High Arctic Energy Services Inc. (HWO), a diversified provider of oilfield services, has reported strong financial and operational performance for the fourth quarter and full year of 2023.
Despite the upcoming suspension of drilling operations in Papua New Guinea (PNG) after the completion of the fourth well, due to delays in the final investment decision on the Papua LNG project, the company saw full utilization of its drilling services and rental assets in the region.
In Canada, the acquisition of Delta Rental Services is set to significantly increase Canadian revenues and contribute positively to cash flow. High Arctic ended the quarter with substantial cash reserves and a solid working capital position. The company is also preparing for a reorganization that will spin off its PNG business into a separate Canadian publicly listed entity.
Key Takeaways
- High Arctic reported Q4 revenues of $18.1 million, adjusted EBITDA of $3.2 million, and net income of $2.75 million.
- The Drilling segment was the primary revenue contributor, with $14.3 million in Q4 2023.
- The Ancillary Services segment had an operating margin of 76% on $3.9 million in revenues.
- High Arctic plans modest capital spending in 2024, aiming to grow its rental fleet.
- A reorganization is planned, with the PNG business to be spun off and a return of capital to shareholders expected between $33 million and $38.2 million before July 26, 2024.
- The company intends to grow its Canadian operations through acquisitions and mergers, while optimizing cash for working capital needs.
- Team Snubbing, a High Arctic investment, is anticipated to deliver dividends in the long term.
Company Outlook
- High Arctic anticipates the distribution of a return of capital to shareholders before July 26, 2024.
- The company is focusing on growing its Canadian business through strategic acquisitions and mergers.
- Management teams for the Canadian and PNG entities will initially overlap but will eventually separate.
Bearish Highlights
- Drilling operations in PNG will be suspended due to a delay in the LNG project, impacting future revenues.
- The company is cutting back on discretionary costs to minimize the impact of the suspension.
- Currency restrictions in PNG pose challenges for accessing capital efficiently.
Bullish Highlights
- The acquisition of Delta Rental Services is expected to substantially increase Canadian revenues.
- Team Snubbing has shown significant growth and is expected to contribute to High Arctic's earnings in the long term.
- High Arctic maintains over $50 million in cash and a strong working capital position.
Misses
- The suspension of drilling operations in PNG will lead to a small revenue stream that only covers direct costs of equipment storage.
- The company faces challenges in accessing capital in PNG due to currency restrictions and the need for US dollars.
Q&A Highlights
- Michael Maguire discussed the complexities of accessing capital in PNG and the strategies to maintain adequate cash reserves.
- In Canada, the cost of debt is anticipated to be between 8% and 9%, with more readily available sources compared to PNG.
- The company is planning for future investments while ensuring both businesses retain sufficient cash.
In summary, High Arctic Energy Services has demonstrated resilience and strategic agility in navigating operational and financial challenges. With a robust financial position, strategic acquisitions, and plans for reorganization, the company is positioning itself for future growth and shareholder returns, despite the temporary setback in its PNG operations.
Full transcript - High Arctic Energy Services (HGHAF) Q4 2023:
Operator: Good afternoon, ladies and gentlemen. Welcome to the High Arctic Energy Services 2023 Q4 Results Conference Call. I would now like to turn the meeting over to High Arctic's, Chief Executive Officer, Michael Maguire. Please go ahead.
Michael Maguire: Thank you, Patrick, and good afternoon, everybody. Welcome to High Arctic's fourth quarter conference call. Today, I'll be providing an update on the press release we issued before markets opened this morning, April 8th, including discussion of our financial performance for the fourth quarter and full year of 2023. Following my remarks, I'll hand the call over to our Interim Chief Financial Officer, Lonn Bate. Lonn will be discussing our financial performance for the quarter and full year 2023. After our formal comments, we'll open the call to answer any questions that you may have. Before we begin, I'd like to remind you that certain information presented today may include forward-looking statements. Such statements reflect High Arctic's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance, and they are subject to certain risks, which could cause actual performance and financial results to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please take a look at our Management's Discussion and Analysis and the 2023 Annual Information Form available on our website or on the SEDAR+, look under the heading Risk Factors. Starting with operations in Papua New Guinea. During this quarter, Rig 103 had strong operational performance. This represents the third full quarter of drilling activity for the corporation since the suspension of operations in early 2020. As well as the full quarter of drilling operations with Rig 103, we have seen strong deployment of rental assets through the quarter, including those pulled through by drilling operations as well as rentals to the wider market. High Arctic also provided rental material handling equipment, a 100-man mobile camp and a large quantity of worksite matting to support other ongoing field activities with our 2 main customers in Papua New Guinea. Full utilization of our drilling services and asset and our rental assets associated with customer owned Rig 103 had a significant impact on our earnings, which we anticipate will be the case for the first half of 2024. We are currently on the fourth and final of the approved wells in our customers' program. And on Friday, they issued us with a notice confirming that drilling operations will be suspended after this well and the rig will be placed into cold stacked storage. The term of the Rig 103 contract runs through to just past the middle of next year. We are optimistic for future drilling in PNG. This optimism is based on an expectation that advancement of the Papua LNG project led by French Multinational TotalEnergies (EPA:TTEF) will stimulate exploration and appraisal activity in much the same way as the first PNG LNG project did a decade ago. We are, however, disappointed to observe that work towards a final investment decision on the Papua LNG project has been further delayed. On the weekend, the government of Papua New Guinea and the project operating partner TotalEnergies issued a joint statement reaffirming commitment to the project but guiding towards a decision in 2025. The Papua LNG project is expected to be followed by the P'nyang gas field development in the Western Province of PNG. This is anticipated to result in the addition of further gas liquefaction capacity in the world class PNG LNG export facility. State-owned Kumul Petroleum is advancing appraisal of other gas discoveries in PNG, planning for seismic surveys of the Kimu & Barikewa discoveries onshore Papua New Guinea to progress their aim to contribute to growing domestic energy needs and the additional -- an additional LNG export processing facilities. These LNG projects and other large scale mining and infrastructure projects moving through the pipeline will require tens of thousands of new workers and more skilled and supervisory personnel that do not exist in Papua New Guinea today. Through PIMS, PNG Industry Manpower Solutions, High Arctic has added the provision of recognized safety training, competency verification and equipment licensing services. We have long provided these training and competency solutions in house. PIMS also taps into our large pool of talent to provide manpower, skilled and semi-skilled labor, trades qualified personnel and professionals in Papua New Guinea. We are excited to be playing a significant role in preparing PNG citizens to be job ready for the major projects we anticipate in the second half of this decade and beyond. Turning to Canada. In Canada, we closed a transaction to acquire and then amalgamate Delta Rental Services. The acquisition of Delta in December and its integration with our legacy rentals business in Canada has delivered scale for a cash positive operation. Delta has blended seamlessly with High Arctic Rentals and the combined business is marketed under the Delta brand. The Delta acquisition is expected to increase Canadian revenues 3 to 4 fold and contribute strongly to positive cash flow. The Delta acquisition contemplates and the structure of the consideration is reflective of High Arctic's intention to reorganize and separate the Canadian and PNG businesses. I am confident that this transaction is symbolic of the prospects for a purely Canadian entity and how additional accretive transactions can be unearthed. Over the past 2 years, the corporation has divested underperforming and noncore assets and businesses. Now the Corporation's Canadian business consists of a high margin equipment rentals business centered upon pressure control. A minority interest in Canada's largest oilfield snubbing services business, Team Snubbing Services and industrial properties at Clairmont and Whitecourt in Alberta, Canada. Team Snubbing is Canada's largest snubbing provider and we have a 42% equity stake in Team. Team has had an outstanding fourth quarter, setting new records in terms of hours worked, snubbing packages deployed and available crews. This is transposed into record revenue levels and earnings. At the end of the quarter, Team declared its first dividend since acquiring High Arctic's Canadian snubbing assets. The two snubbing packages deployed in Alaska under Team Snubbing International [indiscernible] continuously through the fourth quarter, shutting down in December and remaining shutdown through the deepest of the cold weather, but now both packages have recommenced operations in March. I would now like to pass the call over to Lonn Bate, High Arctic's Interim Chief Financial Officer to discuss key financial highlights from the quarter in more detail.
Lonn Bate: Thank you, Mike, and good afternoon to all of you joining on the call today. Now, just before I begin, just want to remind everybody and state that dollar amounts mentioned on this call are Canadian dollars. Looking at our fourth quarter financial results from continuing operations and on a consolidated basis, High Arctic generated revenues of $18.1 million and adjusted EBITDA of $3.2 million and spent $130,000 on capital expenditures in the quarter. Also in the quarter, High Arctic generated net income of $2.75 million, which equates to $0.06 per share. This return to profitability for High Arctic was a result of the full utilization of our drilling services and asset rentals in both PNG in Canada. In addition, the positive quarterly results were driven by meaningful investment income from the short-term investments higher to colds, the equity income recorded from team's strong Q4 results and a $912,000 deferred income tax recovery that was recorded in the quarter. By far the most notable event in the quarter was the acquisition of Delta Rental Services that Mike just spoke to above. Some of the key details on this transaction are as follows. Total purchase price for Delta was $6.4 million and consisted of $3.4 million in cash paid on closing and the remaining roughly $3 million as an earn out or contingent consideration payable in the combination of cash and shares of High Arctic over a 3-year period post close. The contingent consideration payable is based on the Delta business achieving specific profitability targets and is adjusted for capital expenditures incurred. The assets acquired include property and equipment valued at over $3.6 million and about $600,000 in working capital. That was part of this acquisition, High Arctic also recorded additional assets that consist of $1.5 million in intangibles for some of the branding customer relationships acquired on the business and over $800,000 in goodwill. These values associated with the assets and goodwill acquired on the purchase, liabilities assumed and the contingent consideration payable post close, while based on our best estimates and fair values on the transaction date. But if within a year of the transaction date new information is obtained by High Arctic regarding the facts and circumstances of the transaction at the transaction date that require us to adjust these this purchase price will be adjusted. Now, given that the acquisition of Delta was also done right at the end of 2023, the results that we're speaking to today from the Delta operation really had no material impact on our results for the fourth quarter of 2023. Now turning back to the quarter itself, as I already mentioned, the quarter business performed well, generating $3.2 million in adjusted EBITDA, consistent with Q3 of 2023. Customer owned Rig 103 was fully utilized in the quarter. Our ancillary services business continued to perform at or above expectations. And as a result, High Arctic producing a steady consolidated oilfield services margin of 33.4% in the quarter, consistent with 34% Oilfield Services operating margin achieved for the full year of 2023. These 2023 margins compare very favorably to the 2022 Oilfield Services operating margins that were a negative 27% in Q4 2022 and only 14.4% for the full year of 2022. Much of this higher margin generation is a result of 2022 disposition of the Canadian well servicing assets and snubbing assets. The sale of the nitrogen business is also driving these higher margins in 2023. And EBITDA generation as that sale of that business that closed in Q3 in third quarter of 2023 eliminated a service line that was negative impacting our bottom line. Turning to G&A. Our G&A costs were $2.8 million in the quarter, which is higher than the $2.7 million incurred in the previous quarter. G&A costs for the quarter represent 15.5% of revenue, also consistent with Q3 2023 and consistent with the fourth quarter of 2022. G&A for the business was elevated in the quarter with higher to concurrent corporate and professional fees relating towards our work, towards a revised reorganization plan, costs associated with the Delta acquisition, and cost as a result of the special meeting we held on January 10th of this year. In addition, we recorded an increase in our expected credit loss provision for some Canadian receivables in the quarter. But with that said, management continues to evaluate our G&A costs and we continue to right size our administrative support to line with expected operations going forward in both PNG and Canada. As mentioned earlier, adjusted EBITDA being $3.2 million on the quarter, $3.2 million. This compares favorably to the negative adjusted EBITDA of $1.2 million or negative 10% of revenue in Q4 2022. Q4 2022 was negatively impacted, just want to remind readers, by a one time inventory impairment charge of $3.7 million taken right at the end of last year. And general activity levels in PNG at that point in time were also not as robust as they were when compared to 2023. The largest revenue generator in the quarter for High Arctic was from the Drilling segment, which is no surprise. Activities generated $14.3 million of revenue in Q4, higher than the $10.1 million in Q4 of 2022. This increase was due primarily to the fact that our customer owned Rig 103 was fully utilized in the quarter, whereas in Q4 2022, we had no owned or customer owned rigs operating and turning, and most of the revenue then was derived from manpower provision. Q4 2023 operating margins were 22% for the segment, considerably higher than the negative 33% in Q4 2022, and that was obviously impacted by the inventory impairment I mentioned earlier. Our Ancillary Services segment spans both Papua New Guinea and Canada and continues to be our highest operating margin generator. We achieved an operating margin of 76% on $3.9 million in revenues from continuing operations in Q4 2023 as compared to 28% margin on $2 million of revenue in Q4 2022. This improved margin reflects more revenue contribution from low maintenance fully owned assets. The management expects that Q4 margins and activity levels that delivered this highly profitable segment to continue into 2024 and especially with the addition of the Delta business here in Canada. Consistent with last quarter, there was no activity in our Production Services segment, but we did incur some small expenses related to storage and preservation costs for the assets that do exist in that segment. During the quarter, CapEx totaled $130,000 and this spending was mainly focused on growth in our rental equipment in Papua New Guinea, plus some additional costs associated with building out our new financial and operational systems. We expect to continue with modest capital spending through 2024, mostly focused on maintaining and growing our rental fleet, both in Canada and Papua New Guinea. Finally here, our company ended the quarter here with just over $50 million of cash on hand, approximately $33 million of that invested in secure interest bearing short-term investments, which generated over $550,000 in interest income during the quarter. Our working capital position stayed steady in the quarter and as of the end of December stood at $63 million. Working capital would have been higher than this, but do keep in mind that we did deploy $3.4 million in cash when we acquired Delta in the quarter. Consistent with past quarters, our only source of debt is our mortgage financing, which stands at $3.5 million and that's mortgages on our land and buildings in Alberta, both Clairmont and Whitecourt as Mike mentioned those assets earlier. And with that, I'll turn the call back over to you, Mike.
Michael Maguire: Thanks, Lonn. With today's results, we also provided an update on our planning for a reorganization. As a reminder, in May last year, we announced an intention to recommend to shareholders the tax efficient return of capital to a maximum of $38.2 million relating to the third quarter 2022 sale of High Arctic's Canadian well servicing assets. And the reorganization of the corporation involving the spinoff of the Papua New Guinean business. This separation was aimed at addressing the inefficiencies of managing 2 small businesses on opposite sides of the world with few synergies and allowing senior management to concentrate where they have had the most success in the past. Later, we suspended work on the previously announced transaction and in October we announced that we were working to address and incorporate feedback of the corporation receipt from several shareholders. The feedback generally related to the unlisted nature of the High Arctic International Holding Company and concerns about corporate governance and minority shareholder protections jurisdiction. I am pleased to inform listeners that we are working towards a special meeting of shareholders to be held prior to the end of the second quarter of 2024. At that meeting, I anticipate that the Board will recommend to shareholders a reorganization that would include the following elements. A spin off of the PNG business to shareholders as a Canadian publicly listed company, maintaining the High Arctic Corporation as a Canadian publicly listed company focused on growing the Canadian business. The distribution of a return of capital to shareholders of between $33 million and $38.2 million before July 26 this year, and the rightsizing of the general administrative infrastructure to align with that new corporate structures. I will now turn the conference call back over to Patrick, the operator, who will open the line for questions.
Operator: [Operator Instructions] We'll take the first question. Please go ahead.
Josef Schachter: Can you talk about the go forward strategy? Will there be cash in both companies to grow? Will we have, will the Canadian name be go with the Delta name, which is actually part biggest part of the business or will it stay at High Arctic? Have you started thinking about separate ticket symbols? Will there be a separate management team for each company? How should we perceive this going forward? Will the management overlap for a while and then separate as you build the team and maybe make acquisitions on the Canadian side? Maybe just give us a little color on how you see things unfolding in 2024?
Michael Maguire: And of course, these questions will be answered in detail when we distribute the materials for the contemplated shareholder meeting, but at a high-level quick overview. Let's start with the name. So, High Arctic Energy Services will remain the name of the current corporation. We do trade the rental services business under the Delta brand. And we do expect and anticipate to be active in the M&A markets with the Canadian business to grow it in a manner that would ensure that it protects and utilizes the value of its large noncapital operating tax losses. The ticker would remain unchanged. So essentially for the Canadian entity, it would be a curve out of the foreign Papua New Guinea business and the rest of the business would look like it does today. As far as the management teams go and interaction between the two entities, there will, of course, be some transitionary arrangements put in place, so that we just we will need to make sure that both businesses can operate effectively on a standalone basis and to ensure that that happen that transition happens smoothly, there would be some transition rearrangements in place, which would include some sharing and overlap of management. But to the larger degree, the expectation is for us to transition into two distinctly separate management teams. As far as cash goes, we are working towards trying to optimize up to the top end of the guidance we've provided today for a return of capital figure. We've provided guidance because we can see that we can comfortably meet at the bottom end of that $33 million at this point in time, but we're working towards trying to optimize it to the maximum, while at the same time planning to retain cash in both businesses, so that they can meet their working capital requirements. One of the key points for consideration there is what Papua New Guinea will need for ramping backup drilling operations after the contemplated suspension of Rig 103 here for the second half of the year. It is going to need access to liquidity to be able to recommence operations and that's a key consideration. There will also be cash left in the Canadian business, so that it can meet its working capital obligations and its current planned maintenance capital. Rest of the details on ticker symbols and things associated with the spun out entity will all be clear in the meeting materials once we get through regulatory approvals. The Board makes its decision that it is going to move forward with the recommendation to shareholders and materials are then released for the meeting.
Q – Josef Schachter: One last thing. Is there any for the Canadian company, are there any lines of businesses that you guys kind of feel that would make a good growth of vehicle for the Canadian operations? And would you be comfortable using equity as well, so that between the moderate cash that's in the company and equity, would that be the levers you'd use to grow the company?
Michael Maguire: Yes. Good questions, Josef. So, in the first part, we've as we've done for the last 2 years, divested services based businesses that were very cost heavy and lean in margins. Our view for any M&A activity would be to continue on the journey here of the higher margin, lower operating costs, low people intensive businesses. So, provision of rental equipment fits into that mold very, very neatly. So certainly, we'd be looking at opportunities to grow our rentals business. But also the potential to acquire or merge with other businesses that provide potentially other equipment, including equipment used in the capital construction of wells or other sources of energy. So, looking at businesses that may be a little bit broader in its breadth than simply the traditional oil and gas energy services, but looking also to potential businesses that are exposed to the emerging energy businesses, including carbon capture and storage. And when it comes to the, in terms of the need for providing further, I guess, color on what businesses would actually look like. I think that I can only really provide that kind of high level at the moment. We're not actively pursuing an acquisition or a merger today, but certainly, the work we're undertaking here is to create is to free up the Canadian business, remove the tide of the PNG business, which has been an impediment for doing transactions in Canada in the past, and make sure that it's open then for transactions that would be accretive to or would provide an alternative source of better beneficial return for our shareholders will create value for our shareholders in Canada. A long winded answer, I think to a short question, but that last piece there about cash and equity, I think, Joseph, the answer will be nothing will be off the table. The main thing would be ensuring that it's in the best interest of shareholders.
Josef Schachter: Well, Mike, I like the progress you've made. I like the fact that there will be 2 public companies out of this for shareholders. And I look forward to seeing future announcements. Thanks very much.
Operator: [Operator Instructions] We will take the next question. Please go ahead.
Unidentified Analyst: [Franco Jankovic]. I have a question on the PNG contract that's coming to an end now in 2024, Are you getting any compensation for it ending a year early or standby rates or anything like that?
Michael Maguire: Yes. Let me be clear. The contract is not ending. The contract runs still until the middle of next year. So, this is suspension under the terms of the contract, as we were suspended under the terms of the predecessor contract in 2020. There is a small revenue stream that comes from the suspension, but it is very lean. It basically covers the direct costs associated with the cold stacking of the equipment and its ongoing preservation.
Unidentified Analyst: Then a question on Team Snubbing. That appears like it's running independent. Is there a mandate or any, I guess, long-term plan from High Arctic's perspective? What you're hoping to see from that? Or whether it's liquidity event or maybe going public or whatever. Just curious.
Michael Maguire: The investment in team snubbing was at the time on the basis of assisting the 2 entities joined together to pursue significant growth potential and Team Snubbing has been delivering upon that. When we merged the 2 entities together, Team Snubbing had, I think, 3 crews, 2 units deployed, not quite 100% active. We had 2 units deployed best part of maybe 3 crews. And putting those 2 together, out of the blocks we went now to an additional unit to work, so that was a 5th and now they're operating a 6th. And then now up to having 10 active crews in Canada. So, there's been some quite substantial growth for Team Snubbing there. They've also now expanded as we mentioned the last couple of quarters into Alaska through the Team Snubbing International Partnership and pursuing some opportunities both in elsewhere in North America and internationally. We expect Team Snubbing to be more focused on growth over the near term, the next couple of years. But in the longer term, we're also anticipating it to be a regular source of distribution of earnings or dividends to High Arctic as a significant shareholder, which we will be utilizing and also for to ensure that we're providing quite good returns for our shareholders.
Unidentified Analyst: So just looking at the little bit of information disclosed, like I said, you're in, you've got an evident working capital is negative, it looks like you had to reinvest cash flow into some long-term assets, which is fine up, I guess. And you also now got, I guess, cash demands on the note receivable that you're going to be paying interest I think talking this year and then principal midyear. You're going to be able to create finance on that side.
Michael Maguire: Yes. And just to be clear, when you say, you're talking about Team Snowing?
Unidentified Analyst: Yes. You guys are all I'll consider you once I don't even know I realized the majority is not there, but yes, I just noticed that with the other hand, you got no payments that are already coming. And then you've got a growing business too, so it's going to be more financing required on working capital and receivables in that. The fact that's already negative, I think you got what $5 million of receivables and cash and you got about $13 million I think of liabilities current and noncurrent. I realize noncurrent is probably largely High Arctic I guess, right.
Michael Maguire: That's right. The largest piece will be High Arctic. It does have its own bank debt as well and it has an overdraft facility too. We're expecting based on the budget that's being approved at Team Snubbing, which has been borne out in the results we've seen in the early part of this year. We're expecting Team Snubbing to be in a robust financial position. We expect them to be making good inroads into servicing that debt, the overdraft facility, the payment of the promissory note to High Arctic, which commences in July, and then goes for another, I think, 4.5 years. And the mortgage that they've taken on for their property that they've occupied in [indiscernible], it's owned and mortgaged. So, yes, we're very confident in Team Snubbing's performances for 2024. We expect that this is going to be a record year following the record year of 2023 and their performance. We anticipate that there will be opportunity for payment of more dividends in the future, albeit the repayment of the debt not the repayment, but the payments owed, on the debt servicing the debt is paramount. And from our view of High Arctic collection on that promissory note and ensuring that they are a customer of ours renting equipment, ensuring that they remain current with payments on those is the top priority.
Unidentified Analyst: Okay. That sounds good, Mike. Thanks very much for the update.
Michael Maguire: Thanks, Franco. Appreciate your questions.
Operator: Thank you. We'll take the next question. Please go ahead.
Unidentified Analyst: Hello, Mike. I hope you're well. My question is, my comment is first of all, I'd like to thank you for listening to share out all this. To me, it's very clear that you did that. So thanks for that. And also that you're in good standing and looks like a solid quarter, I think, that can be said as well. So that's my first comment. The question is then is the following. Do I understand it correctly that when we split the company, it's a straight split and there will not be any rights or for us to be pulled back. So you will just issue out PNG as shares, right?
Michael Maguire: That's correct. That is the intention is what I should probably say. Things are not quite through those final approvals and things. But yes, that is the way we're intending to proceed.
Unidentified Analyst: Okay. That's good. That's good. And will PNG with all other business will stay positive in H2 and kind of the fee that you get from Santos?
Michael Maguire: Our anticipation is in the second half of this year, we will be cutting back substantially on some of our discretionary costs in an effort to ensure that we minimize potential impact of both the suspension and operating services.
Unidentified Analyst: Okay. So it will be close to that on that or close to that?
Michael Maguire: Yes.
Unidentified Analyst: And then, I hear you say that you did already get a dividend from Team Snubbing. Did I hear that correctly?
Michael Maguire: Yes. Team Snubbing declared a dividend just at the end of last year of $857,000 of which High Arctic received $360,000 and booked.
Unidentified Analyst: Which is the straight 42%, right? And [indiscernible].
Michael Maguire: Yes.
Unidentified Analyst: And then, there's talk of, when we split PNG from a Canadian business that that will increase our ability to get a source of cost efficient capital. Can you explain what it is and what kind of interest that you are then looking at?
Michael Maguire: So we're talking specifically about Canada here?
Unidentified Analyst: Yes. But specifically talking about PNG here.
Michael Maguire: PNG. So, access to the capital for PNG is not straightforward as it is for Canada. Papua New Guinea has we've highlighted for quite some time, there's currency restrictions and the Central Bank of PNG has been controlling the declining value of the Team for quite some time. We can access debt inside Papua New Guinea, but that debt would be in Papua New Guinea and Canada. And as we've also highlighted for quite some time, most of our expenditure in transacting is in U.S. Dollars for that business. So, in accessing that there is, there are some further complications and things that may make accessing debt for Papua New Guinea a little more expensive and a little less straightforward than it is for Canada. At the moment, we are working towards ensuring we're retaining an adequate amount of cash in that business. And there is cash in the bank in Papua New Guinea at the moment, somewhere in the vicinity and maybe Lonn can just verify this figure, but I think somewhere in the vicinity of around $8 million equivalent in held in bank accounts in Papua New Guinea, or in the Papua New Guinea business. And we will ensure that we have adequate access to cash once we've harvested some of the receivables in the latter part of this year to ensure that we can sustain our business and recommence drilling operations in 2025.
Unidentified Analyst: Yes, Mike, it's closer to $9 million, but probably about $8.7 million at the end of the year.
Michael Maguire: Thank you.
Unidentified Analyst: In Canada, it's easier and if it also at a rate that's kind of reasonable sometimes you see for the oil and gas guys they're going up to 8%, 9%. That's not the interest that we can have access to. Is it like 4% or 5%? What do you reckon is the interest we would pay on Canadian loans?
Michael Maguire: So, we, the interest payments on our mortgage facility are around 4%. The market has moved a fair bit since we put that in place, put that facility in place. I'd expect that the cost of debt would be between the two numbers. I think you mentioned a number of 8% or 9%. I'd anticipated to be between those numbers. But there's much more ready sources of debt available to us here in Canada. The Canadian dollar is very liquid. Our Canadian business transaction has most of its expenditures in Canadian dollars. So, from that perspective, it's a lot simpler than Papua New Guinea. But at the same time, we're also mindful of holding an adequate amount of cash in the Canadian business to ensure that we can meet our working capital requirements and our planned capital investments for 2024.
Operator: Thank you. There are no further questions at this time. I would like to turn the meeting back over to Mr. Maguire.
Michael Maguire: Thank you, Patrick. Thank you to all who joined our call this afternoon, and I'd like to wish everybody a good week and look forward to making some further announcements in the coming weeks around our reorganization and return of capital. And that concludes our call. Thank you, Patrick.
Operator: You're welcome. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.