AKITA Drilling Ltd. ($AKTA)

Well, it is 10:00 on the dot. And so we'll commence the morning. Good morning. My name is Linda Southern-Heathcott, I am the Chair of AKITA Drilling. And it is my pleasure to welcome you to the company's 33rd Annual General Meeting. We would like to acknowledge that what we call Alberta is the traditional and ancestral territory of many peoples, presently subject to Treaty 6, 7 and 8, namely the Blackfoot Confederacy, Kainai, Piikani, Siksika, The Cree, Dene, Saulteau, Nakoda Su, Stoney Nakoda and Tsuut'ina Nation and the Metis Peoples of Alberta. This includes the Metis settlements and the 6 regions of the Metis Nation of Alberta with historical Northwest Metis Homeland. We acknowledge the many First Nations Metis and Inuit who have lived in and cared for these lands for generations. We are grateful for the traditional knowledge keepers and elders who are still with us today and those who have gone before us. We make this acknowledgment as an active reconciliation and gratitude to those whose territory we reside on or are visiting. We are hosting our AGM through a virtual meeting platform, which is accessible to all shareowners and guests. I officially call the meeting to order and appoint Odyssey Trust to act as scrutineer. The owners of Class A nonvoting shares and Class B common shares as well as the holders of valid proxies are entitled to participate and ask questions at this annual meeting. However, only the owners of Class B common shares and the holders of valid proxies for those shares are entitled to vote on the election of directors and the appointment of the auditor. I will now commence the formal part of our business of the meeting. The business of the meeting is as described in the Management Information Circular, dated March 17, 2026. We will conduct votes on the matters before us by an electronic poll. On a poll, every Class B shareowner is entitled to 1 vote for each Class B share -- share held. After the poll is closed, the results of the votes cast, together with the proxies received prior to the meeting, will be displayed and will be filed on SEDAR following the meeting. I now declare the polls open on all resolutions. If you have any questions regarding this morning's presentation, I encourage you to submit them through the online chat box in the Ask a Question section of the platform. And time permitting, Darcy Reynolds, will read them, and we will endeavor to answer all questions. I will now lead us through the formal part of our meeting. The first item of business is the election of directors as proposed in the management proxy circular. As Chair, I will move each item of business. I have been advised by Mr. Colin Dease and Mr. Darcy Reynolds, both proxy holders and in attendance today, that they are prepared to second each of the motions I so move. Accordingly, I will take such motions as seconded with no further action needed. I move that Loraine Charlton, Corporate Director; Doug Dafoe, Corporate Director; Harish Mohan, Corporate Director; Nancy Southern, Chair, President and Chief Executive Officer of ATCO Limited and Executive Chair, Canadian Utilities and Vice Chair of AKITA Drilling; Rob Symonds, Corporate Director; Henry Wilmot, Corporate Director; Neil Yeates from Ottawa, Corporate Director; and myself, Linda Southern-Heathcott, be individually elected as directors of the corporation until the next Annual General Meeting or until their successors are elected or appointed.

I second the motion.

Thank you, Mr. Dease. The next item of business is the appointment of the auditor of the corporation. As Chair, I propose the following motion: That PricewaterhouseCoopers chartered accountants be reappointed as auditor of the corporation to hold office until the next Annual Meeting of Shareowners and that the directors be authorized to fix the auditor's remuneration.

I second the motion.

Thank you, Mr. Reynolds. [Voting]

As there is no further business, I declare that the polls are closed. We shall now wait for a few moments for the scrutineers to count the votes and declare the results. Mr. Darcy Reynolds, our CFO, has now -- have you received them? He has now received the scrutineer's preliminary report, and I would ask Mr. Reynolds to read the results.

With respect to the election of directors, the scrutineers have reported that the shareholders voted 99% or more in favor of the election of each nominee director.

I therefore declare the motion passed. Congratulations to our directors. I look forward to working with you for another year. Auditors, do you have that?

Yes. With respect to the motion to reappoint PricewaterhouseCoopers as the company's auditor for the ensuing year, the scrutineers have reported that shareholders voted 100% in favor of the resolution.

I therefore declare the motion carried. As that concludes the formal business to be conducted at this year's annual meeting, I declare the meeting closed. Now that the formal part of the meeting is concluded, I would like to call on Mr. Colin Dease, our President and our Chief Executive Officer, to update the shareowners on the state of the drilling industry, on AKITA's operations over the last year and during the first quarter of 2026 and to comment on the recent public announcement regarding AKITA's intention to acquire Fox Drilling from Paramount Resources, subject to shareowner approval. Colin will then invite AKITA's Chief Financial Officer, Darcy Reynolds, to provide a financial update, and we will have all of the questions at the end of the two presentations. Colin, over to you.

Thank you, Linda, and thank you to our shareowners, directors, analysts and other guests for joining us at this morning's AGM. It is my pleasure to provide the CEO update at AKITA Drilling's 3rd Annual General Meeting. I'd first like to recognize the key staff members with us today from Denver, Nisku and Calgary. Their passion, commitment and expertise continue to drive our success. We have a great team at AKITA. So this morning, after a brief overview of our company, I plan to address AKITA's performance in 2025, our 2026 first quarter results and the improving industry sentiment and the outlook for AKITA going forward. AKITA Drilling is a pure-play drilling company with 2 divisions. Our Canadian division currently markets a fleet of 17 drilling rigs across Western Canada, while our U.S. division manages 15 rigs, primarily in the Permian Basin. We provide crews and operate drilling rigs on a day rate basis for customers drilling for oil, natural gas, potash and helium and to facilitate saltwater disposal, acid gas injection, carbon capture and storage, and geothermal energy. Now a quick recap of last year. Overall, 2025 was a moderately successful year for AKITA. We began the year with strong momentum with both divisions exceeding operating day budgets in the first quarter. Activity then softened over the remainder of the year. But by the fourth quarter, Canadian activity began to recover, while U.S. activity continued to weaken, resulting in the lowest activity levels for our U.S. division since AKITA's acquisition of Xtreme Drilling in 2018. Despite that backdrop, our safety performance improved year-over-year in both divisions. Maintenance costs were managed effectively. Crew attention improved, and our U.S. division materially reduced its rig downtime relative to operating time metric. Over the past 4 years, our primary financial objective has been to strengthen the balance sheet through debt reduction. We entered 2025 with approximately $50 million in debt, and we repaid $50 million during the year, ending 2025 at our $35 million debt target. In August of 2025, we initiated a normal course issuer bid or a share buyback program. To date, we have repurchased and canceled 1,450,000 shares at an average price of $2.32 per share. The value of the repurchased shares has since doubled compared to our volume-weighted average repurchase price, generating a 100% return on capital deployed through the share buyback program to date. This reflects our commitment to disciplined capital allocation and returning our capital to shareowners. Turning to the first quarter of 2026. The drilling industry entered the year facing headwinds, where concerns about crude oversupply dominated the market narrative. That backdrop changed abruptly on February 28 with the onset of the Iran conflict, which quickly disrupted traffic through the Strait of Hormuz. Prior to the conflict, roughly 20 million barrels per day of crude oil and petroleum liquids transited through the Strait, making it one of the world's most important energy corridors. As the conflict continued, some alternative export capacity emerged through regional pipelines and rerouted flows. Even so, the disruption has been tremendous with an estimated 12 million to 14 million barrels per day stranded, tightening global oil markets and increasing volatility across the energy complex. The result has been the most significant supply disruption in oil market history with a meaningful portion of Gulf production temporarily constrained and global inventories and pricing adjusting accordingly. By May 1, approximately 60 days into the conflict, an estimated 1 billion barrels of crude supply have been lost to the market. And putting that into context for AKITA. On February 27, the day before the conflict began, WTI traded at approximately $67 per barrel, and the Baker Hughes U.S. rig count stood at -- pardon me, 550 active rigs. At that time, AKITA's U.S. division was operating 8 rigs. As of yesterday, WTI traded at $99 per barrel, while the Baker Hughes U.S. rig count stood at 548 rigs. So despite the sharp increase in WTI prices over that period, the U.S. industry rig count has remained flat. Now against that backdrop of sharply higher crude prices and a flat industry rig count, AKITA's U.S. division has materially improved its utilization, increasing from 5 active rigs at the start of the year to 8 at the outbreak of the conflict to 10 active rigs today, and we have 3 additional rigs contracted to spud by the end of May. With final contract negotiations underway for one last rig, AKITA's U.S. division is on a path toward full utilization by June, a notable achievement relative to the broader U.S. industry activity. Turning to our Canadian division. Activity was moderate in the first quarter, softened through spring breakup, but is now strengthening with 4 additional rigs scheduled for reactivation by June. Sentiment in Canada has improved materially from a year ago. In addition to benefiting from the shift in oil markets, calls for greater Canadian energy security have intensified. Rhetoric challenging Canadian sovereignty, coupled with heightened geopolitical uncertainty, has renewed attention on national resilience and sharpened the focus on reliable, responsibly produced Canadian energy. That improved sentiment has translated into broader support for major infrastructure development, including additional pipeline capacity aimed at strengthening Canada's energy independence and global competitiveness. Recent consolidation activity, namely Shell's announced $22 billion acquisition of ARC Resources, reflects renewed long-term confidence in the Canadian resource sector and is viewed by many as an implicit signal of imminent Phase 2 approval for LNG Canada. So looking ahead, we expect performance in both divisions to improve over the second half of the year and into 2027. Activity in our U.S. division has already recovered, and our active rigs now hold a clear advantage in securing future work relative to competitors' rigs sitting idle. As a result, we expect strong activity to continue over the back half of the year and into 2027. In Canada, strong Western Canadian select pricing has supported our SAGD customers and is expected to keep our oil sands rig fleet active. In addition, the acquisition of the Fox fleet will allow us to play a larger role in gas drilling, leaving us well positioned for a strong second half of the year in Canada as well. Thank you for the opportunity to provide an update this morning. I will now turn the meeting over to our CFO, Darcy Reynolds, to provide some financial commentary.

Thank you, Colin, and thank you, everyone, joining us today for our Annual General Meeting. I'm pleased to provide a brief overview of AKITA's financial performance for 2025 as well as an update on the first quarter of 2026. For more detailed information, I encourage shareholders to review our annual report and first quarter report, both of which are available on SEDAR+. Starting with 2025, AKITA delivered another solid year of financial and operational performance despite increasing volatility in the North American drilling market during the second half of the year. We reported net income of $14 million in 2025, increased from $13 million in 2024, while adjusted funds flow from operations increased to $47 million from $45 million in the prior year. As Colin said, the year was characterized by a very strong first quarter in both our Canadian and U.S. operations, followed by softer market conditions later in the year as commodity prices weakened and customer spending became more cautious. Capital expenditures remained focused on maintaining the quality of our fleet. Investments were directed towards Level 4 inspections, recertifications, drill pipe and reliability initiatives designed to improve operational performance and customer service. Capital expenditures totaled $32 million in 2025 compared to $28 million in 2024. One of the key milestones in the year was reaching our debt repayment target. Reaching this milestone materially improved our financial flexibility and positioned the company to begin returning capital to shareholders through our normal course issuer bid. Turning now to the first quarter of 2026 in which market conditions were significantly challenged compared to the first quarter of 2025. Lower drilling activity in both Canada and the U.S., combined with continued pricing pressure in certain U.S. markets resulted in a net loss of $2.4 million for the quarter compared to net income of $8.6 million in the comparative quarter, reflecting lower operating days, increased costs associated with returning rigs to work. In addition, share-based compensation expense increased significantly year-over-year due to the improvement of AKITA's share price in the quarter. Funds flow from operations declined to $8 million in the quarter from $17 million in the prior quarter. In Canada, operating days declined approximately 15% from the first quarter of 2025, while U.S. operating days declined 36%. Importantly, although overall activity levels were lower, our Canadian operating margins per day remained resilient in Canada. Adjusted operating margins per operating day increased to $12,123 in the first quarter of 2026, up from $11,790 in the first quarter of 2025 due to a stronger mix of high-specification rigs working in Canada. In the United States, activity improved sequentially through the quarter as our active rig count increased from 5 rigs at the beginning of the quarter to 10 rigs at the end. Adjusted operating margin per operating day decreased to $6,739 in Q1 of 2026 from $12,804 in Q1 of last year. Reduced day rates as well as fixed costs spread over fewer operating days had a significant impact on our operating margins. While pricing pressure continues to exist in the U.S. market due to excess industry capacity, we are encouraged by the improved utilization levels as the quarter progressed. I'll now turn it over to Linda to discuss the Fox acquisition.

Thank you very much, Mr. Reynolds. The last item that we are excited to talk about and definitely the most significant is a little bit more information about the Fox acquisition and the restructuring of AKITA's dual share structure. The acquisition of Fox, which includes 6 rigs that Colin mentioned, as well as all ancillary equipment will be a significant boost to AKITA's cash flow. Maybe, Darcy, do you want to comment a little bit on the cash flow?

Thanks, Linda. The transaction was valued using a discounted cash flow method, such that Fox assets, once they are part of AKITA, are anticipated to contribute 33% or higher to the combined company's cash flows. Consideration for Fox is 19 million shares of AKITA, which at announcement was equal to the book value of Fox's assets. After the shares are issued, they will be distributed to the current Paramount Resource shareholders. Linda will now talk about the other part of the transaction, the share class.

The elimination of the dual class structure will simplify our capital structure and better align AKITA with broader public market governance standards. This simplification is expected to increase shareholder value and allow AKITA more optionality for growth in the future, and it is such a great opportunity for the AKITA team to grow this company.

I just want to talk about what's left to happen in the transaction. The 2 components of this transaction, the acquisition of Fox and the restructuring of our shares are cross conditional. One cannot happen without the other. The remaining approval is the approval of the amendments to AKITA's articles to move to one class of shares, whereby the Class A shares will become Class B common shares and the Class B common shares will subsequently be renamed simply common shares, thus eliminating the dual class shares. The approval of the amendment will occur by shareholder vote on June 29, with each class of shareholders voting separately to approve the amendment to AKITA's articles. Assuming a successful vote, the transaction will close within several days of the vote. I will now turn it over to Colin to give additional information on Fox as well as the outlook for 2026.

Thank you, Darcy. I'm very excited to speak about the merits of the Fox Drilling acquisition. Before I do so, I want to make a quick point about the evolving nature -- pardon me, the evolving history of the Canadian rig fleet. At the end of 2007, Canada's rig fleet peaked at 923 rigs. A decade later, at the end of 2017, the fleet had shrunk by 1/3 to 622 rigs. At the end of 2025, less than a decade on, the size of the Canadian fleet further declined to 359 rigs. So in less than 20 years, the Canadian fleet has contracted by 60%. High-specification rigs are drilling faster and deeper, while older, lower capacity rigs have been scrapped. What this means is the quality of a rig cannot be overstated. Fox Drilling's 6-rig fleet includes 5 AC 1500 horsepower triples. This class of rig, ideal for Montney and Duvernay gas drilling is in short supply in the Canadian market. Of the 359 rigs in the Canadian fleet, less than 50 rigs fall within this rig class. In addition to top-tier equipment, AKITA will benefit from the strength and experience of the Fox Drilling crews and from gaining another active blue-chip customer, Paramount Resources. The terms of the acquisition include a 3-year 2,700-day utilization commitment, which provides AKITA with a baseline of stable cash flow, additional scale and the ability to play a more meaningful role in supplying gas feedstock for LNG Canada. Over the past 2 weeks, I have visited Fox crews on all 4 active Fox rigs, 3 drilling in the Williston Green Duvernay play near Rocky Mountain House and 1 drilling in the Montney formation near Beaver Lodge. The Fox crews demonstrated a positive attitude, and each of the Fox rigs reflected a strong culture of rig pride and professionalism. This acquisition is a major boost for our Canadian division, and we are very excited to welcome the Fox team to AKITA as we work together to build an even stronger company. Before I close, I would like to address the 3 key objectives we have set for the balance of the year. First, we aim to successfully integrate Fox Drilling into AKITA. Our focus is to ensure a seamless transition for the Fox rig crews, identify opportunities to enhance fleet performance and to market the idle Fox rigs. Second, we intend to maintain the industry-leading utilization in our U.S. division, while continuing to deliver high-performance service to our operators, performance that supports further day rate increases. And third, we aim to leverage the strong relationships we have built with Canadian blue-chip operators to secure long-term drilling programs that extend through spring breakup. And finally, I would like to recognize the support of our Board Chair and the Board of Directors. Their guidance and experience have been invaluable. To our shareowners, thank you for your continued support and confidence in AKITA. And I would also like to thank our employees for their hard work and commitment to safe and reliable operations and our customers for the trust they continue to place in AKITA. And finally, I would like to acknowledge the support AKITA receives from its First Nation and Métis partners in 2 key Canadian basins, the Saulteau First Nation in the Montney and the Fort McMurray First Nation, Chipewyan Prairie First Nation, Fort Chipewyan Métis, Conklin Métis and Fort McKay Métis in the Fort McMurray oil sands. I would now like to turn the meeting back to our Board Chair.

Thank you. I will open it up to questions. Darcy, have you received any questions?

No questions.

No questions. Are there any questions out there? We'll just give it one more go.

No.

No, all right. Well, then this concludes our meeting of AKITA Drilling's AGM. And I want to thank you for taking the time to attend. We are adjourned. Thank you.