valued
downhole equipment losses occurred as compared to the prior year
resulting in a higher net gain on disposition of drilling
equipment. In the 2023-quarter, the Corporation’s US drilling
activity declined by 15 percent leading to fewer instances of high
dollar valued downhole equipment losses. The Corporation will use
capital expenditure funds, including the proceeds from disposition
of drilling equipment, to replace this equipment and these amounts
will be added to the capital expenditures(3) in 2024.
(Stated in thousands of dollars except
percentages)
|
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2023 |
|
2022 |
|
2023 |
2022 |
|
Provision for (Recovery of) income taxes |
(9,460 |
) |
2,657 |
|
5,070 |
9,042 |
|
Effective tax rates (3) |
n.m. |
|
12% |
|
5% |
17% |
n.m. – not meaningful
For the three-month period and year ended
December 31, 2023, the Corporation reported a recovery of income
tax of $9.5 million (2022 – provision for income taxes of $2.7
million), and a provision for income taxes of $5.1 million (2022 -
$9 million), respectively. Recovery of income taxes in the
2023-quarter and lower provision for income taxes in the 2023-year
were primarily attributable to the recognition and utilization of
previously unrecognized deferred tax assets in the Canadian
jurisdiction. PHX Energy’s effective tax rates(3) in the
2023-periods were lower than the combined US federal and state
corporate income tax rate of 21 percent and the combined Canadian
federal and provincial corporate income tax rate of 23 percent, due
to the recognition of previously unrecognized deferred tax assets
that were applied to income for tax purposes in Canada.
(Stated in thousands of dollars except per share
amounts and percentages)
|
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2023 |
2022 |
% Change |
|
2023 |
2022 |
% Change |
|
Operating Results – Continuing Operations |
|
|
|
|
|
|
|
|
Earnings |
33,134 |
20,333 |
63 |
|
98,580 |
44,311 |
122 |
|
Earnings per share – diluted |
0.68 |
0.39 |
74 |
|
1.96 |
0.87 |
125 |
|
Adjusted EBITDA (1) |
35,388 |
33,874 |
4 |
|
150,717 |
92,719 |
63 |
|
Adjusted EBITDA per share – diluted (1) |
0.70 |
0.66 |
6 |
|
2.86 |
1.83 |
56 |
|
Adjusted EBITDA as a percentage of revenue (1) |
21% |
21% |
|
|
23% |
17% |
|
For the three-month period and year ended
December 31, 2023, the Corporation’s earnings from continuing
operations increased by 63 percent to $33.1 million (2022 - $20.3
million) and more than doubled to $98.6 million (2022 - $44.3
million), respectively. These are the best levels of quarterly and
annual earnings achieved in the Corporation’s history. Included in
the 2023-periods’ earnings from continuing operations is $9.5
million in recovery of income taxes that mainly resulted from the
recognition and utilization of previously unrecognized deferred tax
assets in the Canadian jurisdiction.
In the fourth quarter of 2023, adjusted EBITDA
from continuing operations was $35.4 million, a 4 percent increase
compared to $33.9 million in the corresponding 2022-quarter. In the
2023-year, adjusted EBITDA from continuing operations increased by
63 percent to $150.7 million, 23 percent of revenue, from $92.7
million, 17 percent of revenue in 2022. Greater profitability
achieved in both 2023-periods were primarily driven by higher
margins from PHX Energy’s premium technologies and additional
profits realized from PHX Energy’s growing Atlas motor rental and
sales divisions.
Segmented Information
The Corporation reports three operating segments
on a geographical basis throughout the Gulf Coast, Northeast and
Rocky Mountain regions of the US; throughout the Western Canadian
Sedimentary Basin, and internationally in Albania.
United States
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
2023 |
2022 |
% Change |
|
|
2023 |
2022 |
% Change |
|
Directional drilling services |
111,350 |
114,316 |
(3 |
) |
|
440,385 |
390,881 |
13 |
|
Motor rental |
9,853 |
11,377 |
(13 |
) |
|
45,145 |
32,202 |
40 |
|
Sale of motor equipment and parts |
875 |
- |
n.m. |
|
|
10,993 |
- |
n.m. |
|
Total US revenue |
122,078 |
125,693 |
(3 |
) |
|
496,523 |
423,083 |
17 |
|
Reportable segment profit before tax |
18,772 |
23,643 |
(21 |
) |
|
84,225 |
64,030 |
32 |
n.m. – not meaningful
Despite the continued slowdown in US industry
activity in the fourth quarter of 2023, PHX Energy’s US operations
remained robust and generated revenue of $122.1 million, which is
only 3 percent lower than the record $125.7 million generated in
the fourth quarter of 2022. With strong revenue generated in all of
the quarters in 2023, the Corporation’s US division achieved its
highest annual revenue for the second consecutive year. US revenue
in the 2023 twelve-month period grew by 17 percent to $496.5
million from $423.1 million in the same 2022-period.
In the fourth quarter of 2023, US industry
horizontal and directional rig count dropped by 19 percent with an
average of 608 active horizontal and directional rigs per day
compared to an average of 752 active horizontal and directional
rigs per day in the 2022-quarter (Source: Baker Hughes, North
American Rotary Rig Count, Jan 2000 - Current,
https://rigcount.bakerhughes.com/na-rig-count). In comparison, the
Corporation’s US operating days(3) declined by 15 percent to 4,114
days from 4,843 days in the 2022-quarter. For the year-ended
December 31, 2023, US industry activity, as measured by the average
number of horizontal and directional rigs running on a daily basis,
decreased by 4 percent to 671 rigs from 698 rigs in 2022 (Source:
Baker Hughes, North American Rotary Rig Count, Jan 2000 - Current,
https://rigcount.bakerhughes.com/na-rig-count). The US segment’s
operating days were 17,347 in the 2023-year compared to 18,248 in
2022; a decrease of 5 percent.
Horizontal and directional drilling continued to
represent the majority of rigs running on a daily basis during the
fourth quarter and year ended 2023. During the 2023-year, Phoenix
USA was active in the Permian, Eagle Ford, Scoop/Stack, Marcellus,
Utica, Bakken, and Niobrara basins.
Throughout 2023, PHX Energy continued to expand
its fleet of premium technologies in the US and in the fourth
quarter of the year added a second brand of RSS technology to its
fleet. With higher levels of RSS activity and increased capacity
and utilization of premium technologies, the US division’s average
revenue per day(3) for directional drilling services in the
2023-quarter rose to $27,069 from $23,604 in the 2022-quarter, a 15
percent increase. For the year ended December 31, 2023, average
revenue per day for directional drilling services grew by 19
percent to $25,387 from $21,420 in 2022. The continuing favorable
impact of the US dollar strengthening relative to 2022 also
supported the improved average consolidated revenue per day in the
2023 twelve-month period. Omitting the impact of foreign exchange,
the average revenue per day for directional drilling services
increased by 16 percent in 2023.
In the 2023-year, the Corporation further
expanded its Atlas motor rental division and grew its revenue by 40
percent to $45.1 million from $32.2 million in 2022. As US industry
activity declined in the 2023-quarter, PHX Energy’s US motor rental
activity saw a similar trend which contributed to the decrease in
US motor rental revenue to $9.9 million from $11.4 million in the
2022-quarter. Despite the slowdown in industry activity, the
Corporation sees further growth opportunities for this business
line as it provides the ability to penetrate the portion of the US
market that is not accessible through its full service offering.
With additional Atlas motors expected to be delivered in the first
half of 2024, the Corporation plans to dedicate a portion of these
motors to the rental fleet to continue the expansion of this
division.
In the 2023 three and twelve-month period, PHX
Energy’s US operations also sold Atlas motor equipment and parts to
certain customers and generated $0.9 million and $11 million of
revenue from this business line, respectively. As the Corporation
continues to support these customers’ owned fleet of Atlas motors,
a steady stream of revenue is expected to continue in future
periods.
For the three-month period ended December 31,
2023, the US segment’s reportable segment income before tax
decreased by 21 percent to $18.8 million from $23.6 million in the
same 2022-period. The decline in the segment’s profitability during
the 2023-quarter was primarily due to rising personnel-related
costs, higher use of rented equipment in its full service
operations, and lower drilling and motor rental activity. In the
2023-year, the US segment’s reportable segment income before tax
improved by 32 percent to $84.2 million from $64 million in 2022.
Higher profitability in the 2023-year was primarily driven by
greater margins from premium technologies and growth in the rental
and sale of Atlas motors.
Canada
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2023 |
2022 |
% Change |
|
2023 |
2022 |
% Change |
|
Directional drilling services |
41,921 |
30,371 |
38 |
|
153,637 |
107,417 |
43 |
|
Motor rental |
479 |
334 |
43 |
|
1,864 |
1,127 |
65 |
|
Total Canadian revenue |
42,400 |
30,705 |
38 |
|
155,501 |
108,544 |
43 |
|
Reportable segment profit before tax |
5,508 |
771 |
n.m. |
|
23,337 |
8,700 |
168 |
n.m. – not meaningful
For the three-month period and year ended
December 31, 2023, PHX Energy’s Canadian operations generated
revenue of $42.4 million (2022 - $30.7 million) and $155.5 million
(2022 - $108.5 million), respectively, the highest level of fourth
quarter and annual revenue since 2014.
Canadian operating days(3) in the 2023
three-month period rose by 21 percent to 3,099 days compared to
2,571 days in the same 2022-quarter. In comparison, industry
horizontal and directional drilling activity, as measured by
drilling days, declined by 5 percent to 15,895 in the fourth
quarter of 2023 from 16,813 in the 2022-quarter (Source: Daily Oil
Bulletin, hz-dir days 231231). For the year ended December 31,
2023, there were 59,809 horizontal and directional drilling days
realized in the Canadian industry, compared to the 60,276 days
realized in 2022, a one percent decrease (Source: Daily Oil
Bulletin, hz-dir days 231231). In comparison, drilling activity in
the Canadian segment improved by 17 percent from 9,823 operating
days in 2022 to 11,526 days in 2023. In both 2023-periods, PHX
Energy’s Canadian activity far exceeded that of the industry and
this was largely driven by the Corporation’s successful expansion
of its client base. Through the strength of its marketing and
operations teams, PHX Energy has maintained a strong reputation as
a market leader and is among the top service providers in the
industry. During the 2023-year, the Corporation was active in the
Duvernay, Montney, Glauconite, Frobisher, Cardium, Viking, Bakken,
Torquay, Colony, Clearwater, Deadwood, Ellerslie, and Scallion
basins.
The increase in the Canadian division’s
quarterly and annual revenue in the 2023-periods was also supported
by improvements in average revenue per day(3) for directional
drilling services which increased by 15 percent to $13,529 in the
2023-quarter from $11,813 in the corresponding 2022-quarter and
increased by 22 percent to $13,330 in the 2023-year from $10,935 in
2022. Higher average per day realized in the 2023-periods mainly
resulted from increased deployment of premium technologies,
targeted marketing efforts, and cumulative impact of previous
pricing increases.
As a result of greater activity and improved
average revenue per day, PHX Energy’s Canadian reportable segment
profits grew to $5.5 million in the 2023-quarter (2022 - $0.8
million) and $23.3 million in the 2023-year (2022 - $8.7
million).
International – Continuing
Operations
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
Years ended December 31, |
|
|
2023 |
|
2022 |
% Change |
|
2023 |
2022 |
% Change |
|
Revenue |
854 |
|
1,360 |
(37 |
) |
|
4,317 |
4,118 |
5 |
|
|
Reportable segment profit (loss) before tax |
(49 |
) |
631 |
n.m. |
|
1,199 |
1,412 |
(15 |
) |
n.m. – not meaningful
The Corporation’s international segment revenue
is comprised of revenue from Albania. For the three-month period
and year ended December 31, 2023, the international segment’s
revenue was $0.9 million (2022-quarter - $1.4 million) and $4.3
million (2022 - $4.1 million), respectively. Albania operations
resumed late in the first quarter of 2022 with one rig. In the
2023-quarter, international revenue decreased by 37 percent due to
the rig’s operation being suspended for two months. Late in the
fourth quarter of 2023, a second rig was deployed and in January
2024, Albania operations were active with two rigs.
For the three-month period ended December 31,
2023, the international segment reported a loss before tax of $49
thousand compared to reportable segment profit before tax of $0.6
million in the 2022-period. For the year-ended December 31, 2023,
the international segment realized reportable segment profit before
tax of $1.2 million as compared to a profit of $1.4 million in the
corresponding 2022-year. The decrease in profitability in both
2023-periods was mainly due to the temporary suspension of the
rig’s operation and rising personnel-related costs.
Investing Activities
Net cash used in investing activities for the
year ended December 31, 2023 was $20.3 million as compared to $47.3
million in 2022. During 2023, the Corporation spent $34.4 million
(2022 - $48.5 million) to grow the Corporation’s fleet of drilling
equipment and $30.6 million (2022 - $25.1 million) was used to
maintain capacity in the Corporation’s fleet of drilling equipment
and replace equipment lost downhole during drilling operations.
With proceeds on disposition of drilling and other equipment of
$43.7 million (2022 - $27.5 million), the Corporation’s net capital
expenditures for 2023 were $21.2 million (2022 - $46.1
million).
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
|
Growth capital expenditures(3) |
7,026 |
|
15,252 |
|
|
34,382 |
|
48,457 |
|
|
Maintenance capital expenditures(3) to replace
downhole equipment losses and asset retirements |
8,448 |
|
6,222 |
|
|
30,550 |
|
25,068 |
|
|
Total capital expenditures(3) |
15,474 |
|
21,474 |
|
|
64,932 |
|
73,525 |
|
|
Deduct: |
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
(10,997 |
) |
(12,005 |
) |
|
(43,686 |
) |
(27,459 |
) |
|
Net capital expenditures(2) |
4,477 |
|
9,469 |
|
|
21,246 |
|
46,066 |
|
The 2023-year capital expenditures comprised
of:
- $38.9 million in
MWD systems and spare components and RSS;
- $22.9 million in
downhole performance drilling motors; and
- $3.1 million in machinery and
equipment and other assets.
The capital expenditure program undertaken in
the year was primarily financed from proceeds on disposition of
drilling equipment, cash flows from operating activities, and the
Corporation’s credit facilities when required.
The change in non-cash working capital balances
of $1.7 million (source of cash) relates to the net change in the
Corporation’s trade payables that are associated with the
acquisition of capital assets. This compares to $7 thousand in
2022.
Financing Activities
For the year ended December 31, 2023, net cash
used in financing activities was $77.9 million as compared to $2.7
million in 2022. In the 2023-year:
- dividends of
$30.2 million were paid to shareholders;
- 4,032,600 common
shares were purchased by the Corporation for $30.4 million and
cancelled under the NCIB;
- 114,000 common
shares were purchased by an independent trustee in the open market
for $0.6 million and held in trust for the use of potential future
settlements of retention awards granted under the Corporation’s
RAP;
- 121,763 common
shares were issued from treasury for proceeds of $1 million upon
the exercise of share options;
- payments of $3
million were made towards lease liabilities; and
- $14.7 million
net repayments were made towards the Corporation’s syndicated
credit facility.
Capital Resources
As of December 31, 2023, the Corporation had CAD
$7.6 million drawn on its Canadian credit facilities, nothing drawn
on its US operating facility, and a cash balance of $16.4 million.
As at December 31, 2023, the Corporation had CAD $87 million and
USD $20 million available from its credit facilities. The credit
facilities are secured by substantially all of the Corporation’s
assets and mature in December 2026.
As at December 31, 2023, the Corporation was in
compliance with all its financial covenants as follows:
|
Ratio |
Covenant |
|
As at December 31, 2023 |
|
Debt to covenant EBITDA(i) |
<3.0x |
|
0.05 |
|
Interest coverage ratio(i) |
>3.0x |
|
60.06 |
(i) Definitions for these terms are included in
the credit agreement filed on SEDAR+
Under the syndicated credit agreement, in any
given period, the Corporation’s distributions (as defined therein)
cannot exceed its maximum aggregate amount of distributions limit
as defined in the Corporation’s syndicated credit agreement.
Distributions include, without limitation, dividends declared and
paid, cash used for common shares purchased by the independent
trustee in the open market and held in trust for potential
settlement of outstanding retention awards, as well as cash used
for common shares repurchased and cancelled under the NCIB.
Cash Requirements for Capital
Expenditures
Historically, the Corporation has financed its
capital expenditures(3) and acquisitions through cash flows from
operating activities, proceeds on disposition of drilling
equipment, debt and equity. With $5 million carried over from the
2023 capital expenditure budget and the previously approved
preliminary 2024 capital expenditure program of $70 million, PHX
Energy anticipates spending $75 million of capital expenditures in
2024. Of the total expenditures, $47 million is targeted to be
spent on growth and $28 million is expected to be allocated to
maintain capacity in the existing fleet of drilling and other
equipment and replace equipment lost downhole during drilling
operations. The amount expected to be allocated towards replacing
equipment lost downhole could increase should more downhole
equipment losses occur throughout the year.
These planned expenditures are expected to be
financed from cash flow from operating activities, proceeds on
disposition of drilling equipment, cash and cash equivalents, and
the Corporation’s credit facilities, if necessary. However, if a
sustained period of market uncertainty and financial market
volatility persists in 2024, the Corporation's activity levels,
cash flows and access to credit may be negatively impacted, and the
expenditure level would be reduced accordingly where possible.
Conversely, if future growth opportunities present themselves, the
Corporation would look at expanding this planned capital
expenditure amount.
As at December 31, 2023, the Corporation has
commitments to purchase drilling and other equipment for $42.7
million. Delivery is expected to occur within the first half of
2024.
About PHX Energy Services
Corp.
PHX Energy is a growth-oriented, public oil and
natural gas services company. The Corporation, through its
directional drilling subsidiary entities provides horizontal and
directional drilling services and technologies to oil and natural
gas exploration and development companies principally in Canada and
the US. In connection with the services it provides, PHX Energy
engineers, develops and manufactures leading-edge technologies. In
recent years, PHX Energy has developed various new technologies
that have positioned the Corporation as a technology leader in the
horizontal and directional drilling services sector.
PHX Energy’s Canadian directional drilling
operations are conducted through Phoenix Technology Services LP.
The Corporation maintains its corporate head office, research and
development, Canadian sales, service and operational centers in
Calgary, Alberta. In addition, PHX Energy has a facility in
Estevan, Saskatchewan. PHX Energy’s US operations, conducted
through the Corporation’s wholly-owned subsidiary, Phoenix
Technology Services USA Inc. (“Phoenix USA”), is headquartered in
Houston, Texas. Phoenix USA has sales and service facilities in
Houston, Texas; Midland, Texas; Casper, Wyoming; and Oklahoma City,
Oklahoma. Internationally, PHX Energy has sales offices and service
facilities in Albania, and an administrative office in Nicosia,
Cyprus. The Corporation also supplies technology to the Middle East
regions.
The common shares of PHX Energy trade on the
Toronto Stock Exchange under the symbol PHX.
For further information please contact:John
Hooks, CEO; Michael Buker, President; or Cameron Ritchie, Senior
Vice President Finance and CFO
PHX Energy Services Corp.Suite 1600, 215 9th
Avenue SW, Calgary Alberta T2P 1K3Tel: 403-543-4466 Fax:
403-543-4485 www.phxtech.com
Condensed Consolidated Interim
Statements of Financial Position
|
(Stated in thousands of dollars) |
December 31, 2023 |
|
December 31, 2022 |
|
|
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
16,433 |
|
$ |
18,247 |
|
|
|
Trade and other receivables |
|
121,334 |
|
|
125,836 |
|
|
|
Inventories |
|
63,173 |
|
|
63,120 |
|
|
|
Prepaid expenses |
|
2,409 |
|
|
3,024 |
|
|
|
Current tax assets |
|
3,691 |
|
|
- |
|
|
|
Total current assets |
|
207,040 |
|
|
210,227 |
|
|
Non-current assets: |
|
|
|
|
|
|
Drilling and other long-term assets |
|
128,263 |
|
|
115,945 |
|
|
|
Right-of-use asset |
|
27,056 |
|
|
29,336 |
|
|
|
Intangible assets |
|
14,200 |
|
|
15,668 |
|
|
|
Investments |
|
3,001 |
|
|
3,001 |
|
|
|
Other long-term assets |
|
1,284 |
|
|
993 |
|
|
|
Deferred tax assets |
|
4,650 |
|
|
54 |
|
|
|
Total non-current assets |
|
178,454 |
|
|
164,997 |
|
|
Total assets |
$ |
385,494 |
|
$ |
375,224 |
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Trade and other payables |
$ |
100,438 |
|
$ |
104,689 |
|
|
|
Dividends payable |
|
9,453 |
|
|
7,636 |
|
|
|
Lease liability |
|
3,234 |
|
|
2,907 |
|
|
|
Current tax liabilities |
|
- |
|
|
656 |
|
|
|
Total current liabilities |
|
113,125 |
|
|
115,888 |
|
|
Non-current liabilities: |
|
|
|
|
|
|
Lease liability |
|
33,972 |
|
|
36,768 |
|
|
|
Loans and borrowings |
|
7,564 |
|
|
22,731 |
|
|
|
Deferred tax liability |
|
16,822 |
|
|
18,497 |
|
|
|
Other |
|
4,042 |
|
|
4,462 |
|
|
|
Total non-current liabilities |
|
62,400 |
|
|
82,458 |
|
|
Equity: |
|
|
|
|
|
|
Share capital |
|
222,653 |
|
|
251,345 |
|
|
|
Contributed surplus |
|
7,168 |
|
|
7,044 |
|
|
|
Deficit |
|
(45,695 |
) |
|
(112,121 |
) |
|
|
Accumulated other comprehensive income |
|
25,843 |
|
|
30,610 |
|
|
|
Total equity |
|
209,969 |
|
|
176,878 |
|
|
Total liabilities and equity |
$ |
385,494 |
|
$ |
375,224 |
|
Condensed Consolidated Interim
Statements of Comprehensive Earnings
(Stated in thousands of dollars except earnings
per share)
|
|
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
Revenue |
$ |
165,332 |
|
$ |
157,758 |
|
$ |
656,341 |
|
$ |
535,745 |
|
|
Direct costs |
|
129,240 |
|
|
121,906 |
|
|
506,236 |
|
|
426,107 |
|
|
Gross profit |
|
36,092 |
|
|
35,852 |
|
|
150,105 |
|
|
109,638 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
18,003 |
|
|
19,365 |
|
|
68,915 |
|
|
68,901 |
|
|
Research and development expenses |
|
1,393 |
|
|
1,184 |
|
|
5,210 |
|
|
3,722 |
|
|
Finance expense |
|
448 |
|
|
487 |
|
|
2,422 |
|
|
1,360 |
|
|
Finance expense lease liability |
|
551 |
|
|
525 |
|
|
2,245 |
|
|
2,032 |
|
|
Other income |
|
(7,977 |
) |
|
(8,699 |
) |
|
(32,337 |
) |
|
(19,730 |
) |
|
|
|
|
12,418 |
|
|
12,862 |
|
|
46,455 |
|
|
56,285 |
|
|
Earnings from continuing operations before income taxes |
|
23,674 |
|
|
22,990 |
|
|
103,650 |
|
|
53,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (recovery of) income taxes |
|
|
|
|
|
|
|
|
|
Current |
|
(3,157 |
) |
|
363 |
|
|
10,435 |
|
|
760 |
|
|
Deferred |
|
(6,303 |
) |
|
2,294 |
|
|
(5,365 |
) |
|
8,282 |
|
|
|
|
|
(9,460 |
) |
|
2,657 |
|
|
5,070 |
|
|
9,042 |
|
|
Earnings from continuing operations |
|
33,134 |
|
|
20,333 |
|
|
98,580 |
|
|
44,311 |
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations, net of taxes |
|
- |
|
|
- |
|
|
- |
|
|
(14,558 |
) |
|
Net earnings |
|
33,134 |
|
|
20,333 |
|
|
98,580 |
|
|
29,753 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
(3,752 |
) |
|
(1,743 |
) |
|
(4,767 |
) |
|
8,820 |
|
|
|
Reclassification of foreign currency translation loss on
disposition |
|
- |
|
|
|
|
- |
|
|
10,561 |
|
|
Total comprehensive earnings |
$ |
29,382 |
|
$ |
18,590 |
|
$ |
93,813 |
|
$ |
49,134 |
|
|
Earnings per share – basic |
|
|
|
|
|
|
|
|
|
Continuing operations |
$ |
0.69 |
|
$ |
0.40 |
|
$ |
1.98 |
|
$ |
0.88 |
|
|
Discontinued operations |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
(0.29 |
) |
|
Net earnings |
$ |
0.69 |
|
$ |
0.40 |
|
$ |
1.98 |
|
$ |
0.59 |
|
|
Earnings per share – diluted |
|
|
|
|
|
|
|
|
|
Continuing operations |
$ |
0.68 |
|
$ |
0.39 |
|
$ |
1.96 |
|
$ |
0.87 |
|
|
Discontinued operations |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
(0.29 |
) |
|
Net earnings |
$ |
0.68 |
|
$ |
0.39 |
|
$ |
1.96 |
|
$ |
0.58 |
|
Condensed Consolidated Interim
Statements of Cash Flows
|
(Stated in thousands of dollars) |
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
$ |
33,134 |
|
$ |
20,333 |
|
$ |
98,580 |
|
$ |
44,311 |
|
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
10,056 |
|
|
8,876 |
|
|
38,861 |
|
|
32,119 |
|
|
Depreciation and amortization right-of-use asset |
|
841 |
|
|
805 |
|
|
2,898 |
|
|
3,235 |
|
|
Provision for income taxes |
|
(9,460 |
) |
|
2,657 |
|
|
5,070 |
|
|
9,042 |
|
|
Unrealized foreign exchange loss |
|
(242 |
) |
|
133 |
|
|
150 |
|
|
169 |
|
|
Net gain on disposition of drilling equipment |
|
(7,444 |
) |
|
(8,693 |
) |
|
(31,347 |
) |
|
(19,492 |
) |
|
Equity-settled share-based payments |
|
60 |
|
|
58 |
|
|
491 |
|
|
451 |
|
|
Finance expense |
|
448 |
|
|
487 |
|
|
2,422 |
|
|
1,360 |
|
|
Finance expense lease liability |
|
551 |
|
|
525 |
|
|
2,245 |
|
|
2,032 |
|
|
Provision for (recovery of) bad debts |
|
- |
|
|
(12 |
) |
|
117 |
|
|
(13 |
) |
|
Provision for inventory obsolescence |
|
773 |
|
|
423 |
|
|
2,075 |
|
|
1,299 |
|
|
Interest paid on lease liabilities |
|
(551 |
) |
|
(525 |
) |
|
(2,245 |
) |
|
(2,032 |
) |
|
Interest paid |
|
(555 |
) |
|
(250 |
) |
|
(2,061 |
) |
|
(841 |
) |
|
Income taxes (paid) received |
|
(6,325 |
) |
|
3 |
|
|
(14,859 |
) |
|
232 |
|
|
Change in non-cash working capital |
|
15,468 |
|
|
(15,850 |
) |
|
(5,674 |
) |
|
(33,534 |
) |
|
Continuing operations |
|
36,754 |
|
|
8,970 |
|
|
96,723 |
|
|
38,338 |
|
|
Discontinued operations |
|
- |
|
|
- |
|
|
- |
|
|
(1,255 |
) |
|
Net cash from operating activities |
|
36,754 |
|
|
8,970 |
|
|
96,723 |
|
|
37,083 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
|
10,997 |
|
|
12,005 |
|
|
43,686 |
|
|
27,459 |
|
|
Acquisition of drilling and other equipment |
|
(15,474 |
) |
|
(21,474 |
) |
|
(64,932 |
) |
|
(73,525 |
) |
|
Acquisition of intangible assets |
|
(686 |
) |
|
(569 |
) |
|
(686 |
) |
|
(1,261 |
) |
|
Change in non-cash working capital |
|
(480 |
) |
|
(332 |
) |
|
1,670 |
|
|
7 |
|
|
Continuing operations |
|
(5,643 |
) |
|
(10,370 |
) |
|
(20,262 |
) |
|
(47,320 |
) |
|
Discontinued operations |
|
- |
|
|
- |
|
|
- |
|
|
(68 |
) |
|
Net cash used in investing activities |
|
(5,643 |
) |
|
(10,370 |
) |
|
(20,262 |
) |
|
(47,388 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of shares under the NCIB |
|
(11,264 |
) |
|
- |
|
|
(30,366 |
) |
|
- |
|
|
Dividends paid to shareholders |
|
(7,277 |
) |
|
(5,078 |
) |
|
(30,189 |
) |
|
(15,148 |
) |
|
Net proceeds on (net repayment of) loans and borrowings |
|
(10,500 |
) |
|
(1,269 |
) |
|
(14,731 |
) |
|
22,731 |
|
|
Payments of lease liability |
|
(792 |
) |
|
(805 |
) |
|
(3,013 |
) |
|
(3,271 |
) |
|
Purchase of shares held in trust |
|
- |
|
|
(610 |
) |
|
(612 |
) |
|
(4,110 |
) |
|
Proceeds from exercise of options |
|
200 |
|
|
333 |
|
|
964 |
|
|
2,504 |
|
|
Change in non-cash working capital |
|
414 |
|
|
- |
|
|
|
|
|
|
|
|
Continuing operations |
|
(29,219 |
) |
|
(7,429 |
) |
|
(77,947 |
) |
|
2,706 |
|
|
Discontinued operations |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Net cash from (used in) financing activities |
|
(29,219 |
) |
|
(7,429 |
) |
|
(77,947 |
) |
|
2,706 |
|
|
Net decrease in cash and cash equivalents |
|
1,892 |
|
|
(8,829 |
) |
|
(1,486 |
) |
|
(7,599 |
) |
|
Cash and cash equivalents, beginning of period |
|
14,845 |
|
|
27,024 |
|
|
18,247 |
|
|
24,829 |
|
|
Effect of movements in exchange rates on cash held |
|
(304 |
) |
|
52 |
|
|
(328 |
) |
|
1,017 |
|
|
Cash and cash equivalents, end of period |
$ |
16,433 |
|
$ |
18,247 |
|
$ |
16,433 |
|
$ |
18,247 |
|
Cautionary Statement Regarding
Forward-Looking Information and Statements
This document contains certain forward-looking
information and statements within the meaning of applicable
securities laws. The use of "expect", "anticipate", "continue",
"estimate", "objective", "ongoing", "may", "will", "project",
"could", "should", "can", "believe", "plans", "intends", "strategy"
and similar expressions are intended to identify forward-looking
information or statements.
The forward-looking information and statements
included in this document are not guarantees of future performance
and should not be unduly relied upon. These statements and
information involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking
statements and information. The Corporation believes the
expectations reflected in such forward-looking statements and
information are reasonable, but no assurance can be given that
these expectations will prove to be correct. Such forward-looking
statements and information included in this document should not be
unduly relied upon. These forward-looking statements and
information speak only as of the date of this document.
In particular, forward-looking information and
statements contained in this document include without limitation,
the Corporation’s intent to preserve balance sheet strength and
continue to reward shareholders, including through its dividend
program, the ROCS program and NCIB, intentions for the
distributable cash remaining under ROCS, PHX Energy's intentions
with respect to the NCIB and purchases thereunder and the effects
of repurchases under the NCIB the anticipated industry activity and
demand for the Corporation’s services and technologies in North
America, the projected capital expenditures budget for 2024 ,and
how the budget will be allocated and funded, the timeline for
delivery of equipment on order, the anticipated continuation of the
revenue and profitability generated by both the Atlas sales and
rental divisions, and the anticipated continuation of PHX Energy’s
quarterly dividend program and the amounts of dividends.
The above are stated under the headings:
“Financial Results”, “Overall Performance”, “Dividends and ROCS”,
“Capital Spending”, “Sales and Licensed Use of Atlas Motors”,
“Revenue”, “Segmented Information” and “Capital Resources”. In
addition, all information contained under the heading “Outlook” of
this document may contain forward-looking statements.
In addition to other material factors,
expectations and assumptions which may be identified in this
document and other continuous disclosure documents of the
Corporation referenced herein, assumptions have been made in
respect of such forward-looking statements and information
regarding, without limitation, that: the Corporation will continue
to conduct its operations in a manner consistent with past
operations; the general continuance of current industry conditions
and the accuracy of the Corporation’s market outlook expectations
for 2024 and in the future; that future business, regulatory and
industry conditions will be within the parameters expected by the
Corporation; anticipated financial performance, business prospects,
impact of competition, strategies, the general stability of the
economic and political environment in which the Corporation
operates; the potential impact of pandemics, the Russian-Ukrainian
war, Middle-East conflict and other world events on the global
economy, specifically trade, manufacturing, supply chain, inflation
and energy consumption, among other things and the resulting impact
on the Corporation’s operations and future results which remain
uncertain; exchange and interest rates, and inflationary pressures
including the potential for further interest rate hikes by global
central banks and the impact on financing charges and foreign
exchange and the anticipated global economic response to concerted
interest rate hikes; the continuance of existing (and in certain
circumstances, the implementation of proposed) tax, royalty and
regulatory regimes; the sufficiency of budgeted capital
expenditures in carrying out planned activities; the availability
and cost of labour and services and the adequacy of cash flow; debt
and ability to obtain financing on acceptable terms to fund its
planned expenditures, which are subject to change based on
commodity prices; market conditions and future oil and natural gas
prices; and potential timing delays. Although management considers
these material factors, expectations, and assumptions to be
reasonable based on information currently available to it, no
assurance can be given that they will prove to be correct.
Readers are cautioned that the foregoing lists
of factors are not exhaustive. Additional information on these and
other factors that could affect the Corporation’s operations and
financial results are included in reports on file with the Canadian
Securities Regulatory Authorities and may be accessed through the
SEDAR+ website (www.sedarplus.ca) or at the Corporation’s website.
The forward-looking statements and information contained in this
document are expressly qualified by this cautionary statement. The
Corporation does not undertake any obligation to publicly update or
revise any forward-looking statements or information, whether as a
result of new information, future events or otherwise, except as
may be required by applicable securities laws.
Non-GAAP and Other Financial
Measures
Non-GAAP Financial Measures and
Ratios
a) Adjusted
EBITDA from Continuing Operations
Adjusted EBITDA from continuing operations,
defined as earnings before finance expense, finance expense lease
liability, income taxes, depreciation and amortization, impairment
losses on drilling and other equipment and goodwill and other
write-offs, equity-settled share-based payments, severance payouts
relating to the Corporation’s restructuring cost, and unrealized
foreign exchange gains or losses, does not have a standardized
meaning and is not a financial measure that is recognized under
GAAP. However, Management believes that adjusted EBITDA from
continuing operations provides supplemental information to earnings
from continuing operations that is useful in evaluating the results
of the Corporation’s principal business activities before
considering certain charges, how it was financed and how it was
taxed in various countries. Investors should be cautioned, however,
that adjusted EBITDA from continuing operations should not be
construed as an alternative measure to earnings from continuing
operations determined in accordance with GAAP. PHX Energy’s method
of calculating adjusted EBITDA from continuing operations may
differ from that of other organizations and, accordingly, its
adjusted EBITDA from continuing operations may not be comparable to
that of other companies.
The following is a reconciliation of earnings from
continuing operations to adjusted EBITDA:
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
Years ended December 31, |
|
|
2023 |
|
2022 |
|
2023 |
2022 |
|
Earnings from continuing operations: |
33,134 |
|
20,333 |
|
98,580 |
44,311 |
|
Add: |
|
|
|
|
|
|
Depreciation and amortization drilling and other
equipment |
10,056 |
|
8,876 |
|
38,861 |
32,119 |
|
Depreciation and amortization right-of-use asset |
841 |
|
805 |
|
2,898 |
3,235 |
|
Provision for (recovery of) income taxes |
(9,460 |
) |
2,657 |
|
5,070 |
9,042 |
|
Finance expense |
448 |
|
487 |
|
2,422 |
1,360 |
|
Finance expense lease liability |
551 |
|
525 |
|
2,245 |
2,032 |
|
Equity-settled share-based payments |
60 |
|
58 |
|
491 |
451 |
|
Unrealized foreign exchange loss (gain) |
(242 |
) |
133 |
|
150 |
169 |
|
Adjusted EBITDA from continuing operations |
35,388 |
|
33,874 |
|
150,717 |
92,719 |
b) Adjusted EBITDA from
Continuing Operations Per Share - Diluted
Adjusted EBITDA from continuing operations per
share - diluted is calculated using the treasury stock method
whereby deemed proceeds on the exercise of the share options are
used to reacquire common shares at an average share price. The
calculation of adjusted EBITDA from continuing operations per share
- dilutive is based on the adjusted EBITDA from continuing
operations as reported in the table above divided by the diluted
number of shares outstanding as quantified in Note 10(b) in the
Notes to the Consolidated Financial Statements.
c) Adjusted EBITDA from
Continuing Operations as a Percentage of Revenue
Adjusted EBITDA as a percentage of revenue is
calculated by dividing the adjusted EBITDA from continuing
operations as reported in the table above by revenue as stated on
the Consolidated Statements of Comprehensive Earnings.
d) Adjusted EBITDA from
Continuing Operations Excluding Cash-settled Share-based
Compensation Expense
Adjusted EBITDA from continuing operations
excluding cash-settled share-based compensation expense is
calculated by adding cash-settled share-based compensation expense
to adjusted EBITDA from continuing operations as described above.
Management believes that this measure provides supplemental
information to earnings from continuing operations that is useful
in evaluating the results of the Corporation’s principal business
activities before considering certain charges, how it was financed,
how it was taxed in various countries, and without the impact of
cash-settled share-based compensation expense that is affected by
fluctuations in the Corporation’s share price.
The following is a reconciliation of earnings
from continuing operations to adjusted EBITDA from continuing
operations excluding cash-settled share-based compensation
expense:
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
Years ended December 31, |
|
|
2023 |
|
2022 |
|
2023 |
2022 |
|
Earnings from continuing operations: |
33,134 |
|
20,333 |
|
98,580 |
44,311 |
|
Add: |
|
|
|
|
|
|
Depreciation and amortization drilling and other equipment |
10,056 |
|
8,876 |
|
38,861 |
32,119 |
|
Depreciation and amortization right-of-use asset |
841 |
|
805 |
|
2,898 |
3,235 |
|
Provision for (recovery of) income taxes |
(9,460 |
) |
2,657 |
|
5,070 |
9,042 |
|
Finance expense |
448 |
|
487 |
|
2,422 |
1,360 |
|
Finance expense lease liability |
551 |
|
525 |
|
2,245 |
2,032 |
|
Equity-settled share-based payments |
60 |
|
58 |
|
491 |
451 |
|
Unrealized foreign exchange loss |
(242 |
) |
133 |
|
150 |
169 |
|
Cash-settled share-based compensation expense |
4,572 |
|
6,938 |
|
13,470 |
24,568 |
|
Adjusted EBITDA from continuing operations excluding
cash-settled share-based compensation expense |
39,960 |
|
40,812 |
|
164,187 |
117,287 |
e) Adjusted EBITDA from
Continuing Operations Excluding Cash-settled Share-based
Compensation Expense as a Percentage of Revenue
Adjusted EBITDA from continuing operations
excluding cash-settled share-based compensation expense as a
percentage of revenue is calculated by dividing adjusted EBITDA
from continuing operations excluding cash-settled share-based
compensation expense as reported above by revenue as stated on the
Consolidated Statements of Comprehensive Earnings.
f) Gross Profit as a
Percentage of Revenue Excluding Depreciation &
Amortization
Gross profit as a percentage of revenue
excluding depreciation & amortization is defined as the
Corporation’s gross profit excluding depreciation and amortization
divided by revenue and is used to assess operational profitability.
This Non-GAAP ratio does not have a standardized meaning and is not
a financial measure recognized under GAAP. PHX Energy’s method of
calculating gross profit as a percentage of revenue may differ from
that of other organizations and, accordingly, it may not be
comparable to that of other companies.
The following is a reconciliation of revenue,
direct costs, depreciation and amortization and gross profit to
gross profit as a percentage of revenue excluding depreciation and
amortization:
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2023 |
2022 |
|
2023 |
2022 |
|
Revenue |
165,332 |
157,758 |
|
656,341 |
535,745 |
|
Direct costs |
129,240 |
121,906 |
|
506,236 |
426,107 |
|
Gross profit |
36,092 |
35,852 |
|
150,105 |
109,638 |
| Depreciation &
amortization drilling and other equipment (included
in direct costs) |
10,056 |
8,876 |
|
38,861 |
32,119 |
| Depreciation &
amortization right-of-use asset (included in direct
costs) |
841 |
805 |
|
2,898 |
3,235 |
|
|
46,989 |
45,533 |
|
191,864 |
144,992 |
|
Gross profit as a percentage of revenue excluding
depreciation & amortization |
28% |
29% |
|
29% |
27% |
g) SG&A Costs
Excluding Share-Based Compensation as a Percentage of
Revenue
SG&A costs excluding share-based
compensation as a percentage of revenue is defined as the
Corporation’s SG&A costs excluding share-based compensation
divided by revenue and is used to assess the impact of
administrative costs excluding the effect of share price
volatility. This Non-GAAP ratio does not have a standardized
meaning and is not a financial measure recognized under GAAP. PHX
Energy’s method of calculating SG&A costs excluding share-based
compensation as a percentage of revenue may differ from that of
other organizations and, accordingly, it may not be comparable to
that of other companies.
The following is a reconciliation of SG&A
costs, share-based compensation, and revenue to SG&A costs
excluding share-based compensation as a percentage of revenue:
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
Years ended December 31, |
|
|
2023 |
2022 |
|
2023 |
2022 |
|
SG&A Costs |
18,004 |
19,365 |
|
68,915 |
68,901 |
|
Deduct: |
|
|
|
|
|
|
Share-based compensation (included in SG&A) |
4,632 |
6,996 |
|
13,961 |
25,019 |
|
|
13,372 |
12,369 |
|
54,954 |
43,882 |
|
Revenue |
165,332 |
157,758 |
|
656,341 |
535,745 |
|
SG&A costs excluding share-based compensation as
a percentage of revenue |
8% |
8% |
|
8% |
8% |
Capital Management Measures
a) Funds from
Operations
Funds from operations is defined as cash flows
generated from operating activities before changes in non-cash
working capital, interest paid, and income taxes paid. This
financial measure does not have a standardized meaning and is not a
financial measure recognized under GAAP. Management uses funds from
operations as an indication of the Corporation’s ability to
generate funds from its operations before considering changes in
working capital balances and interest and taxes paid. Investors
should be cautioned, however, that this financial measure should
not be construed as an alternative measure to cash flows from
operating activities determined in accordance with GAAP. PHX
Energy’s method of calculating funds from operations may differ
from that of other organizations and, accordingly, it may not be
comparable to that of other companies.
The following is a reconciliation of cash flows
from operating activities to funds from operations:
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
|
2023 |
|
2022 |
|
|
2023 |
2022 |
|
|
Cash flows from operating activities |
36,754 |
|
8,970 |
|
|
96,723 |
38,338 |
|
|
Add (deduct): |
|
|
|
|
|
|
Changes in non-cash working capital |
(15,467 |
) |
15,851 |
|
|
5,674 |
33,535 |
|
|
Interest paid |
555 |
|
250 |
|
|
2,061 |
841 |
|
|
Income taxes paid (received) |
6,325 |
|
(3 |
) |
|
14,859 |
(232 |
) |
|
Funds from operations |
28,167 |
|
25,068 |
|
|
119,317 |
72,482 |
|
b) Excess Cash
Flow
Excess cash flow is defined as funds from
operations (as defined above) less cash payment on leases, growth
capital expenditures, and maintenance capital expenditures from
downhole equipment losses and asset retirements, and increased by
proceeds on disposition of drilling equipment. This financial
measure does not have a standardized meaning and is not a financial
measure recognized under GAAP. Management uses excess cash flow as
an indication of the Corporation’s ability to generate funds from
its operations to support operations and grow and maintain the
Corporation’s drilling and other equipment. This performance
measure is useful to investors for assessing the Corporation’s
operating and financial performance, leverage and liquidity.
Investors should be cautioned, however, that this financial measure
should not be construed as an alternative measure to cash flows
from operating activities determined in accordance with GAAP. PHX
Energy’s method of calculating excess cash flow may differ from
that of other organizations and, accordingly, it may not be
comparable to that of other companies.
The following is a reconciliation of cash flows
from operating activities to excess cash flow:
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
|
Cash flows from operating activities |
36,754 |
|
8,970 |
|
|
96,723 |
|
38,338 |
|
|
Add (deduct): |
|
|
|
|
|
|
Changes in non-cash working capital |
(15,467 |
) |
15,851 |
|
|
5,674 |
|
33,535 |
|
|
Interest paid |
555 |
|
250 |
|
|
2,061 |
|
841 |
|
|
Income taxes paid (received) |
6,325 |
|
(3 |
) |
|
14,859 |
|
(232 |
) |
|
Cash payment on leases |
(1,343 |
) |
(1,330 |
) |
|
(5,258 |
) |
(5,303 |
) |
|
|
26,824 |
|
23,738 |
|
|
114,059 |
|
67,179 |
|
|
|
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
10,997 |
|
12,005 |
|
|
43,686 |
|
27,459 |
|
|
Maintenance capital expenditures to replace downhole
equipment losses and asset retirements |
(8,448 |
) |
(6,222 |
) |
|
(30,550 |
) |
(25,068 |
) |
|
Net proceeds |
2,549 |
|
5,783 |
|
|
13,136 |
|
2,391 |
|
|
|
|
|
|
|
|
|
Growth capital expenditures |
(7,026 |
) |
(15,252 |
) |
|
(34,382 |
) |
(48,457 |
) |
|
|
|
|
|
|
|
|
Excess cash flow |
22,347 |
|
14,269 |
|
|
92,813 |
|
21,113 |
|
c) Working
Capital
Working capital is defined as the Corporation’s
current assets less its current liabilities and is used to assess
the Corporation’s short-term liquidity. This financial measure does
not have a standardized meaning and is not a financial measure
recognized under GAAP. Management uses working capital to provide
insight as to the Corporation’s ability to meet obligations as at
the reporting date. PHX Energy’s method of calculating working
capital may differ from that of other organizations and,
accordingly, it may not be comparable to that of other
companies.
The following is a reconciliation of current
assets and current liabilities to working capital:
(Stated in thousands of dollars)
|
|
|
|
December 31, |
|
|
|
2023 |
|
2022 |
|
|
Current assets |
207,040 |
|
210,227 |
|
|
Deduct: |
|
|
|
Current liabilities |
(113,125 |
) |
(115,888 |
) |
|
Working capital |
93,915 |
|
94,339 |
|
d) Net
Debt (Net Cash)
Net debt is defined as the Corporation’s
operating facility and loans and borrowings less cash and cash
equivalents. This financial measure does not have a standardized
meaning and is not a financial measure recognized under GAAP.
Management uses net debt to provide insight as to the Corporation’s
ability to meet obligations as at the reporting date. PHX Energy’s
method of calculating net debt may differ from that of other
organizations and, accordingly, it may not be comparable to that of
other companies.
The following is a reconciliation of operating
facility, loans and borrowings, and cash and cash equivalents to
net debt:
(Stated in thousands of dollars)
|
|
|
|
December 31, |
|
|
|
2023 |
|
2022 |
|
|
Loans and borrowings |
7,564 |
|
22,731 |
|
|
Deduct: |
|
|
|
|
|
Cash and cash equivalents |
(16,433 |
) |
(18,247 |
) |
|
Net debt (Net cash) |
(8,869 |
) |
4,484 |
|
e) Net
Capital Expenditures
Net capital expenditures is comprised of total
additions to drilling and other long-term assets, as determined in
accordance with IFRS, less total proceeds from disposition of
drilling equipment, as determined in accordance with IFRS. This
financial measure does not have a standardized meaning and is not a
financial measure recognized under GAAP. Management uses net
capital expenditures to provide insight as to the Corporation’s
ability to meet obligations as at the reporting date. PHX Energy’s
method of calculating net debt may differ from that of other
organizations and, accordingly, it may not be comparable to that of
other companies.
The following is a reconciliation of additions to
drilling and other equipment and proceeds from disposition of
drilling equipment to net capital expenditures:
(Stated in thousands of dollars)
|
|
Three-month periods ended December 31, |
|
|
Years ended December 31, |
|
|
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
| Growth
capital expenditures |
7,026 |
|
15,252 |
|
|
34,382 |
|
48,457 |
|
|
Maintenance capital expenditures to replace downhole equipment
losses and asset retirements |
8,448 |
|
6,222 |
|
|
30,550 |
|
25,068 |
|
|
Total capital expenditures |
15,474 |
|
21,474 |
|
|
64,932 |
|
73,525 |
|
|
Deduct: |
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
(10,997 |
) |
(12,005 |
) |
|
(43,686 |
) |
(27,459 |
) |
|
Net capital expenditures |
4,477 |
|
9,469 |
|
|
21,246 |
|
46,066 |
|
f) Remaining
Distributable Balance under ROCS
Remaining distributable balance under ROCS is
comprised of 70% of excess cash flow as defined above less
repurchases of shares under the Normal Course Issuer Bids in effect
during the period and less the dividends paid to shareholders
during the period. This financial measure does not have a
standardized meaning and is not a financial measure recognized
under GAAP. Management uses the remaining distributable balance
under ROCS to provide insight as to the Corporation’s ROCS strategy
as at the reporting date. PHX Energy’s method of calculating
remaining distributable balance under ROCS may differ from that of
other organizations and, accordingly, it may not be comparable to
that of other companies.
The following is a reconciliation of excess cash
flow as defined above to remaining distributable balance under
ROCS:
(Stated in thousands of dollars)
|
|
Year ended December 31, 2023 |
|
|
Excess cash flow |
92,813 |
|
| 70% of excess cash flow |
64,969 |
|
| |
|
| Deduct: |
|
|
Repurchase of shares under the NCIB |
(30,366 |
) |
|
Dividends paid to shareholders |
(30,189 |
) |
|
Remaining Distributable Balance under ROCS |
4,414 |
|
Supplementary Financial
Measures“Average consolidated revenue per
day” is comprised of consolidated revenue, as determined
in accordance with IFRS, divided by the Corporation’s consolidated
number of operating days. Operating days is defined under the
“Definitions” section below.“Average revenue per operating
day” is comprised of revenue, as determined in accordance
with IFRS, divided by the number of operating days.
“Dividends paid per share” is
comprised of dividends paid, as determined in accordance with IFRS,
divided by the number of shares outstanding at the dividend record
date.“Dividends declared per
share” is comprised of dividends
declared, as determined in accordance with IFRS, divided by the
number of shares outstanding at the dividend record
date.“Effective tax rate” is
comprised of provision for or recovery of income tax, as determined
in accordance with IFRS, divided by earnings from continuing
operations before income taxes, as determined in accordance with
IFRS.“Funds from operations per share – diluted”
is calculated using the treasury stock method whereby deemed
proceeds on the exercise of the share options are used to reacquire
common shares at an average share price. The calculation of funds
from operations per share - diluted is based on the funds from
operations as reported in the table above divided by the diluted
number of shares outstanding as quantified in Note 10(b) in the
Notes to the Consolidated Financial Statements.
Definitions
“Operating days” throughout
this document, it is referring to the billable days on which PHX
Energy is providing services to the client at the rig site.
“Capital expenditures” equate to the Corporation’s
total acquisition of drilling and other equipment as stated on the
Consolidated Statements of Cash Flows and Note 5(b) in the Notes to
the Financial Statements.“Growth capital
expenditures” are capital expenditures that were used to
expand capacity in the Corporation’s fleet of drilling
equipment.“Maintenance capital expenditures” are
capital expenditures that were used to maintain capacity in the
Corporation’s fleet of drilling equipment and replace equipment
that were lost downhole during drilling operations.
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