PHX ENERGY SERVICES CORP. Third Quarter Highlights
- For the three-month period ended
September 30, 2023 , PHX Energy generated consolidated revenue of$169.4 million , the highest level of quarterly revenue in the Corporation’s history. With the first quarter of 2023 being the second highest level on record, the 2023-year is tracking to be a record year for PHX Energy. Consolidated revenue in the 2023-quarter included$11.9 million of motor rental revenue and$6.2 million of motor equipment and parts sold. - Earnings from continuing operations, adjusted EBITDA(1) from continuing operations, and adjusted EBITDA as a percentage of consolidated revenue are the best level of quarterly results on record. Earnings from continuing operations increased to
$24.9 million ($0.50 per share), an increase of 85 percent over the third quarter of 2022, and adjusted EBITDA from continuing operations increased to$43.5 million ($0.88 per share), which represented 26 percent of consolidated revenue(1). Included in the 2023-quarter’s adjusted EBITDA is$5 million in cash-settled share-based compensation expense. Excluding cash-settled share-based compensation expense, adjusted EBITDA from continuing operations(1) in the third quarter of 2023 was$48.5 million , 29 percent of consolidated revenue(1). - PHX Energy’s US division revenue in the third quarter of 2023 was
$123.8 million , 12 percent higher than the third quarter of 2022 and represented 73 percent of consolidated revenue. This level of revenue is only 1 percent less than the record achieved by the US segment in the fourth quarter of 2022. - PHX Energy’s Canadian division reported
$44.4 million of quarterly revenue which is the highest level since the fourth quarter of 2014. - In light of the continued strong demand for the Corporation’s premium technologies, the Board approved to increase the 2023 capital expenditure budget to
$80 million from the previous$61.5 million . The Board also approved a preliminary 2024 capital expenditure budget of$70 million . - As at
September 30, 2023 , the Corporation had working capital(2) of$101.3 million and net debt(2) of$3.5 million . - In
November 2023 , the Corporation increased the borrowing amounts 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 toDecember 12, 2026 . With the increased borrowing amounts, the Corporation has approximately CAD$76.5 million and USD$20 million available to be drawn from its credit facilities. Currently, debt levels are low and this increase is intended to provide PHX Energy flexibility to take advantage of lucrative opportunities when presented in the future. - In the 2023 three-month period, the Corporation generated excess cash flow(2) of
$25.7 million , after deducting capital expenditures of$18.8 million offset by proceeds on disposition of drilling and other equipment of$11.7 million . - During the 2023-quarter, PHX Energy continued to deliver additional returns to shareholders through its previous and current NCIB, purchasing and cancelling 2,442,700 common shares for
$17.5 million . In the 2023 nine-month period, the Corporation purchased and cancelled 2,710,500 common shares for$19.1 million . - For the three-month period ended
September 30, 2023 , PHX Energy paid$7.6 million in dividends which is double the dividend amount paid in the same 2022-period. OnSeptember 15, 2023 , the Corporation declared a dividend of$0.15 per share(3) or$7.3 million , paid onOctober 16, 2023 to shareholders of record onSeptember 30, 2023 . - With three consecutive quarters of strong financial performance, the Board has approved an increase to the quarterly dividend to
$0.20 per share effective for the dividend payable to shareholders of record at the close of business onDecember 31, 2023 . This is 33 percent higher than the dividend declared onSeptember 15, 2023 and the fifth dividend increase since the dividend program was reinstated inDecember 2020 .
Financial Highlights
(Stated in thousands of dollars except per share amounts, percentages and shares outstanding)
| Three-month periods ended | Nine-month periods ended | ||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||
| Operating Results – Continuing Operations | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||
| Revenue | 169,368 | 142,418 | 19 | 491,008 | 377,987 | 30 | |||||
| Earnings | 24,921 | 13,475 | 85 | 65,447 | 23,978 | 173 | |||||
| Earnings per share – diluted | 0.50 | 0.27 | 85 | 1.28 | 0.48 | 167 | |||||
| Adjusted EBITDA (1) | 43,524 | 27,315 | 59 | 115,330 | 58,845 | 96 | |||||
| Adjusted EBITDA per share – diluted (1) | 0.88 | 0.53 | 66 | 2.17 | 1.16 | 87 | |||||
| Adjusted EBITDA as a percentage of revenue (1) | 26 | % | 19 | % | 23 | % | 16 | % | |||
| Cash Flow – Continuing Operations | |||||||||||
| Cash flows from (used in) operating activities | 33,628 | 21,627 | 55 | 59,969 | 29,367 | 104 | |||||
| Funds from operations (2) | 34,166 | 22,711 | 91,150 | 47,413 | 92 | ||||||
| Funds from operations per share – diluted (3) | 0.69 | 0.44 | 57 | 1.71 | 0.94 | 82 | |||||
| Dividends paid per share (3) | 0.15 | 0.075 | 100 | 0.45 | 0.200 | 125 | |||||
| Dividends paid | 7,621 | 3,797 | 101 | 22,913 | 10,069 | 128 | |||||
| Capital expenditures | 18,804 | 18,631 | 1 | 49,458 | 52,051 | (5 | ) | ||||
| Excess cash flow (2) | 25,724 | 9,121 | 182 | 70,465 | 6,843 | n.m. | |||||
| Financial Position | |||||||||||
| Working capital (2) | 101,271 | 94,339 | 7 | ||||||||
| Net debt (2) | 3,457 | 4,484 | (23 | ) | |||||||
| Shareholders’ equity | 201,043 | 176,878 | 14 | ||||||||
| Common shares outstanding | 48,508,438 | 50,896,175 | (5 | ) | |||||||
n.m. – not meaningful
Outlook
In the third quarter we continued to build off the strong momentum we have achieved thus far in 2023, setting all-time records for quarterly revenue, earnings, adjusted EBITDA, and adjusted EBITDA as a percentage of consolidated revenue.
- Despite the lower US rig count impacting our directional drilling activity levels, we have continued to produce strong results, maintain market share and work for 12 of the top 15 US operators. The primary drivers of these successes were our technology offering, particularly our rotary steerable (“RSS”) capabilities, and expansion of our Atlas rental and sales divisions. We foresee further growth in both areas for the remainder of 2023 and into 2024 and are directing the new capital expenditures announced towards these objectives.
- We recently added a second brand of RSS technology to our US fleet. The iCruise technology developed by Halliburton will compliment our fleet of Schlumberger PowerDrive Orbit RSS technology and we are uniquely positioned as the only provider in
North America that can offer two superior RSS options for owned systems. Additionally, our Engineering group has commercialized supplementary technologies that work in conjunction with our RSS and Velocity fleets that are already in high demand. Both of these technology developments will continue to differentiate us and further solidify our reputation as a technology leader. - In
Canada , our marketing team has successfully expanded our client base and our results show improved activity and revenue in a slightly slower to flat industry. We expect current activity levels to continue for the remainder of the year and into the first quarter of 2024. We may see some incremental increases in revenue per day as a result of the commercialization of new value added technologies that supplement the premium fleet and the planned fleet expansion. - We will continue to execute on the strategic objective aimed at expanding our Atlas sales and rental businesses, which allows us to penetrate the portion of the US market that is not accessible through our full service offering. The rental division has shown promising growth thus far in 2023 and we anticipate that it will continue to generate a similar level of activity and revenue in the near-term. Additionally, the revenue from the sale of Atlas motors aided the US division in achieving strong revenue and profitability in the quarter. Over the next few quarters, we will look to expand our infrastructure to drive further growth and we plan to dedicate a portion of the Atlas motors acquired through the 2024 capital expenditures program to the rental business.
- During the quarter, the Corporation continued to deliver on its commitment to our Return of Capital Strategy (“ROCS”) and leveraged our renewed NCIB to further reduce the shares outstanding. We have bought back 21 percent of our shares since 2017, including the purchase and cancellation of 2.7 million shares through the NCIBs thus far in 2023. Through our dividend we have paid
$44 million to shareholders since reinstating the program inDecember 2020 and due to our strong performance and outlook the Board has approved the fifth increase to our dividend since its re-instatement. Effective for the dividend payable to shareholders of record at the close of business onDecember 31, 2023 a quarterly dividend to$0.20 per share will be payable, a 33 percent increase over the current dividend.
Global concerns around the possibility of a recession in
Financial Results
In the third quarter of 2023, PHX Energy generated an all-time record level of revenue, earnings from continuing operations, adjusted EBITDA from continuing operations, and adjusted EBITDA as a percentage of consolidated revenue.
For the three-month period ended
In the 2023-quarter, the US rig count continued to soften. PHX Energy’s US operating days decreased by 13 percent from 4,653 in the third quarter of 2022 to 4,050 in the third quarter of 2023. Despite the decline in activity, the Corporation’s US division’s revenue grew by 12 percent to
In the 2023 three-month period, the Corporation’s Canadian division generated revenue of
For the three-month period ended
PHX Energy maintained its strong financial position and had working capital(2) of
In
Dividends and ROCS
On
In
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 Normal Course Issuer Bid (“NCIB”).
(Stated in thousands of dollars)
| Nine-month period ended | |||
| Excess cash flow | 70,465 | ||
| 70% of excess cash flow | 49,326 | ||
| Deduct: | |||
| Repurchase of shares under the NCIB | (19,102 | ) | |
| Dividends paid to shareholders | (22,913 | ) | |
| Remaining distributable balance under ROCS(2) | 7,311 | ||
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
Pursuant to the previous and current NCIB, 2,442,700 common shares were purchased by the Corporation for
Capital Spending
In the third quarter of 2023, the Corporation spent
(Stated in thousands of dollars)
| Three-month period ended | Nine-month period ended | |||
| Growth capital expenditures | 12,471 | 27,356 | ||
| Maintenance capital expenditures from asset retirements | 2,825 | 11,543 | ||
| Maintenance capital expenditures from downhole equipment losses | 3,508 | 10,559 | ||
| 18,804 | 49,458 | |||
| Deduct: | ||||
| Proceeds on disposition of drilling equipment | (11,682 | ) | (32,689 | ) |
| Net capital expenditures(2) | 7,122 | 16,769 | ||
In light of the continued strong demand for the Corporation’s premium technologies, the approved capital expenditure budget for the 2023-year, excluding proceeds on disposition of drilling equipment, was increased to
As at
With the outlook that the Corporation’s 2023-momenteum will continue into the upcoming year and that the declining rig counts in
The Corporation currently possesses approximately 734 Atlas motors, comprised of various configurations including its 5.13", 5.25", 5.76", 6.63", 7.12", 7.25", 8" and 9" Atlas motors, and 118 Velocity systems. The Corporation also possesses the largest independent RSS fleet in
Sale and Licensed Use of
On
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, but are not limited to, 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, working capital, and remaining distributable balance under ROCS. Management believes that these measures provide supplemental financial information that is useful in the evaluation of the Corporation’s operations and are commonly 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 MD&A 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
Revenue
The 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 | Nine-month periods ended | |||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |
| Directional drilling services | 151,241 | 134,725 | 12 | 448,302 | 358,244 | 25 |
| Motor rental | 11,919 | 7,693 | 55 | 32,588 | 19,743 | 65 |
| Sale of motor equipment and parts | 6,208 | - | n.m. | 10,118 | - | n.m. |
| Total revenue | 169,368 | 142,418 | 19 | 491,008 | 377,987 | 30 |
n.m. – not meaningful
In the third quarter of 2023, PHX Energy generated its highest level of quarterly revenue on record, surpassing the previous records set in the first quarter of 2023. For the three-month period ended
Average consolidated revenue per day(3) increased 13 percent to
The US industry rig count continued to soften in the third quarter of 2023, averaging 632 horizontal and directional rigs operating per day, which is a 14 percent decrease from the average of 733 rigs in the third quarter of 2022 and 10 percent lower compared to the average of 700 rigs in the second quarter of 2023. In
Throughout 2023, the Corporation continued to increase capacity in its Atlas motor fleet and as a result, in the 2023 three and nine-month periods, revenue generated from PHX Energy’s motor rental division grew by 55 percent and 65 percent, respectively. Motor rental revenue increased to
For the three and nine-month periods ended
Operating Costs and Expenses
(Stated in thousands of dollars except percentages)
| Three-month periods ended | Nine-month periods ended | |||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||
| Direct costs | 125,138 | 111,734 | 12 | 376,996 | 304,200 | 24 | ||||||
| Depreciation & amortization drilling and other equipment (included in direct costs) | 9,867 | 8,143 | 21 | 28,805 | 23,243 | 24 | ||||||
| Depreciation & amortization right-of-use asset (included in direct costs) | 822 | 745 | 10 | 2,057 | 2,430 | (15 | ) | |||||
| Gross profit as a percentage of revenue excluding depreciation & amortization(1) | 32 | % | 28 | % | 30 | % | 26 | % | ||||
Direct costs are comprised of field and shop expenses, costs of motors and parts sold, and include depreciation and amortization of the Corporation’s equipment and right-of-use assets. For the three-month period ended
In both 2023-periods, higher direct costs are partly attributable to greater servicing costs and equipment rental expenses associated with increased RSS activity. Growth in Atlas motor rental activity also resulted in higher motor repairs. In addition, there were greater depreciation and amortization expenses on drilling and other equipment in both 2023-periods due to the volume of fixed assets acquired as part of PHX Energy’s 2023 capital expenditure program. The Corporation’s depreciation and amortization on drilling and other equipment increased by 21 percent and 24 percent, respectively, in the 2023 three and nine-month periods. Additionally, overall costs related to personnel, repair parts, and equipment rentals increased partly as a result of inflation.
In the 2023 three and nine-month periods, gross profit as a percentage of revenue excluding depreciation and amortization improved to 32 percent and 30 percent, respectively, compared to 28 percent and 26 percent in the corresponding 2022-periods. Greater profitability in both periods was largely driven by the higher margins from the Corporation’s premium technologies as well as increased profits from PHX Energy’s growing Atlas motor rental and sales divisions. In addition, the Corporation remained diligent in executing various strategies to gain cost efficiencies and mitigate the impact of higher costs caused by inflation and this continued to have a positive impact on the Corporation’s margins.
(Stated in thousands of dollars except percentages)
| Three-month periods ended | Nine-month periods ended | ||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||
| Selling, general and administrative (“SG&A”) costs | 19,833 | 15,589 | 27 | 50,911 | 49,536 | 3 | |||||||
| Cash-settled share-based compensation (included in SG&A costs) | 4,969 | 5,178 | (4 | ) | 8,899 | 17,630 | ( | ) | |||||
| Equity-settled share-based compensation (included in SG&A costs) | 144 | 133 | 8 | 431 | 393 | 10 | |||||||
| SG&A costs excluding share-based compensation as a percentage of revenue(1) | 9 | % | 7 | % | 8 | % | 8 | % | |||||
For the three-month period ended
Cash-settled share-based compensation relates to the Corporation’s retention awards and are measured at fair value. For the three and nine-month periods ended
(Stated in thousands of dollars)
| Three-month periods ended | Nine-month periods ended | ||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||
| Research and development expense | 1,246 | 909 | 37 | 3,817 | 2,539 | ||
PHX Energy’s research and development (“R&D”) expenditures for the three and nine-month periods ended
(Stated in thousands of dollars)
| Three-month periods ended | Nine-month periods ended | ||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||
| Finance expense | 598 | 499 | 20 | 1,974 | 873 | 126 | |
| Finance expense lease liabilities | 554 | 498 | 11 | 1,695 | 1,507 | 12 | |
Finance expenses mainly relate to interest charges on the Corporation’s credit facilities. For the three and nine-month periods ended
Finance expense lease liabilities relate to interest expense incurred on lease liabilities. For the three and nine-month periods ended
(Stated in thousands of dollars)
| Three-month periods ended | Nine-month periods ended | ||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||
| Net gain on disposition of drilling equipment | 8,354 | 4,157 | 23,903 | 10,799 | |||||
| Foreign exchange gains (losses) | (347 | ) | (205 | ) | 574 | (281 | ) | ||
| Recovery of (provision for) bad debts | 1,106 | 2 | (117 | ) | 2 | ||||
| Other | - | - | - | 512 | |||||
| Other income | 9,113 | 3,954 | 24,360 | 11,032 | |||||
For the three and nine-month periods ended
Net gain on disposition of drilling equipment is comprised of gains on disposition of drilling equipment and proceeds from insurance programs. 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. In both 2023 periods, a larger percentage of PHX Energy’s activity involved utilizing premium technologies, particularly RSS. As a result, more instances of high dollar valued downhole equipment losses occurred as compared to the corresponding 2022 periods which resulted in higher proceeds and gains. 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 for the remainder of 2023 and for 2024.
For the three-month period ended
In the third quarter of 2023, PHX Energy reversed the amounts previously provisioned for bad debt in the amount of
(Stated in thousands of dollars except percentages)
| Three-month periods ended | Nine-month periods ended | ||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||
| Provision for income taxes | 6,191 | 3,667 | 14,529 | 6,384 | |||||
| Effective tax rates(3) | 20 | % | 21 | % | 18 | % | 21 | % | |
For the three-month period ended
Segmented Information
The Corporation reports three operating segments on a geographical basis throughout the
(Stated in thousands of dollars)
| Three-month periods ended | Nine-month periods ended | |||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |
| Directional drilling services | 105,980 | 102,806 | 3 | 333,123 | 278,440 | 20 |
| Motor rental | 11,636 | 7,422 | 57 | 31,204 | 18,950 | 65 |
| Sale of motor equipment and parts | 6,208 | - | n.m. | 10,118 | - | n.m. |
| Total US revenue | 123,824 | 110,228 | 12 | 374,445 | 297,390 | 26 |
| Reportable segment profit before tax (i) | 25,494 | 17,056 | 49 | 65,453 | 40,387 | 62 |
(i) Includes adjustments to intercompany transactions.
n.m. – not meaningful
For the three-month period ended
Throughout the year, the demand for PHX Energy’s premium technologies was robust and with the additional RSS systems added in the fourth quarter of 2022 and third quarter of 2023, RSS services accounted for a larger percentage of the US segment’s activity. This greater volume of RSS activity, along with increased capacity and utilization in the Corporation’s premium technologies, primarily drove improvements in the US division’s average revenue per day(3). For the three-month period ended
In the third quarter of 2023, the Corporation’s US directional drilling activity decreased by 13 percent to 4,050 operating days compared to 4,653 days in the third quarter of 2022 and has decreased by 7 percent as compared to the 4,364 days in the second quarter of 2023. In comparison, the US industry horizontal and directional rig count in the third quarter of 2023 decreased 14 percent with 632 active rigs per day as compared to 733 rigs per day in the third quarter of 2022 and decreased by 10 percent when compared to an average of 700 active horizontal and directional rigs per day in the second quarter of 2023. (Source:
Horizontal and directional drilling continued to represent the majority of rigs running on a daily basis in both 2023 periods.
In the 2023 three-month period, PHX Energy increased the capacity of its motor rental fleet which allowed the business to grow its revenue 57 percent to
For the three and nine-month periods ended
(Stated in thousands of dollars)
| Three-month periods ended | Nine-month periods ended | |||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |
| Directional drilling services | 44,145 | 30,725 | 44 | 111,716 | 77,046 | 45 |
| Motor rental | 283 | 271 | 4 | 1,384 | 793 | 75 |
| Total Canadian revenue | 44,428 | 30,996 | 43 | 113,100 | 77,839 | 45 |
| Reportable segment profit before tax (i) | 8,263 | 4,479 | 84 | 17,828 | 7,930 | 125 |
(i) Includes adjustments to intercompany transactions.
In the third quarter of 2023, PHX Energy’s Canadian operations generated revenue of
For the three and nine-month periods ended
For the three and nine-month periods ended
International – Continuing Operations
(Stated in thousands of dollars)
| Three-month periods ended | Nine-month periods ended | ||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||
| Revenue | 1,116 | 1,194 | (7 | ) | 3,463 | 2,758 | 26 |
| Reportable segment profit before tax | 351 | 420 | (16 | ) | 1,248 | 781 | 60 |
The Corporation’s international segment revenue is comprised of revenue from
The international segment generated reportable segment profit before tax of
Investing Activities
Net cash used in investing activities for the three-month period ended
(Stated in thousands of dollars)
| Three-month periods ended | Nine-month periods ended | ||||
| 2023 | 2022 | 2023 | 2022 | ||
| Growth capital expenditures | 12,471 | 10,191 | 27,356 | 33,205 | |
| Maintenance capital expenditures | 6,333 | 8,440 | 22,102 | 18,846 | |
| Total capital expenditures | 18,804 | 18,631 | 49,458 | 52,051 | |
| Deduct: | |||||
| Proceeds on disposition of drilling equipment | 11,682 | 6,274 | 32,689 | 15,454 | |
| Net capital expenditures(2) | 7,122 | 12,357 | 16,769 | 36,597 | |
The 2023-period capital expenditures comprised of:
$6.8 million in downhole performance drilling motors;$11.5 million in MWD systems and spare components and RSS; and$0.5 million in machinery and equipment and other assets.
The change in non-cash working capital balances of
Financing Activities
For the three-month period ended
- dividends of
$7.6 million were paid to shareholders; $9.4 million net repayments were made towards the Corporation’s syndicated credit facility;- 2,442,700 common shares were purchased by the Corporation for
$17.5 million and cancelled under the NCIB; - payments of
$0.8 million were made towards lease liabilities; and - 150,000 common shares were issued from treasury for proceeds of
$0.4 million upon the exercise of share options.
Capital Resources
As of
As at
In
Cash Requirements for Capital Expenditures
Historically, the Corporation has financed its capital expenditures and acquisitions through cash flows from operating activities, proceeds on disposition of drilling equipment, debt and equity. The Board approved an increase of the 2023 capital expenditure program to
As demand for the Corporation’s premium technologies continues to grow, and the outlook that the declining rig counts in
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 2023, 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
About
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
PHX Energy’s Canadian directional drilling operations are conducted through
The common shares of PHX Energy trade on the
For further information please contact:
Suite 1600,
Tel: 403-543-4466 Fax: 403-543-4485 www.phxtech.com
Condensed Consolidated Interim Statements of Financial Position
(unaudited)
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 14,845,393 | $ | 18,247,376 | |||||
| Trade and other receivables | 128,588,190 | 125,836,273 | |||||||
| Inventories | 63,569,528 | 63,119,489 | |||||||
| Prepaid expenses | 2,989,717 | 3,024,166 | |||||||
| Total current assets | 209,992,828 | 210,227,304 | |||||||
| Non-current assets: | |||||||||
| Drilling and other long-term assets | 127,753,169 | 115,945,060 | |||||||
| Right-of-use assets | 27,978,171 | 29,336,163 | |||||||
| Intangible assets | 14,111,652 | 15,668,180 | |||||||
| Investments | 3,000,500 | 3,000,500 | |||||||
| Other long-term assets | 1,645,473 | 993,112 | |||||||
| Deferred tax assets | 53,869 | 53,869 | |||||||
| Total non-current assets | 174,542,834 | 164,996,884 | |||||||
| Total assets | $ | 384,535,662 | $ | 375,224,188 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
| Current liabilities: | |||||||||
| Trade and other payables | $ | 92,021,042 | $ | 104,688,901 | |||||
| Dividends payable | 7,276,760 | 7,636,085 | |||||||
| Lease liability | 3,229,737 | 2,906,708 | |||||||
| Current tax liabilities | 6,194,933 | 656,499 | |||||||
| Total current liabilities | 108,722,472 | 115,888,193 | |||||||
| Non-current liabilities: | |||||||||
| Lease liability | 34,909,196 | 36,768,003 | |||||||
| Loans and borrowings | 18,302,454 | 22,731,389 | |||||||
| Deferred tax liability | 18,719,720 | 18,496,619 | |||||||
| Other | 2,838,630 | 4,461,531 | |||||||
| Total non-current liabilities | 74,770,000 | 82,457,542 | |||||||
| Equity: | |||||||||
| Share capital | 233,646,892 | 251,344,809 | |||||||
| Contributed surplus | 7,178,466 | 7,044,317 | |||||||
| Deficit | (69,376,356 | ) | (112,120,484 | ) | |||||
| Accumulated other comprehensive income | 29,594,188 | 30,609,811 | |||||||
| Total equity | 201,043,190 | 176,878,453 | |||||||
| Total liabilities and equity | $ | 384,535,662 | $ | 375,224,188 | |||||
Condensed Consolidated Interim Statements of Comprehensive Earnings
(unaudited)
| Three-month periods ended | Nine-month periods ended | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| Revenue | $ | 169,367,911 | $ | 142,418,326 | $ | 491,008,431 | $ | 377,986,582 | ||||||
| Direct costs | 125,137,605 | 111,734,015 | 376,995,672 | 304,200,177 | ||||||||||
| Gross profit | 44,230,306 | 30,684,311 | 114,012,759 | 73,786,405 | ||||||||||
| Expenses: | ||||||||||||||
| Selling, general and administrative expenses | 19,832,791 | 15,589,015 | 50,911,033 | 49,536,435 | ||||||||||
| Research and development expenses | 1,245,826 | 909,169 | 3,816,601 | 2,538,935 | ||||||||||
| Finance expense | 597,898 | 499,461 | 1,974,058 | 873,445 | ||||||||||
| Finance expense lease liability | 554,405 | 498,239 | 1,694,550 | 1,506,640 | ||||||||||
| Other income | (9,113,282 | ) | (3,953,620 | ) | (24,359,774 | ) | (11,031,501 | ) | ||||||
| 13,117,638 | 13,542,264 | 34,036,468 | 43,423,954 | |||||||||||
| Earnings from continuing operations before income taxes | 31,112,668 | 17,142,047 | 79,976,291 | 30,362,451 | ||||||||||
| Provision for income taxes | ||||||||||||||
| Current | 5,616,371 | 625,922 | 13,591,604 | 396,650 | ||||||||||
| Deferred | 575,118 | 3,041,401 | 937,818 | 5,987,492 | ||||||||||
| 6,191,489 | 3,667,323 | 14,529,422 | 6,384,142 | |||||||||||
| Earnings from continuing operations | 24,921,179 | 13,474,724 | 65,446,869 | 23,978,309 | ||||||||||
| Discontinued operations | ||||||||||||||
| Net loss from discontinued operations, net of taxes | - | - | - | (14,558,032 | ) | |||||||||
| Net earnings | 24,921,179 | 13,474,724 | 65,446,869 | 9,420,277 | ||||||||||
| Other comprehensive income | ||||||||||||||
| Foreign currency translation | 3,613,465 | 8,739,048 | (1,015,623 | ) | 10,563,631 | |||||||||
| Reclassification of foreign currency translation loss on disposition | - | - | - | 10,560,954 | ||||||||||
| Total comprehensive earnings for the period | $ | 28,534,644 | $ | 22,213,772 | $ | 64,431,246 | $ | 30,544,862 | ||||||
| Earnings (loss) per share – basic | ||||||||||||||
| Continuing operations | $ | 0.50 | $ | 0.27 | $ | 1.29 | $ | 0.48 | ||||||
| Discontinued operations | $ | - | $ | - | $ | - | $ | (0.29 | ) | |||||
| Net earnings | $ | 0.50 | $ | 0.27 | $ | 1.29 | $ | 0.19 | ||||||
| Earnings (loss) per share – diluted | ||||||||||||||
| Continuing operations | $ | 0.50 | $ | 0.27 | $ | 1.28 | $ | 0.48 | ||||||
| Discontinued operations | $ | - | $ | - | $ | - | $ | (0.29 | ) | |||||
| Net earnings | $ | 0.50 | $ | 0.27 | $ | 1.28 | $ | 0.19 | ||||||
Condensed Consolidated Interim Statements of Cash Flows
(unaudited)
| Three-month periods ended | Nine-month periods ended | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Cash flows from operating activities: | ||||||||||||
| Earnings from continuing operations | $ | 24,921,179 | $ | 13,474,724 | $ | 65,446,869 | $ | 23,978,309 | ||||
| Adjustments for: | ||||||||||||
| Depreciation and amortization | 9,866,881 | 8,143,257 | 28,804,904 | 23,242,730 | ||||||||
| Depreciation and amortization right-of-use asset | 822,190 | 744,876 | 2,057,025 | 2,429,603 | ||||||||
| Provision for income taxes | 6,191,489 | 3,667,323 | 14,529,422 | 6,384,142 | ||||||||
| Unrealized foreign exchange gain | 427,482 | 155,128 | 391,554 | 36,602 | ||||||||
| Net gain on disposition of drilling equipment | (8,353,639 | ) | (4,157,247 | ) | (23,903,064 | ) | (10,798,870 | ) | ||||
| Equity-settled share-based payments | 144,193 | 133,034 | 431,109 | 393,042 | ||||||||
| Finance expense | 597,898 | 499,461 | 1,974,058 | 873,445 | ||||||||
| Finance expense lease liability | 554,405 | 498,239 | 1,694,550 | 1,506,640 | ||||||||
| Provision for (recovery of) bad debts | (1,106,245 | ) | (1,501 | ) | 116,519 | (1,501 | ) | |||||
| Provision for inventory obsolescence | 653,716 | 51,868 | 1,301,822 | 876,524 | ||||||||
| Interest paid on lease liability | (554,405 | ) | (498,239 | ) | (1,694,550 | ) | (1,506,640 | ) | ||||
| Interest paid | (472,654 | ) | (413,530 | ) | (1,506,251 | ) | (591,701 | ) | ||||
| Income taxes received (paid) | (7,075,749 | ) | 9,461 | (8,533,759 | ) | 228,591 | ||||||
| Change in non-cash working capital | 7,011,213 | (679,450 | ) | (21,140,830 | ) | (17,683,437 | ) | |||||
| Continuing operations | 33,627,954 | 21,627,404 | 59,969,378 | 29,367,479 | ||||||||
| Discontinued operations | - | - | - | (1,254,859 | ) | |||||||
| Net cash from operating activities | 33,627,954 | 21,627,404 | 59,969,378 | 28,112,620 | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Proceeds on disposition of drilling equipment | 11,682,392 | 6,274,079 | 32,689,018 | 15,453,628 | ||||||||
| Acquisition of drilling and other equipment | (18,803,529 | ) | (18,631,230 | ) | (49,457,974 | ) | (52,051,148 | ) | ||||
| Acquisition of intangible assets | - | (74,189 | ) | - | (692,394 | ) | ||||||
| Change in non-cash working capital | 3,203,370 | (370,923 | ) | 2,150,701 | 339,967 | |||||||
| Continuing operations | (3,917,767 | ) | (12,802,263 | ) | (14,618,255 | ) | (36,949,947 | ) | ||||
| Discontinued operations | - | - | - | (68,068 | ) | |||||||
| Net cash used in investing activities | (3,917,767 | ) | (12,802,263 | ) | (14,618,255 | ) | (37,018,015 | ) | ||||
| Cash flows from financing activities: | ||||||||||||
| Dividends paid to shareholders | (7,620,665 | ) | (3,796,793 | ) | (22,912,561 | ) | (10,069,396 | ) | ||||
| Repurchase of shares under the NCIB | (17,523,151 | ) | - | (19,101,893 | ) | - | ||||||
| Proceeds from (repayment of) loans and borrowings | (9,399,518 | ) | 3,892,008 | (4,231,389 | ) | 24,000,000 | ||||||
| Payments of Lease Liability | (765,891 | ) | (734,273 | ) | (2,221,166 | ) | (2,466,184 | ) | ||||
| Purchase of shares held in trust | - | - | (612,000 | ) | (3,500,000 | ) | ||||||
| Proceeds from exercise of options | 414,500 | 359,032 | 763,950 | 2,170,885 | ||||||||
| Change in non-cash working capital | (414,500 | ) | - | (414,500 | ) | - | ||||||
| Continuing operations | (35,309,225 | ) | (280,026 | ) | (48,729,559 | ) | 10,135,305 | |||||
| Net cash from (used in) financing activities | (35,309,225 | ) | (280,026 | ) | (48,729,559 | ) | 10,135,305 | |||||
| Net increase (decrease) in cash and cash equivalents | (5,599,038 | ) | 8,545,115 | (3,378,436 | ) | 1,229,910 | ||||||
| Cash and cash equivalents, beginning of period | 20,079,623 | 17,971,334 | 18,247,376 | 24,828,830 | ||||||||
| Effect of movements in exchange rates on cash held | 364,808 | 507,210 | (23,547 | ) | 964,919 | |||||||
| Cash and cash equivalents, end of period | $ | 14,845,393 | $ | 27,023,659 | $ | 14,845,393 | $ | 27,023,659 | ||||
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 expectation the Corporation’s credit facilities will provide flexibility to take advantage of potential future opportunities, the anticipated industry activity and demand for the Corporation’s services and technologies in
The above are stated under the headings: Financial Results”, “Dividends and ROCS”, “Capital Spending”, Sales and Licensed Use of Atlas Motors”, “Revenue”, and “Cash Requirements for Capital Expenditures”. 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 2023 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 impact of pandemics, conflicts and wars 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 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.sedar.com) 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 | Nine-month periods ended | |||
| 2023 | 2022 | 2023 | 2022 | |
| Earnings from continuing operations: | 24,921 | 13,475 | 65,447 | 23,978 |
| Add: | ||||
| Depreciation and amortization drilling and other equipment | 9,867 | 8,143 | 28,805 | 23,243 |
| Depreciation and amortization right-of-use asset | 822 | 745 | 2,057 | 2,430 |
| Provision for income taxes | 6,191 | 3,667 | 14,529 | 6,384 |
| Finance expense | 598 | 499 | 1,974 | 873 |
| Finance expense lease liability | 554 | 498 | 1,695 | 1,507 |
| Equity-settled share-based payments | 144 | 133 | 431 | 393 |
| Unrealized foreign exchange loss | 427 | 155 | 392 | 37 |
| Adjusted EBITDA from continuing operations | 43,524 | 27,315 | 115,330 | 58,845 |
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 at the period end.
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 Condensed 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 | Nine-month periods ended | ||||
| 2023 | 2022 | 2023 | 2022 | ||
| Earnings (loss) from continuing operations: | 24,921 | 13,475 | 65,447 | 23,978 | |
| Add: | |||||
| Depreciation and amortization drilling and other equipment | 9,867 | 8,143 | 28,805 | 23,243 | |
| Depreciation and amortization right-of-use asset | 822 | 745 | 2,057 | 2,430 | |
| Provision for (Recovery of) income taxes | 6,191 | 3,667 | 14,529 | 6,384 | |
| Finance expense | 598 | 499 | 1,974 | 873 | |
| Finance expense lease liability | 554 | 498 | 1,695 | 1,507 | |
| Equity-settled share-based payments | 144 | 133 | 431 | 393 | |
| Unrealized foreign exchange loss | 427 | 155 | 392 | 37 | |
| Cash-settled share-based compensation expense | 4,969 | 5,178 | 8,899 | 17,630 | |
| Adjusted EBITDA from continuing operations excluding cash-settled share-based compensation expense | 48,493 | 32,493 | 124,229 | 76,475 | |
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 Condensed 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 | Nine-month periods ended | |||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||
| Revenue | 169,368 | 142,418 | 491,008 | 377,987 | ||||||
| Direct costs | 125,138 | 111,734 | 376,996 | 304,200 | ||||||
| Gross profit | 44,230 | 30,684 | 114,012 | 73,787 | ||||||
| Depreciation & amortization drilling and other equipment (included in direct costs) | 9,867 | 8,143 | 28,805 | 23,243 | ||||||
| Depreciation & amortization right-of-use asset (included in direct costs) | 822 | 745 | 2,057 | 2,430 | ||||||
| 54,919 | 39,572 | 144,874 | 99,460 | |||||||
| Gross profit as a percentage of revenue excluding depreciation & amortization | 32 | % | 28 | % | 30 | % | 26 | % | ||
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 | Nine-month periods ended | ||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||
| SG&A Costs | 19,833 | 15,589 | 50,911 | 49,536 | |||||||
| Deduct: | |||||||||||
| Share-based compensation (included in SG&A) | 5,113 | 5,311 | 9,330 | 18,023 | |||||||
| 14,720 | 10,278 | 41,581 | 31,513 | ||||||||
| Revenue | 169,368 | 142,418 | 491,008 | 377,987 | |||||||
| SG&A costs excluding share-based compensation as a percentage of revenue | 9 | % | 7 | % | 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 | Nine-month periods ended | ||||||
| 2023 | 2022 | 2023 | 2022 | ||||
| Cash flows from operating activities | 33,628 | 21,627 | 59,969 | 29,367 | |||
| Add (deduct): | |||||||
| Changes in non-cash working capital | (7,011 | ) | 679 | 21,141 | 17,683 | ||
| Interest paid | 473 | 414 | 1,506 | 592 | |||
| Income taxes paid (received) | 7,076 | (9 | ) | 8,534 | (229 | ) | |
| Funds from operations | 34,166 | 22,711 | 91,150 | 47,413 | |||
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 | Nine-month periods ended | ||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||
| Cash flows from operating activities | 33,628 | 21,627 | 59,969 | 29,367 | |||||
| Add (deduct): | |||||||||
| Changes in non-cash working capital | (7,011 | ) | 679 | 21,141 | 17,683 | ||||
| Interest paid | 473 | 414 | 1,506 | 592 | |||||
| Income taxes paid (received) | 7,076 | (9 | ) | 8,534 | (229 | ) | |||
| Cash payment on leases | (1,320 | ) | (1,233 | ) | (3,916 | ) | (3,973 | ) | |
| 32,846 | 21,478 | 87,234 | 43,440 | ||||||
| Proceeds on disposition of drilling equipment | 11,682 | 6,274 | 32,689 | 15,454 | |||||
| Maintenance capital expenditures | (6,333 | ) | (8,440 | ) | (22,102 | ) | (18,846 | ) | |
| Net proceeds | 5,349 | (2,166 | ) | 10,587 | (3,392 | ) | |||
| Growth capital expenditures | (12,471 | ) | (10,191 | ) | (27,356 | ) | (33,205 | ) | |
| Excess cash flow | 25,724 | 9,121 | 70,465 | 6,843 | |||||
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)
| Current assets | 209,993 | 210,227 | |||||
| Deduct: | |||||||
| Current liabilities | (108,722 | ) | (115,888 | ) | |||
| Working capital | 101,271 | 94,339 | |||||
d) Net Debt
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)
| Loans and borrowings | 18,302 | 22,731 | ||||
| Deduct: | ||||||
| Cash and cash equivalents | (14,845 | ) | (18,247 | ) | ||
| Net debt | 3,457 | 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 | Nine-month periods ended | ||||
| 2023 | 2022 | 2023 | 2022 | ||
| Growth capital expenditures | 12,471 | 10,191 | 27,356 | 33,205 | |
| Maintenance capital expenditures | 6,333 | 8,440 | 22,102 | 18,846 | |
| Total capital expenditures | 18,804 | 18,631 | 49,458 | 52,051 | |
| Deduct: | |||||
| Proceeds on disposition of drilling equipment | 11,682 | 6,274 | 32,689 | 15,454 | |
| Net capital expenditures | 7,122 | 12,357 | 16,769 | 36,597 | |
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)
| Nine-month period ended | |||
| Excess cash flow | 70,465 | ||
| 70% of excess cash flow | 49,326 | ||
| Deduct: | |||
| Repurchase of shares under the NCIB | (19,102 | ) | |
| Dividends paid to shareholders | (22,913 | ) | |
| Remaining Distributable Balance under ROCS | 7,311 | ||
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.
“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 at period end.
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 Condensed Consolidated Statements of Cash Flows and Note 6(a) in the Notes to the Condensed Consolidated 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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