Mr. Mike Maguire reports

HIGH ARCTIC ANNOUNCES 2023 THIRD QUARTER RESULTS

High Arctic Energy Services Inc. has released its third quarter financial and operating results. The unaudited interim consolidated financial statements, and management discussion and analysis (MD&A), for the quarter ended Sept. 30, 2023, will be available on SEDAR+ and on High Arctic's website. All amounts are denominated in Canadian dollars, unless otherwise indicated.

Mike Maguire, chief executive officer, commented:

"High Arctic's businesses in both Canada and PNG have had a solid third quarter, contributing to increased net cash balances. The closing of the sale of our nitrogen pumping business in Canada progressed the streamlining of our Canadian business. In Canada, we have a low operating cost high-margin rental business in addition to strategic investments in the oil field services industry.

"Rig 103 continues drilling operations in PNG, which are expected to be completed by the third quarter of 2024. In addition, the ancillary services segment continues to perform at expectations and our manpower solutions revenue stream has had a successful initiation during 2023. We continue to await a final investment decision on Papua LNG and the project operators process, timetable and decision on drilling rig selection. This decision is expected to clarify development drilling specifications and sets the stage for insights on exploration prospects where High Arctic's owned assets carry distinct advantage given their heli-portable design.

"On the reorganization and tax-efficient return of capital, we continue to work to addresses the concerns some shareholders have shared with us and will revert with our intentions once that work is complete."

Highlights

The following highlights the corporations results for Q3 2023:

• Full drilling utilization of PNG (Papua New Guinea) rig 103 during the quarter, pursuant to a three-year contract renewed in August, 2022;
• Generated positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations of $3.2-million on revenues of $17.8-million and funds flow from continuing operations of $3.1-million, and incurred capital expenditures of $700,000;
• Recorded a non-cash impairment loss of $20.5-million on PNG asset carrying values based on uncertainty around future drilling activity levels;
• Incurred a net loss from continuing operations of $15.0-million or 31 cents per share in Q3 2023;
• After the quarter, suspended the monthly dividend to optimize capability to finance a pending tax-efficient return of capital to shareholders;
• Closed the sale of the corporation's Canadian nitrogen transportation, hauling and pumping services business for total cash consideration of $1.35-million, resulting in a gain on sale of $600,000.

2023 strategic objectives

High Arctic's 2023 strategic objectives build on the platform created in 2022 and include:

• Safety excellence and quality service delivery;
• Return idled assets in PNG to service;
• Scaling our Canadian business;
• Opportunities for growth and corporate transactions that enhance shareholder value;
• Examination of the corporation's optimal capital and overhead structure.

Results overview

Attached tables provide a summary of select financial information of the corporation.

Third quarter 2023 summary:

• Revenue for the quarter from continuing operations was $17,814, an increase of $5,874 compared with Q3 2022 at $11,940. The combined drilling services segment and ancillary services segments increased revenue by an aggregate $10,618 on the strength of increased revenues from PNG and Canadian rentals. This increase was partially offset with the decline from the production services segment, which decreased by $4,959 as a result of the sale of Canadian well servicing and snubbing assets in 2022. Revenue generated from the assets sold in the sale transactions during Q3 2022 totalled $4,959.
• High Arctic recorded an impairment loss of $20,500 on its PNG operations CGU as uncertainty around future drilling activity levels in PNG negatively impact future cash flows and asset carrying values.
• The company reported adjusted EBITDA from continuing operations of $3,202 in Q3 2023, an increase of $2,603 over Q3 2022. The favourable variance was primarily due to the full utilization of PNG rig 103 in the quarter, associated rentals and operational momentum with PNG drilling commencement in late Q1 2023. Higher utilization rates experienced in the Canadian rentals business also contributed to the increase in adjusted EBITDA in the quarter.
• Oil field services operating margins improved as a percent of revenue from 25.9 per cent in Q3 2022 to 32.9 per cent in Q3 2023. This improvement was primarily a result of the elimination of the lower-margin Canadian well servicing and snubbing assets that were sold in Q3 2022.
• High Arctic generated a net loss of $15,039 from continuing operations in Q3 2023, compared with a net loss from continuing operations of $4,368 for Q3 2022. The increase in net loss of $10,671 in Q3 2023 over Q3 2022 was due to the impairment loss of $20,500 on its PNG operations CGU. Mitigating the impact of the impairment was the stronger operational performance mentioned above, a $3,865 deferred tax recovery recorded as a result of the impairment and $470 in higher Q3 2023 interest income.

Summary for the year to date (YTD) (to Sept. 30, 2023):

• Revenue from continuing operations for the nine months of 2023 was $43,819, a decrease of $21,459 compared with the corresponding period of 2022 at $65,278. This decrease was due to the sale of Canadian well servicing and snubbing assets in 2022, which accounted for revenues of $36,099 for the nine months ended Sept. 30, 2022. Partially offsetting this decline was increased revenue from the drilling services segment of $13,108 as a result of steady drilling activity in PNG since Q1 2023. Revenue generated from the assets sold in the sale transactions during first half of 2022 totalled $36,099.
• Despite lower revenue for the nine months of 2023, adjusted EBITDA from continuing operations increased $1,870 to $8,556 when compared with the corresponding period of 2022. The increase is primarily attributable to the contribution coming from High Arctic's higher-margin businesses, being drilling and ancillary services, when compared with 2022, which had a greater contribution from the production services segment, which contained the Canadian well servicing and snubbing assets that were sold on July 27, 2022.
• Oil field services operating margins improved as a percent of revenue from 22.0 per cent in Q3 2022 to 34.7 per cent in the nine months of 2023. This improvement is primarily a result of the strength in drilling services and ancillary services operating segments, and the results of the Canadian well servicing and snubbing assets impact on the 2022 production services segment results.
• High Arctic generated a net loss of $15,580 from continuing operations in YTD 2023, compared with a net loss of $26,895 in the corresponding period of 2022. The lower net loss recorded in YTD 2023 was primarily attributable to improved income from operations, the gain on sale of the nitrogen business, higher interest income, and lower interest and finance expenses. The YTD 2022 deferred tax expense of $7,116 recorded that related to the reversal of the corporation's deferred tax asset and the YTD 2023 deferred tax recovery of $3,892, recorded as a result of the impairment recorded in Q3 2023, offset the $10,942 year-over-year asset impairment expenses increase.

Operating results

The Bank of Papua New Guinea continues to encourage the use of the local market currency, kina or PGK. Due to High Arctic's requirement to transact with international suppliers and customers, High Arctic has received approval from the bank to maintain its U.S.-dollar account within the conditions of the bank's currency regulations. The corporation continues to use PGK for local transactions when practical. Included in the bank's conditions is for PNG contracts to be settled in PGK, unless otherwise approved by the bank for the contracts to be settled in U.S. dollars. The corporation has historically received such approval for its contracts with its key customers in PNG. The corporation will continue to seek bank approval for its contracts to be settled in U.S. dollars on a contract-by-contract basis, however, there is no assurance the bank will grant these approvals.

If such approvals are not received, the corporation's PNG contracts will be settled in PGK, which would expose the corporation to exchange rate fluctuations related to the PGK. In addition, this may delay the corporation's ability to receive U.S. dollars, which may impact the corporation's ability to settle U.S.-dollar-denominated liabilities and repatriate funds from PNG on a timely basis. The corporation also requires the approval from the PNG Internal Revenue Commission (IRC) to repatriate funds from PNG and make payments to non-resident PNG suppliers and service providers. While delays can be experienced for the IRC approvals, all such approvals have eventually been received in the past.

Operating activities

In Q3 2023, cash generated from operating activities from continuing operations was $1,882, up from the Q3 2022 cash generated from operating activities of $971. Funds flow from continuing operations totalled $3,154 in the quarter, versus funds flow used in continuing operations for Q3 2022 of $620 (see non-IFRS (international financial reporting standards) measures), and there was a $1,272 cash outflow from working capital changes (Q3 2022: $1,591 inflow).

In the nine months ended Sept. 30, 2023, cash generated from operating activities from continuing operations was $3,391, down from $7,494 in the corresponding period of 2022. Funds flow from continuing operations totalled $8,470 in the nine months ended Sept. 30, 2023 (YTD 2022: $4,349) (see non-IFRS measures), and there was a $5,079 cash outflow from working capital changes (YTD 2022: $3,145 inflow).

Investing activities

During Q3 2023, the corporation's cash from investing activities from continuing operations was $1,146, compared with Q3 2022, which saw positive cash from investing activities from continuing operations of $8,690. Two thousand twenty-two was favourably impacted with initial $10,000 cash receipts from the sale of the Canadian well servicing assets that exceeded the $1,350 received in the quarter for the sale of the Canadian nitrogen business assets.

During the nine months ended Sept. 30, 2023, the corporation's cash from investing activities from continuing operations was $28,005 (YTD 2022: $6,745), reflecting the receipt of the final cash proceeds of $28,000 from the well servicing transaction in Q1 2023 (YTD 2022: $11,361), offset by lower capital expenditures totalling $1,829 (YTD 2022: $3,940) and $1,350 in proceeds received on the disposal of the Canadian nitrogen business assets, and a cash inflow of $383 relating to working capital balance changes for capital items (YTD 2022: $676 cash outflow).

Financing activities

In Q3 2023, the corporation's cash used in financing activities was $1,540 (Q3 2022: $905). During the quarter, the corporation paid $730 in dividends (Q3 2022: $731), $544 (Q3 2022: $80) toward principal payments on its mortgage financing and $266 against lease liability payments (Q3 2022: $94).

During the nine months ended Sept. 30, 2023, the corporation's cash used in financing activities was $4,009 (YTD 2022: $2,214). During the period, the corporation paid $2,190 in dividends (YTD 2022: $1,218), $643 (YTD 2022: $215) toward principal payments on its mortgage financing, $1,151 against lease liability payments (YTD 2022: $1,025) and $25 toward purchase of common shares for cancellation (YTD 2022: nil), and had a cash inflow of nil relating to non-cash working capital balance changes (YTD 2022: $244).

Intention to return capital and reorganize

On May 11, 2023, the corporation announced that the board of directors intends to recommend to shareholders a tax-efficient return of capital to a maximum of $38.2-million relating to the Q3 2022 sale of High Arctic's Canadian well servicing assets and a reorganization of the corporation.

The reorganization was intended to separate the international business of High Arctic, which is focused on Papua New Guinea, from the Canadian business. This addresses the inefficiency of managing two small businesses on opposite sides of the world, with few synergies and allowing senior management to concentrate where they can have the most success.

The corporation has received feedback from some shareholders and is working with its advisers on the reorganization plan to incorporate key elements of the shareholder feedback. The High Arctic board has reserved its final decision to proceed with the reorganization until these matters and continuing strategic review have been addressed to its satisfaction. The corporation cautions readers of its MD&A that there is no certainty that the reorganization will proceed in the format previously announced or at all.

Outlook

High Arctic's Canadian rental business, while small, continues to generate solid margins with a high level of utilization and the company anticipates this continuing through the winter period. Opportunities to gain scale and underlying net profitability are a priority. The company's investment in Team Snubbing performed well in Q3 2023, with Team recording its highest quarterly revenue to date, and High Arctic has expectations for increased activity to drive Team's revenues up further across the traditionally busy winter period.

Coupling the nearing completion of the long-awaited pipeline expansion to tidewater for both oil liquids and natural gas production with the evolving attitudes to carbon sequestration, energy security, and the longevity of Canada's oil and gas industry, sets up a favourable backdrop for relatively sustained upstream energy service demand in Canada. High Arctic continues to seek to expand its rentals business capacity to service the energy industry now and into the future.

High Arctic's PNG business was highlighted by rig 103 operating continuously through the third quarter. Rig 103 has now completed two of the four approved wells on the company's customer's current drilling program, which is expected to be completed by Q3 2024. In addition, the ancillary services segment rental fleet of equipment continues to generate strong utilization and pricing and the company's manpower solutions continues to contribute a strong revenue stream at appropriate margins.

The corporation's owned rig assets in PNG, heli-portable drilling rigs 115 and 116, and hydraulic workover rig 102, have been idle throughout 2023. This equipment continues to be actively marketed. However, High Arctic does not currently have outstanding customer contract tenders or open bid submissions for this equipment. That said, the appointment of Chris Fraser as a key business development executive for High Arctic International has led to opportunities to promote our services to new customers and markets within the region. The corporation is focused upon its specialist PNG know-how, drilling capability, fleet of rental equipment and camps, and its worker development and manpower solutions.

High Arctic continues to await the final investment decision of the TotalEnergies-led Papua-LNG project expected in early 2024. That project is anticipated to stimulate other exploration and appraisal activity and is expected to be followed by the P'nyang gas field development in the western province of PNG. State-owned Kumul Petroleum continues to advance toward appraisal of other gas discoveries in PNG and discussions continue with other exploration companies toward future work.

In the immediate term, the current monetary policy environment is delivering high-yield fixed interest income for investment of surplus cash. Additional cost discipline and the recent suspension of the corporation's regular monthly dividend aim to optimize a tax-efficient return of capital to shareholders.

Non-IFRS measures

This news release contains references to certain financial measures that do not have a standardized meaning prescribed by IFRS and may not be comparable with the same or similar measures used by other companies. High Arctic uses these financial measures to assess performance and believes these measures provide useful supplemental information to shareholders and investors. These financial measures are computed on a consistent basis for each reporting period and include oil field services operating margin, EBITDA, adjusted EBITDA, operating loss, funds flow from operating activities, working capital, shareholders' equity per share and long-term financial liabilities. These do not have standardized meanings.

These financial measures should not be considered as an alternative to, or more meaningful than, net income (loss), cash from operating activities, current assets or current liabilities, cash, and/or other measures of financial performance, as determined in accordance with IFRS.

For additional information regarding non-IFRS measures, including their use to management and investors and reconciliations to measures recognized by IFRS, please refer to the corporation's MD&A, which is available on SEDAR+ and through High Arctic's website.

About High Arctic Energy Services Inc.

High Arctic is an energy services provider. High Arctic is a market leader in Papua New Guinea, providing drilling and specialized well completion services, and supplies rental equipment, including rig matting, camps, material handling and drilling support equipment. In Western Canada, High Arctic provides pressure control equipment on a rental basis to exploration and production companies.

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