CALGARY, Alberta, Feb. 25, 2025 (GLOBE NEWSWIRE) —

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Fourth Quarter Highlights

• For the three-month period ended December 31, 2024, PHX Energy generated consolidated revenue of $178.7 million, the highest level of fourth quarter revenue on record and the highest level of quarterly revenue in the Corporation’s history. Consolidated revenue in the 2024-quarter included $10 million of motor rental revenue and $5.3 million of revenue generated from the sale of motor equipment and parts (2023 – $10.3 million and $0.9 million, respectively).
• PHX Energy’s US division revenue in the fourth quarter of 2024 was $132.3 million, 8 percent higher than the $122.1 million generated in the fourth quarter of 2023 and the highest level of US quarterly revenue on record. US division revenue in the 2024-quarter represented 74 percent of consolidated revenue (2023 – 74 percent).
• PHX Energy’s Canadian division reported $46.3 million of quarterly revenue, 7 percent higher compared to $43.3 million in the 2023-quarter and the highest level of fourth quarter revenue for the Canadian division since 2014.
• In the fourth quarter of 2024, adjusted EBITDA⁽¹⁾ was $29.6 million, 17 percent of consolidated revenue⁽¹⁾ as compared to $35.4 million, 21 percent of consolidated revenue, in the same 2023-quarter. Included in the 2024-quarter’s adjusted EBITDA is a $2.2 million write-down of inventory to its net realizable value at the end of the 2024-period. Additionally, adjusted EBITDA in the 2024-quarter included $2.2 million in cash-settled share-based compensation expense (2023 – $4.6 million). Adjusted EBITDA excluding cash-settled share-based compensation expense⁽¹⁾ in the fourth quarter of 2024 was $31.8 million, 18 percent of consolidated revenue⁽¹⁾ (2023 – $40 million, 24 percent of consolidated revenue). Despite higher revenue generated in the 2024-quarter, profitability declined mainly due to generally higher equipment repair expenses, weaker activity in the Corporation’s high margin RSS and motor rental revenue streams in the US, and lower net gain on disposition of drilling equipment realized in the 2024-quarter.
• Earnings in the 2024 three-month period were $14.1 million, $0.30 per share, as compared to $33.1 million, $0.68 per share, in the same 2023-period. Earnings in the 2024-period included a provision for income tax of $1.7 million while earnings in the 2023-period included a $9.5 million recovery of income taxes that resulted primarily from the recognition and utilization of previously unrecognized deferred tax assets in the Canadian jurisdiction. Additionally, as a result of fixed asset additions throughout 2024, depreciation and amortization expenses on drilling and other equipment increased by 18 percent to $11.8 million (pre-tax) in the 2024-quarter from $10.1 million (pre-tax) in the corresponding 2023-quarter.
• In the 2024 three-month period, the Corporation generated excess cash flow⁽²⁾ of $17.3 million (2023 – $22.3 million), after deducting net capital expenditures⁽²⁾ of $5.7 million.
• For the three-month period ended December 31, 2024, PHX Energy purchased and canceled 493,000 common shares for $4.9 million through its current Normal Course Issuer Bid (“NCIB”).
• In the fourth quarter of 2024, PHX Energy paid $9.2 million in dividends which is 26 percent more than the dividend amount paid in the same 2023-quarter. On December 13, 2024, the Corporation declared a dividend of $0.20 per share or $9.1 million, paid on January 15, 2025 to shareholders of record on December 31, 2024.

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Year End Highlights

• For the year ended December 31, 2024, the Corporation generated annual consolidated revenue of $659.7 million which is the highest annual revenue in the Corporation’s history (2023 – $656.3 million). Consolidated revenue in the 2024-year included $38.4 million of motor rental revenue (2023 – $47 million) and $11.2 million of revenue generated from the sale of motor equipment and parts (2023 – $11 million).
• The Corporation’s US division achieved annual revenue of $479.5 million, only 3 percent lower than the record $496.5 million set in 2023. US division revenue in the 2024-year represented 73 percent of consolidated revenue (2023 – 76 percent).
• PHX Energy’s Canadian division generated annual revenue of $180.2 million (2023 – $159.8 million), the highest level achieved since 2014.
• For the year-ended December 31, 2024, adjusted EBITDA⁽¹⁾ was $123.7 million, 19 percent of consolidated revenue and the second highest level in the Corporation’s history, as compared to the record $150.7 million, 23 percent of consolidated revenue in 2023. Included in the 2024-year’s adjusted EBITDA is $24.6 million of net gain on disposition of drilling equipment, a decrease compared to $31.3 million in 2023, and a $2.2 million write-down of inventory to its net realizable value at the end of 2024. Apart from the lower net gain on disposition of drilling equipment and write-down of inventory, the decline in profitability in the 2024-year was primarily due to generally increased equipment repair costs, weaker activity in the Corporation’s high margin RSS and motor rental revenue streams in the US, and lower margins realized from the sale of motor equipment and parts. For the year-ended December 31, 2024, the Corporation recognized cash-settled share-based compensation expense of $11.8 million (2023 – $13.5 million). Adjusted EBITDA excluding cash-settled share-based compensation expense⁽¹⁾ in the 2024-year was $135.5 million, 21 percent of consolidated revenue (2023 – $164.2 million, 25 percent of consolidated revenue).
• In the 2024-year, earnings were $54.6 million, $1.16 per share as compared to $98.6 million, $1.96 per share in 2023. For the year-ended December 31, 2024, the Corporation recorded a tax provision of $15.7 million, an increase compared to $5.1 million in 2023. Additionally, depreciation and amortization expenses in the 2024 twelve-month period increased by 15 percent to $44.8 million (pre-tax) from $38.9 million (pre-tax) in 2023.
• For the year ended December 31, 2024, PHX Energy generated excess cash flow⁽²⁾ of $47.6 million, after deducting net capital expenditures⁽²⁾ of $46.5 million.
• In the 2024 twelve-month period, through its previous and current NCIB, the Corporation purchased and canceled 2,141,232 common shares for $20.6 million.
• Since the second quarter of 2017 to December 31, 2024, a total of 16.3 million common shares have been purchased and cancelled under PHX Energy’s various NCIB’s. This represents 28 percent of common shares outstanding as of June 30, 2017. It is the Corporation’s intention to continue the current strategy of leveraging the NCIB as a tool to further reward shareholders through its Return of Capital Strategy (‘ROCS”).
• PHX Energy paid $37.6 million in dividends in the 2024-year which is 24 percent higher than the dividend amount paid in 2023.
• The Board previously approved a preliminary 2025 capital expenditure budget of $50 million. With $2 million of the 2024 capital expenditure budget carried forward into 2025 and an additional $3 million in capital expenditures expected, the Corporation now anticipates spending $55 million in capital expenditures during 2025, which was recently approved by the Board.
• As at December 31, 2024, the Corporation had working capital⁽²⁾ of $84.5 million and net debt⁽²⁾ of $2.7 million.

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Financial Highlights
(Stated in thousands of dollars except per share amounts, percentages and shares outstanding)

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Outlook

• In the first two months of 2025, our US division is operating at robust activity levels. With our unique suite of technology and strong reputation, we believe our US operations will continue to produce strong financial results as we continue to focus on increased RSS utilization and our proprietary Real Time RSS Communication technology. In addition, we anticipate a slight uptick in the US rig count which will also be beneficial for growth in the year ahead.
• In 2025 we will continue to dedicate resources towards our Atlas motor rental business and believe we will see growth as we expand our fleet capacity further beyond the demand within our full-service division. Additionally, the division’s reputation will become more established as more operators experience the reliability and power advantages of our Atlas motors. In the sales division of our Atlas business, we foresee incremental increases in revenue in line with our customers’ 2024 fleet expansion as their part requirements will increase. Although the timing of orders for parts is difficult to predict as it is based on customers’ activity levels and service cycles.
• Thus far in the first quarter of 2025, our Canadian operations have seen higher activity levels and the first quarter is typically the strongest for this division. With this promising start to the year, we are cautiously optimistic that our Canadian operations will continue to produce strong results in 2025, especially with the addition of owned RSS technology and the associated Real Time RSS Communication technology. We have held an enviable market share position in Canada for numerous years and believe we will be able to maintain this position while also increasing the high margin RSS portion of activity as in the first quarter we have already seen more demand.
• In 2025, we will strive to improve our profitability through our high margin businesses and internal efficiencies. Although, the potential of tariffs and changes to the global trade environment could impact our supply chain and demand for services. We are monitoring the situation closely and our team is developing contingency plans where possible in our supply chain to reduce the impact of tariffs that may be enacted.
• We will remain committed to our ROCS to reward shareholders, leveraging our dividend and NCIB programs. We have paid $184 million in dividends since 2011 which equates to $4.93 per share. Under our NCIB programs, 28 percent of common shares outstanding as at June 30, 2017 have been purchased and cancelled. It is our intention to continue the current strategy of leveraging the NCIB as a tool to further reward shareholders and there are approximately 2.3 million shares remaining for purchase prior to its expiry in August of this year.
• We foresee generating improved excess cash flow in the 2025-year and therefore anticipate distributions made under ROCS will remain within the 70 percent of excess cash flow target.

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Michael Buker, President        
February 25, 2025

Overall Performance

In the fourth quarter of 2024, PHX Energy reported its highest level of quarterly revenue in the Corporation’s history, generating consolidated revenue of $178.7 million (2023-quarter – $165.3 million). With increased capacity in its premium technology fleet and continued strong demand for the Corporation’s unique technology offering, activity in both the US and Canadian divisions outperformed industry activity trends, which helped drive the 8 percent gain in revenue.  

For the three-month period ended December 31, 2024, the Corporation’s US division’s revenue increased by 8 percent to a record $132.3 million compared to $122.1 million in the same 2023-quarter. The US industry’s rig count declined by 6 percent compared to the fourth quarter of 2023. In comparison, PHX Energy’s US operating days⁽³⁾ saw a modest increase of 8 percent to 4,438 days from 4,114 in the 2023-quarter. The US division’s average revenue per day⁽³⁾ for directional drilling services slightly decreased by 2 percent quarter-over-quarter. Without the impact of foreign exchange, the average revenue per day for directional drilling services was down 6 percent. Softer industry activity levels in the 2024-period had a more direct impact on the Corporation’s US motor rental activity and partly caused the US motor rental revenue to decrease to $9.2 million from $9.9 million in the same period in 2023. In the 2024-quarter, the US division generated $5.3 million of revenue from motor equipment and parts sold (2023-quarter – $0.9 million). Revenue from the Corporation’s US division in the 2024-quarter represented 74 percent of consolidated revenue (2023 – 74 percent).

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The Corporation’s Canadian division generated its highest level of fourth quarter revenue since 2014. Canadian division revenue in the 2024 three-month period grew to $46.3 million, a 7 percent increase from $43.3 million in the same 2023-period. The Canadian segment recorded 3,369 operating days in the 2024-quarter, a 6 percent increase from the 3,164 operating days realized in the comparable 2023-quarter which is slightly above the Canadian industry drilling activity’s 4 percent gain quarter-over-quarter. Average revenue per day⁽³⁾ realized by the Canadian division was flat at $13,538 in the 2024-quarter, as compared to $13,522 in the corresponding 2023-quarter and the Corporation’s Canadian motor rental division generated $0.8 million of revenue in the 2024-period (2023 – $0.5 million).

For the three-month period ended December 31, 2024, earnings were $14.1 million (2023 – $33.1 million), adjusted EBITDA⁽¹⁾ was $29.6 million (2023 – $35.4 million), and adjusted EBITDA represented 17 percent of consolidated revenue⁽¹⁾ (2023 – 21 percent). In the 2024-quarter, the Corporation recorded a tax provision of $1.7 million whereas in the 2023-quarter earnings there was a $9.5 million recovery of income taxes that primarily resulted from the recognition and utilization of previously unrecognized deferred tax assets in the Canadian jurisdiction. Additionally, as a result of fixed asset additions throughout 2024, depreciation and amortization expenses on drilling and other equipment increased by 18 percent to $11.8 million (pre-tax) in the 2024-quarter from $10.1 million (pre-tax) in the corresponding 2023-quarter. Included in the 2024 three-month period adjusted EBITDA is cash-settled share-based compensation expense of $2.2 million (2023 – $4.6 million). For the three-month period ended December 31, 2024, adjusted EBITDA excluding cash-settled share-based compensation expense was $31.8 million (2023 – $40 million). Despite higher revenue generated in the 2024-quarter, profitability declined mainly due to generally higher equipment repair expenses, weaker activity in the Corporation’s high margin RSS and motor rental revenue streams in the US, and lower net gain on disposition of drilling equipment. In the 2024 three-month period, the Corporation also recognized a $2.2 million write-down of inventory to its net realizable value.

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In all four quarters of 2024, PHX Energy realized strong quarterly revenue which either exceeded or was slightly below the record-breaking quarters seen in 2023. Particularly, the record revenue achieved in the fourth quarter of 2024 resulted in the 2024 annual revenue surpassing the annual revenue realized in 2023. For the year ended December 31, 2024, the Corporation’s consolidated revenue increased by 1 percent to $659.7 million from $656.3 million in 2023.

Earnings for the 2024-year were $54.6 million (2023 – $98.6 million) and adjusted EBITDA⁽¹⁾ was $123.7 million, 19 percent of consolidated revenue (2023 – $150.7 million, 23 percent of consolidated revenue). In the 2024-year, the Corporation recorded a tax provision of $15.7 million, an increase compared to $5.1 million in 2023. Additionally, depreciation and amortization expenses in the 2024 twelve-month period increased by 15 percent to $44.8 million (pre-tax) from $38.9 million (pre-tax) in 2023. Included in the 2024-year’s earnings and adjusted EBITDA is $24.6 million (pre-tax) of net gain on disposition of drilling equipment, a decrease compared to $31.3 million (pre-tax) in 2023. Apart from the lower net gain on disposition of drilling equipment realized, the decline in profitability in the 2024-year was partly due to generally higher equipment repair expenses, weaker activity in the Corporation’s high margin RSS and motor rental revenue streams in the US, and higher costs of motor equipment and parts sold. In the 2024-year, the Corporation also recognized a $2.2 million write-down of inventory to its net realizable value.

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Included in the 2024 twelve-month period adjusted EBITDA is cash-settled share-based compensation expense of $11.8 million (2023 – $13.5 million). Adjusted EBITDA excluding cash-settled share-based compensation expense⁽¹⁾ in the 2024-year was $135.5 million, 21 percent of consolidated revenue (2023 – $164.2 million, 25 percent of consolidated revenue).

As at December 31, 2024, the Corporation had working capital⁽²⁾ of $84.5 million and net debt⁽²⁾ of $2.7 million. The Corporation also has CAD $83.6 million and USD $16 million available to be drawn from its credit facilities.

Dividends and ROCS
On December 13, 2024, the Corporation declared a dividend of $0.20 per share payable to shareholders of record on December 31, 2024. An aggregate of $9.1 million was paid on January 15, 2025.

The Corporation remains committed to enhancing shareholder returns through its Return of Capital Strategy (“ROCS”) which targets up to 70 percent of annual excess cash flow to be used for shareholder returns and includes multiple options including the dividend program and the NCIB. For the year ended December 31, 2024, excess cash flow declined primarily due to higher capital expenditures and lower proceeds on disposition of drilling equipment, however, Management continued to prioritize shareholder returns while protecting its financial position and over 70 percent of excess cash flow was distributed for shareholder returns under ROCS. The Corporation maintained its current level of dividends, paying $37.6 million in dividends to shareholders, and continued NCIB purchases, spending $20.6 million to repurchase shares under the immediately preceding and current NCIB as it believed the stock price was opportunistic. As a result, the remaining distributable balance under ROCS⁽²⁾ in the 2024-year was negative $24.9 million. The Corporation will target the level of excess cash flow to be used for shareholder returns to stay within the 70 percent threshold in 2025.

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(Stated in thousands of dollars)

Normal Course Issuer Bid
During the third quarter of 2024, the TSX approved the renewal of PHX Energy’s NCIB to purchase for cancellation, from time-to-time, up to a maximum of 3,363,845 common shares, representing 10 percent of the Corporation’s public float of Common Shares as at August 7, 2024. The NCIB commenced on August 16, 2024 and will terminate on August 15, 2025. Purchases of common shares are to be made on the open market through the facilities of the TSX and through other alternative Canadian trading platforms. The price which PHX Energy is to pay for any common shares purchased is to be at the prevailing market price at the time of such purchase.

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Pursuant to the immediately preceding and current NCIB, 2,141,232 common shares were purchased by the Corporation for $20.6 million including incremental transaction costs, and cancelled for the year ended December 31, 2024 (2023 – 4,032,600 shares, $30.4 million). Of the 2,141,232 common shares purchased and cancelled, 1,069,121 common shares were purchased under the immediately preceding NCIB and 1,072,111 common shares were purchased under the current NCIB.

It is the Corporation’s intention to continue the current strategy of leveraging the NCIB as a tool to further reward shareholders under ROCS especially during times of market industry weaknesses.

Capital Spending
For the year ended December 31, 2024, the Corporation spent $83.3 million in capital expenditures, of which $73.4 million was spent on growing the Corporation’s fleet of drilling equipment, $5.3 million was spent to replace retired assets, and $4.6 million was spent to replace equipment lost downhole during drilling operations. With proceeds on disposition of drilling and other equipment of $36.7 million, the Corporation’s net capital expenditures⁽²⁾ for the 2024-year were $46.5 million. Capital expenditures in the 2024-year were primarily directed towards Atlas High Performance motors (“Atlas”), Velocity Real-Time systems (“Velocity”), and Rotary Steerable Systems (“RSS”), both PowerDrive Orbit and iCruise. PHX Energy funded capital spending primarily using proceeds on disposition of drilling equipment, cash flows from operating activities, and its credit facilities when required.

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(Stated in thousands of dollars)

As at December 31, 2024, the Corporation had capital commitments to purchase drilling and other equipment for $44 million, $26.8 million of which is growth capital allocated as follows: $9 million for performance drilling motors, $8.1 million for Velocity systems, $7 million for RSS systems, and $2.7 million for other equipment. Equipment on order as at December 31, 2024 is expected to be delivered within the first half of 2025.

The Board approved a preliminary 2025 capital expenditure program of $50 million. With $2 million of the 2024 capital expenditure budget carried forward into 2025 and an additional $3 million in capital expenditures expected, the Corporation now anticipates spending $55 million in capital expenditures during 2025. Of the total expenditures, approximately half is anticipated to be spent on growth, including additional RSS systems and Real Time RSS Communications technology. The remaining half is anticipated to be spent to maintain capacity in the fleet of drilling and other equipment and replace equipment lost downhole during drilling operations.

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The Corporation currently possesses approximately 896 Atlas motors, comprised of various configurations including its 5.25″, 5.76″, 6.63″, 7.12″, 7.25″, 8.12″, 9.00″, 9.62″, and 12.00” Atlas motors, and 135 Velocity systems. The Corporation also possesses the largest independent RSS fleet in North America with 89 RSS tools and the only fleet currently comprised of both the PowerDrive Orbit and iCruise systems.

Non-GAAP and Other Financial Measures

Throughout this document, PHX Energy uses certain measures to analyze financial performance, financial position, and cash flow. These Non-GAAP and Other Specified Financial Measures do not have standardized meanings prescribed under Canadian generally accepted accounting principles (“GAAP”) and include Non-GAAP Financial Measures and Ratios, Capital Management Measures and Supplementary Financial Measures (collectively referred to as “Non-GAAP and Other Financial Measures”). These Non-GAAP and Other Specified Financial Measures include, but are not limited to, adjusted EBITDA, adjusted EBITDA per share, adjusted EBITDA excluding cash-settled share-based compensation expense, adjusted EBITDA as a percentage of revenue, gross profit as a percentage of revenue excluding depreciation and amortization, selling, general and administrative (“SG&A”) costs excluding share-based compensation as a percentage of revenue, funds from operations, funds from operations per share, excess cash flow, net capital expenditures, net debt (net cash), working capital, and remaining distributable balance under ROCS. Management believes that these measures provide supplemental financial information that is useful in the evaluation of the Corporation’s operations and may be used by other oil and natural gas service companies. Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with GAAP as an indicator of PHX Energy’s performance. The Corporation’s method of calculating these measures may differ from that of other organizations, and accordingly, such measures may not be comparable. Please refer to the “Non-GAAP and Other Financial Measures” section of this document for applicable definitions, rationale for use, method of calculation and reconciliations where applicable.

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Footnotes throughout this document reference:

Revenue
The Corporation generates revenue primarily through the provision of directional drilling services which includes providing equipment, personnel, and operational support for drilling a well. Additionally, the Corporation generates revenue through the rental and sale of drilling motors and associated parts, particularly Atlas.

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(Stated in thousands of dollars)

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For the three-month period and year ended December 31, 2024, PHX Energy achieved its highest level of quarterly and annual revenue in its history. Consolidated revenue in the fourth quarter of 2024 increased by 8 percent to $178.7 million compared to $165.3 million in the corresponding 2023-quarter and annual consolidated revenue increased by 1 percent to $659.7 million compared to $656.3 million in 2023.

In the fourth quarter of 2024, both PHX Energy’s US and Canadian divisions’ activity outperformed industry activity trends. The average number of horizontal and directional rigs operating per day in the US declined by 6 percent to 571 in the 2024 three-month period from 608 in the corresponding 2023-period. In Canada, industry horizontal and directional drilling activity (as measured by drilling days) was 16,498 days in the 2024-quarter, a 4 percent increase from 15,895 days in the same 2023-quarter. In comparison, the Corporation’s US and Canadian operating days⁽³⁾ grew by 8 percent and 6 percent respectively in the 2024 three-month period. PHX Energy’s consolidated operating days increased by 7 percent to 7,807 days in the 2024-quarter from 7,277 days in the 2023-quarter.

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For the year-ended December 31, 2024, PHX Energy recorded 29,877 consolidated operating days⁽³⁾ which is 2 percent more than the 29,192 days in the 2023-year. The US rig count declined by 13 percent whereas the Canadian industry horizontal and directional drilling activity (as measured by drilling days) increased by 5 percent year-over-year. In comparison, in the 2024 twelve-month period, Phoenix USA operating days declined by 4 percent and PHX Energy’s Canadian operating days grew by 12 percent. In both the 2024 and 2023-year, the Corporation’s RSS activity represented 20 to 25 percent of its US activity and 2 to 4 percent of its Canadian activity.

Average consolidated revenue per day⁽³⁾ for directional drilling services period-over-period held relatively consistent with a marginal decline of 1 percent to $20,930 in the 2024-quarter (2023 – $21,178) and virtually no change at $20,418 in the 2024-year (2023 – $20,497).

Partially due to the softer US rig count, revenue generated by the Corporation’s Atlas motor rental division declined by 4 percent to $10 million in the 2024-quarter (2023 – $10.3 million) and 18 percent to $38.4 million in the 2024-year (2023 – $47 million). Additionally, the US division’s motor rental activities were also negatively impacted by constraints on the servicing facility’s capacity which delayed turnaround times.

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For the three-month period and year ended December 31, 2024, revenue of $5.3 million and $11.2 million, respectively, were generated from the sale of Atlas motors and parts (2023 – $0.9 million and $11 million, respectively). In the 2024-quarter, there was a large customer order for motors as they added to their fleet capacity whereas in the corresponding 2023-quarter, revenue was mainly generated through the sale of parts to maintain these fleets. Due to the sporadic and cyclical nature of the customers’ ordering frequency, it is expected that revenue from this line of business will fluctuate between periods.

Operating Costs and Expenses

(Stated in thousands of dollars except percentages)

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Direct costs are comprised of field and shop expenses, costs of motors and parts sold, and include depreciation and amortization of the Corporation’s equipment and right-of-use assets. For the three-month period and year ended December 31, 2024, direct costs increased by 15 percent to $148 million (2023 – $129.2 million) and 6 percent to $535.2 million (2023 – $506.2 million), respectively.

For the 2024 three and twelve-month periods, the Corporation’s depreciation and amortization on drilling and other equipment increased by 18 percent and 15 percent, respectively, mainly as a result of the additions to fixed assets throughout 2024. Apart from higher depreciation and amortization expenses on drilling and other equipment, higher direct costs in both 2024-periods primarily resulted from greater equipment repair expenses and increased costs of motor equipment and parts sold. Direct costs in both 2024-periods also included $2.2 million of write-down of inventory to its net realizable value.

For the three-month period and year ended December 31, 2024, gross profit as a percentage of revenue excluding depreciation and amortization⁽¹⁾ was 24 percent and 26 percent, respectively, compared to 28 percent and 29 percent in the corresponding 2023-periods. The decrease in profitability in both 2024 periods is largely attributable to weaker activity in the Corporation’s high-margin motor rental business in the US, rising equipment servicing costs, and lower margins realized from the sale of motor equipment and parts.

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In both 2024-periods, greater equipment repair expenses primarily resulted from rising costs of materials and services, aging fleet, increasing demands from customers on components, and higher RSS-related repair and rental costs which partly resulted from the diversification and enhancement of the RSS fleet and its related ancillary technologies. With the softer US industry activity in 2024 and extremely competitive Canadian market, the pricing environment has been inelastic which has not allowed the Corporation to implement increases to recuperate these costs, thus these costs impacted overall profitability. The Corporation currently has ongoing research and development (“R&D”) initiatives aimed at reducing costs to maintain equipment, and Management believes these will aid in improving profitability once implemented successfully.

(Stated in thousands of dollars except percentages)

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For the three-month period and year ended December 31, 2024, SG&A costs were $17.6 million and $68.3 million, respectively, as compared to $18 million and $68.9 million in the corresponding 2023-periods. In the 2024-quarter, the decrease in SG&A costs of 2 percent was mainly due to lower cash-settled share-based compensation expense during the period compared to the 2023-quarter. In the 2024-year, SG&A costs decreased slightly by 1 percent as increases in personnel-related costs were offset by decreases in compensation expenses related to cash-settled share-based awards.

Cash-settled share-based compensation relates to the Corporation’s retention awards and is measured at fair value. For the three-month period and year ended December 31, 2024, the related compensation expense recognized by PHX Energy was $2.2 million (2023 – $4.6 million) and $11.8 million (2023 – $13.5 million), respectively. Changes in cash-settled share-based compensation expense in the 2024-periods were mainly driven by fluctuations in the Corporation’s share price and the number of awards granted in the period. There were 1,599,094 retention awards outstanding as at December 31, 2024 (2023 – 2,160,151). SG&A costs excluding share-based compensation as a percentage of revenue⁽¹⁾ for the 2024 three-month period marginally increased to 9 percent (2023 – 8 percent) and in the twelve-month period was flat at 8 percent (2023 – 8 percent).

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(Stated in thousands of dollars)

For the three-month period and year ended December 31, 2024, PHX Energy’s R&D expenditures of $1.3 million and $5.3 million, respectively, were largely comparable to the $1.4 million and $5.2 million spent in the corresponding 2023-periods. The Corporation’s R&D department remains focused on improving the design of existing technologies to further enhance reliability, reduce costs to operate, and continue displacing certain equipment rentals.

(Stated in thousands of dollars)

Finance expenses mainly relate to interest charges on the Corporation’s credit facilities. For the three-month period and year ended December 31, 2024, finance expenses increased to $0.5 million (2023 – $0.4 million) and decreased to $1.9 million (2023 – $2.4 million), respectively. The increase in finance expenses in the 2024-quarter was primarily due to higher drawings on the credit facilities in the period. In the 2024-year, finance expenses decreased mainly due to lower amounts of loans and borrowings outstanding for the most part of the 2024-year compared to 2023. Additionally, variable interest rates on the Corporation’s operating and syndicated facilities decreased during the 2024 twelve-month period as compared to the corresponding 2023-period.

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Finance expense lease liabilities relate to interest expense incurred on lease liabilities. For the three and twelve-month periods ended December 31, 2024, finance expense lease liabilities stayed consistent at $0.5 million and $2.2 million, respectively (2023 – $0.6 million and $2.2 million, respectively), as no new significant leases were entered into both periods.

(Stated in thousands of dollars)

For the three-month period and year ended December 31, 2024, the Corporation recognized other income of $5.1 million and $23.6 million, respectively (2023 – $8 million and $32.3 million, respectively). In both periods, other income was mainly comprised of net gain on disposition of drilling equipment. The recognized gain is net of losses, which typically result from asset retirements that were made before the end of the equipment’s useful life. In the 2024 quarter and year, fewer instances of high dollar valued downhole equipment losses occurred as compared to the corresponding 2023-periods resulting in lower levels of net gain on disposition of drilling equipment recognized. Fewer instances of high dollar valued downhole equipment losses can be attributed to operators generally improving their drilling practices and continuous improvements in the Corporation’s technology design to avoid such instances.

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Foreign exchange losses of $0.9 million and $1.1 million in the three and twelve-month periods of 2024, respectively (2023 – gains of $0.5 million and $1.1 million, respectively), were primarily due to the settlement of CAD-denominated intercompany receivables in the US.

(Stated in thousands of dollars except percentages)

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For the three-month period and year ended December 31, 2024, the Corporation reported a provision for income tax of $1.7 million (2023 – recovery of income taxes of $9.5 million), and $15.7 million (2023 – $5.1 million), respectively. In the 2024-quarter, PHX Energy’s effective tax rate⁽³⁾ was 11 percent which is lower than the combined US federal and state corporate income tax rate of 24.5 percent and the combined Canadian federal and provincial corporate income tax rate of 23 percent mainly due to the recovery of income taxes relating to prior periods. In the 2024-year, PHX Energy’s effective tax rate⁽³⁾ of 22 percent is relatively in line with the combined US federal and state corporate income tax rate of 24.5 percent and the combined Canadian federal and provincial corporate income tax rate of 23 percent. Recovery of income taxes in the 2023-quarter and lower provision for income taxes in the 2023-year were primarily attributable to the recognition and utilization of previously unrecognized deferred tax assets in the Canadian jurisdiction.

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(Stated in thousands of dollars except per share amounts and percentages)

For the three-month period and year ended December 31, 2024, the Corporation’s earnings decreased by 57 percent to $14.1 million (2023 – $33.1 million) and by 45 percent to $54.6 million (2023 – $98.6 million), respectively. Earnings in the 2024 three and twelve-months period included a provision for income tax of $1.7 million and $15.7 million, respectively, while earnings in the 2023 three and twelve-month periods included a $9.5 million of recovery of income taxes and $5.1 million of provision for income taxes, respectively. Recovery of income taxes in the 2023-quarter and lower provision for income taxes in the 2023-year were primarily attributable to the recognition and utilization of previously unrecognized deferred tax assets in the Canadian jurisdiction. Additionally, as a result of fixed asset additions throughout 2024, depreciation and amortization expenses on drilling and other equipment increased to $11.8 million (pre-tax) in the 2024-quarter and $44.8 million (pre-tax) in the 2024-year (2023-quarter – $10.1 million, 2023-year – $38.9 million).

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In the fourth quarter of 2024, adjusted EBITDA decreased by 16 percent to $29.6 million, 17 percent of revenue, from $35.4 million, 21 percent of revenue in the corresponding 2023-quarter. In the 2024-year, adjusted EBITDA decreased by 18 percent to $123.7 million, 19 percent of revenue, from $150.7 million, 23 percent of revenue in 2023. The decrease in profitability in both 2024-periods were primarily driven by increasing equipment repair costs, weaker RSS and motor rental activity in the US, lower margins from the sale of motor equipment and parts, as well as fewer instances of high dollar valued downhole equipment losses. Additionally, the Corporation recognized a $2.2 million write-down of inventory to its net realizable value in both 2024-periods.

Segmented Information

The Corporation reports two operating segments on a geographical basis throughout the Gulf Coast, Northeast and Rocky Mountain regions of the US and throughout the Western Canadian Sedimentary Basin (refer to the “Changes in Material Accounting Policies” section of the Corporation’s 2024 Annual Report filed on SEDAR⁺(www.sedarplus.com)