High Arctic Energy Services Inc

High Arctic reported Q4 2023 revenue of $18.1 million, adjusted EBITDA of $3.2 million, capital expenditures of $130,000, and net income of $2.75 million, or $0.06 per share. Oilfield services operating margin was 33.4% in the quarter, versus a negative 27% in Q4 2022; Q4 adjusted EBITDA compared with negative $1.2 million in Q4 2022. Drilling segment revenue was $14.3 million, and Ancillary Services revenue was $3.9 million with a 76% operating margin. For full-year 2023, management said oilfield services operating margin was 34%, versus 14.4% in 2022. Looking ahead, management expects Q4-type margins and activity in Ancillary Services to continue into 2024, with modest capital spending focused on the rental fleet in Canada and PNG. The company said Rig 103 drilling will be suspended after the current well, and it is targeting a return of capital of between $33 million and $38.2 million before July 26, 2024, alongside a PNG spin-off and a continued Canadian-listed business.

Michael Maguire emphasized that PNG remains the growth engine for now, but near-term drilling will pause after the current well and the rig goes into cold stack. He said the company still sees longer-term opportunity from Papua LNG, P'nyang, and other PNG projects, while also highlighting the new PIMS manpower and training offering. In Canada, he framed the Delta acquisition and the planned reorganization as a way to build a higher-margin, more focused Canadian business and pursue accretive M&A.

Lonn Bate said Q4 continuing-operations revenue was $18.1 million, adjusted EBITDA was $3.2 million, net income was $2.75 million, and capex was $130,000. He pointed to cash of just over $50 million, about $33 million invested in short-term securities, working capital of $63 million, and mortgage debt of $3.5 million. He also said the Delta purchase price was $6.4 million, including $3.4 million in cash and roughly $3 million of contingent consideration, and noted the deal added over $3.6 million of property and equipment, about $600,000 of working capital, $1.5 million of intangibles, and over $800,000 of goodwill.

Analysts focused on the planned split, asking about the names, tickers, management structure, and whether both businesses would have cash to grow. Management said High Arctic will remain the Canadian-listed name and ticker, with transition arrangements and some management overlap initially, but ultimately two separate management teams; it also said cash will be retained in both businesses to meet working capital needs and resume PNG drilling in 2025. Questions also addressed the PNG contract suspension, where management said the contract runs until mid-2025 and only a lean suspension revenue stream covers cold-stack costs, and Team Snubbing, where management said it is growing, already paid a dividend, and is expected to remain a source of future dividends while also servicing its debt.