MANAGEMENT’S DISCUSSION AND ANALYSIS Contractual Obligations In 2009, AKITA renewed its lease for its head office. In 2013, the cost for this lease was $584,000. The lease  expires on December 31, 2014. The following table provides a summary of contractual obligations for the Company: Note: Timing of pension payments is dependent upon retirement dates for respective employees. The cost  for year one ranges from $15,000 to $59,000, from year one to three ranges from $30,000 to $124,000  annually, and from year four to five ranges from $30,000 to $156,000 annually, with the balance being due  after five years in any event. Capital expenditures totalled $35,113,000 in 2013. During the year, the Company completed the construction  of a new pad rig for drilling heavy oil. In addition, AKITA completed the conversion of a conventional double  rig into a pad rig. At December 31, 2013 the Company had two additional major capital projects in progress:  the conversion of a conventional double rig into AKITA’s first rig capable of drilling wells on a slant basis,  as well as the ongoing construction of an ultra-deep pad rig. Both of these projects are scheduled to be  completed in 2014. The cost incurred during 2013 for the four aforementioned rig construction projects was  $13,617,000. Additional capital expenditures related to certifications and overhauls having a life in excess of  one year ($8,666,000), rig equipment for existing rigs ($10,848,000), drill pipe and drill collars ($1,102,000),  and other equipment ($880,000). Capital expenditures for 2012 totalled $65,356,000.  During 2013, the Company had no significant disposals of property, plant and equipment. Management reviews its assets on an annual basis and makes a determination based upon its own knowledge  of the assets to ensure each net recoverable amount (based on future estimated discounted cash flows) will  be achieved over remaining service lives. No adjustments were made in 2013 or 2012 to carrying values as  a result of this review. The Company’s financial assets and liabilities include cash, term deposits, accounts receivable, restricted  cash, accounts payable, accrued liabilities and financial instruments. Fair values approximate carrying values  unless otherwise stated. The Company is exposed to changes in foreign exchange rates as capital expenditures or financial instruments  may fluctuate due to changing rates. To mitigate this risk, in 2013 the Company entered into foreign exchange  forward contracts that will mature in the second quarter of 2014. At December 31, 2013, the Company  had outstanding contracts to buy a total of US$13 Million at an average rate of Canadian dollars 1.0499  to the US dollar. At December 31, 2013, these contracts were marked to market resulting in an unrealized  19 AKITA DRILLING LTD.  ANNUAL REPORT Financial Instruments Property, Plant and Equipment $Thousands Total Less  than 1 year 1 – 3 years 4 – 5 years After 5 years Operating leases 584 584 Nil Nil Nil Purchase obligations 975 325 650 Nil Nil Capital expenditure commitments 22,104 22,104 Nil Nil Nil Pension obligations 2,556 Note Note Note Note Total contractual obligations 26,219 23,013 650 Nil Nil