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Good morning, ladies and gentlemen. Welcome to the High Arctic Quarterly Results Third Quarter Conference Call. I would now like to turn the meeting over to Cam Bailey. Please go ahead, Mr. Bailey.
Thank you, and good morning, everyone, and welcome to the third quarter conference call. Today, I'll be providing an update on the press release we issued yesterday, Thursday, November 8. And following my remarks, Jim Hodgson, our Chief Financial Officer, will be discussing our financial performance for the period.After our formal comments, we'll open the call to some questions. Before I begin, I'd like to remind you that certain information that we present today may include forward-looking statements. And such statements reflect High Arctic's current expectations, some estimates, projections and assumptions. And these forward-looking statements are not guarantees for future performance, and they are subject to certain risks, which could cause the actual performance and financial results to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please take a look at our annual information form under the heading Risk Factors. So I'm pleased to report another very positive third quarter results for the corporation despite widening crude oil differentials in Canada and low prevailing natural gas prices. This is the first quarter, which included the results of our expansion while servicing in the United States, which has been very positive. Last quarter, Total, ExxonMobil and partners announced their plans to expand the PNG LNG facility with the addition of 3 additional trains. The prime minister of PNG has indicated that a final announcement regarding the PNG LNG facility expansion and the gas agreement plans to occur next week at the APAC leaders meeting. The certainty around the PNG LNG facility expansion should lead to additional drilling activity in 2019. At a minimum, we expect 2 rigs to be active in PNG all through 2019. This quarter High Arctic experienced improved revenue and EBITDA, allowing us to maintain a strong balance sheet, healthy dividend and a very modest payout ratio which was less than our target of 30%. A large part of our strong financial results came from the improved activity in both PNG and Canada. U.S. operations contributed very modestly, however, we expect continued growth in coming periods. The Concord Well Servicing group continued to perform very well, with utilization in the second quarter of 58% compared to industry utilization of 39%. Approximately 95% of our well servicing business is derived from oil well activity and the uncertainty with crude prices, and the light differentials create some uncertainty for operators in planning oil well activations remediation work. However, we see a number of our key customers expanding well service activity right into 2019. Increases in service prices continue to remain very difficult. Overall, industry equipment surpluses exist. Our crewing remains a continual challenge in the industry as wage rates have simply just not kept pace with other industries. And our high utilization, essentially, is coming from providing steady and consistent work, and it seems to be a very competitive -- a key competitive advantage to our operations. We ended the quarter with cash balances of -- or working capital balances of $16.42 million or $1.25 per share. We've been actively examining acquisition opportunities, many of which would complement our existing business lines, expanding our geographic footprint in North America. We've been moving surplus, underutilized equipment to supplement our expanding service offering in the U.S. where prices are better than Canada and activity is more robust. With that, I'd like to turn the call over to Jim to discuss our financial results in more detail.
Thank you, Cam. The strong performance of our Production Services segment and our Papua New Guinea operations resulted in consolidated revenue of $54.7 million in the quarter, which generated $17.4 million in adjusted EBITDA. This compares to $42.8 million and $10.6 million in revenue and adjusted EBITDA, respectively, for the third quarter of 2017, which experienced lower contracted revenue and activity for our PNG drilling operations. For the first 9 months of 2018, High Arctic generated $155.5 million in revenue and adjusted EBITDA of $45 million versus $158.7 million and $45.9 million, respectively, in 2017.Revenue in our Production Services division increased 7% to $22.2 million from $20.8 million in the third quarter of 2017. This increase was driven increased activity year-over-year and higher revenue per hour rates. The Concord rigs generated $18.8 million in revenue during the quarter, on 30,630 operating hours with an average revenue per hour rate of around $613 an hour. Our 58 registered Concord service rigs achieved a 58% utilization in the quarter versus 41% utilization generated by the CAODC registered rigs. Operating margins as a percentage of revenue decreased to 18% in the quarter from 24% in the same period of 2017. This decrease was due to an increase in the operating cost in the well servicing division combined with a modest increase in the hourly rate. In the first 9 months of 2018, our Production Services segment generated $63.5 million in revenue versus $60.1 million in 2017. From this increase in revenue, the Production Services division was able to generate $11.5 million in operating margin, which is a 3% increase from the $11.2 million generated in 2017. For 2018, the 57 registered Concord service rigs experienced a 58% utilization on 90,234 operating hours for the year-to-date. Revenue for our Drilling Services segment increased to $25.5 million in the quarter from $17.7 million in the third quarter of 2017 due to higher drilling activity. Rig 103 continued drilling at Barikewa until it was released on August 13 and then commenced moving to the Moro base. On September 3, Rig 103 began mobilizing to wellsite IST3, which commenced drilling operations on November 4. Rig 104 was warm stacked and began moving to Muruk in mid-August with an anticipated spud date in mid-November. Rig 115 generated a contract break fee and demobilization revenue in July and was cold stacked at Port Moresby through August and September. Rig 116 was stacked at Port Moresby during the quarter continuing to generate its contracted take-or-pay revenue. Activity was higher in the quarter and the contribution from the take-or-pay contracts on Rig 116 allowed the Drilling Services division to generate $11.6 million in operating margin. As a percentage of revenue, the operating margin increased to 45% in the quarter from 41% in the third quarter of 2017. This increase was driven by an increased proportion of revenue from Rig 116, standby fees and the Rig 115 break and demobilization fees versus Rigs 103 and 104 during the quarter, which incur lease expense charges that are not incurred in High Arctic's owned rigs. Drilling Services segment generated $72.2 million in revenue and $31.2 million in operating margin in the first 9 months of 2018 versus $80.3 million and $35.1 million, respectively, in 2017. Revenue for the Ancillary Services segment was higher at $8.1 million in the third quarter of 2018 compared to $5.2 million in the same period of 2017. This was driven by growth in Canadian and PNG rental operations and increased nitrogen activity year-over-year. Operating margin as a percentage of revenue increased to 68% from 50% in the third quarter of 2017 due to higher contributions from the corporation's rental operations in the quarter. For the first 9 months of 2018, the Ancillary Services segment generated $23.7 million in revenue and $14.9 million in operating margin versus $20.8 million and $12.7 million, respectively, in 2017. Our general administration cost decreased to $3.8 million in the quarter from $4.2 million in the third quarter of 2017 due to Canadian cost reductions and restructuring efforts undertaken to reduce costs. Adjusted net earnings increased to $7.7 million or $0.15 per share from $2.8 million or $0.06 per share in the third quarter of 2017. And for the first 9 months of 2018, adjusted earnings were $14.5 million, $0.28 per share, versus $16.8 million or $0.32 per share in 2017. As Cam mentioned, we continuously maintained a strong balance sheet and exited the quarter with $22.2 million in cash, $4.8 million outstanding on our debt facilities and positive working capital balance of $64.2 million. The debt drawings are used to fund the Powerstroke acquisition, while cash proceeds were primarily located in the corporation's PNG business operations. So with that, let me turn things back over to Cam.
Thank you, Jim. So just a couple of points to emphasize where we -- a bit of an outlook for the company. We're expecting an announcement from the PNG government in the next week for the PNG LNG facility expansion, putting to rest the uncertainty of future drilling activity over the next 4 years. The markets for PNG LNG continue to be very, very strong. High Arctic is set up to take advantage of the possibility of significant growth opportunities in the region. Our Canadian service business is underpinned by a very strong customer base, the ability to track personnel from steady work, which allows us to continue to grow and consolidate in a very difficult and challenging market. To address our underutilized equipment in the pressured services in Canada, we began moving equipment into U.S. where demand for high-pressure equipment is increasing and attracts better day rates. Our new build heavy service rig, acquired as part of the service of Powerstroke acquisition, began working for a U.S. major who's identified 2 years of additional work for it. We are also -- it also allows us to deploy well servicing as a complementary service into the United States. We're actively reviewing opportunities to grow our business operations both in North America and internationally. This essentially concludes my comments, and we'll turn it over to the operator and open the line for questions.
[Operator Instructions] And we'll take our first question from Greg Colman. And we'll move on and take our next question from Elias Foscolos.
A couple of questions for you. Just listening to the commentary, I believe you can confirm, again, that you expect 2 rigs in Papua New Guinea to be working on average throughout 2019. Is that correct?
That's the minimum. That's correct.
Okay. With that, would it be a safe assumption that it would be weighted towards Rigs 103 and 104?
That's the 2 rigs that we expect to stay continually operating through '19. So the [ wild card ] is 116 and 115, and we expect that there will be work for half a year for one of those rigs.
Okay. Following up on that, I know this is going to go a bit in the past, but Rig 102, I believe, is still in Papua New Guinea. Are there any prospects for that coming back into service?
It has some very -- it has not had a significant work opportunities and we had made a decision to expend money to ensure that it was refurbished to the point it can go to work immediately. And the reason being is that there's a number of advancements that is required to be taking place this -- next year that the government is requiring operators to perform. And we understand that there is -- from a contract ExxonMobil had with a service provider in Australia, that some of that work is going through a hydraulic workover rig, an offshore provider where they had an existing contract. So we think that we can actually supplement some of that work with our 102 rig.
Okay. So that would provide potential further upside in PNG?
That's correct.
Okay. Looking over to Canada, a couple of questions on that. Given the Concord division seem to be doing quite well, have you seen any elasticity in the demand given the wide WCS, WTI differentials?
It's interesting. No, we certainly see differentials drop to the extent that they are today. They're -- we have seen a couple of our largest clients make inquiry and plans for ramping up activity into 2019. So the heavy oil area, in particular, is an area that has been identified as being -- increasing activity. Some of the work in the foothills that we've been doing with our deeper rigs, with Shell, has -- they have sketched out work for 3 heavy double service rigs for us. So there is anomalies with regard to people's view of what's going to happen in 2019 and the activity that we have seen being scoped out is inconsistent with the current differentials that we're experiencing.
I appreciate that color. One last question before I turn it back. Moving into the U.S., I'll call that partially the Powerstroke acquisition, that's probably a U.S. strategy to a degree. Can we expect to see the impact of your U.S. strategy in the next quarter in top line in Production Services?
We believe so. So giving you some perspective, there's only been 3 snubbing units that have been deployed in the U.S. And the one heavy service rig -- one heavy service rig just started working for EOG and it's, as we said in the notes, that there is about 2 years of work that EOG sees with that rig ahead of it. Not contracted work, but it is rig work that the company has specifically identified for that particular rig.So in addition to that we've moved another 3 snubbing units into the Niobrara area with the anticipation of demand. And the ramp-up of activity, it was a little bit slower than what we expected, but there is -- we're being somewhat patient with regard to ensure that we have proper crews operating and the absorption of each of those units is seamless in the operations. So we'll have 8 operating by year-end.
I have no further questions registered at this time. I would now like to turn the meeting back over to the Mr. Bailey. Please go ahead.
Well, thank you, everyone. We certainly believe that we had a terrific quarter and I think that is an illustration of some of the results that we expect to achieve in the fourth quarter and moving into 2019, and we look forward to [ having you tune in ]. Thank you.
The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.