Norex Exploration Services Inc.
TSX : NRX

Norex Exploration Services Inc.

November 14, 2007 19:45 ET

Norex Reports 2007 Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 14, 2007) - Norex Exploration Services Inc. (TSX:NRX) ("Norex" or the "Company") today announced consolidated revenue of $17.0 million for the third quarter ended September 30, 2007 compared to $23.1 million for the comparable period in 2006. Revenue from the Company's United States and eastern Canada ("USEC") division continued to show strength with the Company's crews particularly active in Montana, North Dakota and New York. Quarterly revenue from the Company's USEC division totaled $12.5 million in the third quarter compared to $10.1 million in the third quarter of 2006. While the Company's backlog supported higher activity in its USEC division, its crews were hampered as a result of permit delays and delays completing preparatory services by third party contractors. The Company was successful in diversifying its operations in western Canada into the mining industry by completing a large two dimensional seismic program in Saskatchewan in the third quarter. In addition, a seismic program, utilizing helicopter support, was commenced in the oilsands in the third quarter. These programs however, did not fully compensate for a continued decline in activity levels in the conventional oil and gas exploration industry in western Canada. Revenue from the Company's western Canada division was $4.5 million in the third quarter of 2007, compared to $13.1 million in the third quarter of 2006.

"Our strategic focus in the United States, and our efforts to expand into the mining industry cushioned what otherwise was a disappointing quarter for us," commented Paul Crilly, President and CEO. While industry conditions in western Canada were challenging, our financial performance was not satisfactory in light of these conditions. In western Canada, we have instituted cost cutting initiatives to deal with a decline in activity levels. Today the Board has accepted my recommendation to reduce my salary by 10%. In addition, we have directed our efforts and resources further to ensure our expansion in the U.S. continues. Although we are experiencing challenging industry conditions in western Canada, Norex has a strong presence in the Alberta oilsands, a conservative amount of debt and solid activity levels forecasted for the fourth quarter of 2007 and the first quarter of 2008."

Highlights for the three months ended September 30, 2007:

- Although a significant reduction in activity levels was experienced in Western Canada, revenue in the Company's USEC division was up 24% to $12.5 million compared to $10.1 million in 2006.

- Our USEC division generated gross profit of $2.5 million compared to $2.6 million last year. Margins were reduced as a result of foreign exchange fluctuations and permitting and scheduling delays that produced inefficiencies in personnel and equipment utilization.

- Overall, Norex's gross profit decreased 48% in the quarter to $1.9 million from $3.6 million in the same period last year primarily related to weak industry activity in western Canada, which was not fully offset by increased activity levels in the U.S.

- The Company completed work on a $2.3 million seismic project for a mining client in western Canada. The Company's growing exposure to the mining industry is another facet of its diversification strategy.

- Norex was awarded a $6.3 million contract for the provision of seismic data acquisition services to a major oilsands customer in northern Alberta. These services, to be provided in the first quarter of 2008, enable the Company to further strengthen its position in the Alberta oilsands.

- Norex discontinued the purchase of South American Exploration LLC ("SAE"), a seismic data acquisition company and reported $450,000 pre-tax in related costs.

- EBITDA(1), excluding the one-time SAE transaction costs, was $0.9 million, or $0.02 per share, compared to $2.4 million, or $0.07 per share, in the comparable period of 2006.

- Net loss for the quarter was $1.7 million or ($0.04) per share compared to net earnings of $0.5 million, or $0.01 per share, in the prior year.

- Amidst depressed industry conditions in Western Canada, Norex has maintained a solid balance sheet with $0.6 million of cash on hand and conservative debt levels (total long term debt at September 30, 2007 represented approximately 99% of EBITDA on a trailing 12 month basis).

Financial Highlights

The Company changed its fiscal year from April 30 to December 31, effective December 31, 2006. For purposes of this news release, comparisons are made to the three month periods ending September 30, 2006 and October 31, 2006. These prior year periods have not been audited or reviewed by the Company's external auditors. Information for the three months ended September 30, 2006 has been provided as supplementary information to assist the reader as it was not aligned with the Company's standard quarterly reporting period. The omission of July and the inclusion of October in the three month period ended October 31, 2006 may reduce the comparability of this period to the three month period ended September 30, 2007. Readers are advised to take these limitations into consideration when reviewing the comparative information for the three months ended September 30, 2006 and the three months ended October 31, 2006.



Three Months Ended Nine Months Ended
September 30 September 30
(Unaudited) (Unaudited)
($000's, except per share data) 2007 2006 2007 2006
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Revenue 17,031 23,147 75,408 86,895
Gross Profit (2) 1,890 3,559 12,107 19,056
EBITDA(i) (1) 911 2,403 8,455 15,714
- Per share $ 0.02 $ 0.07 $ 0.22 $ 0.46
Trailing 12 month EBITDA(i) (1) NA NA 11,757 16,828
Net Earnings (Loss) (1,660) 513 761 7,966
- Per share, basic ($0.04) $ 0.01 $ 0.02 $ 0.23
- Per share, diluted ($0.04) $ 0.01 $ 0.02 $ 0.22
Working capital 672 1,415 672 1,415
Total long term borrowings (3) 11,150 10,363 11,150 10,363
Capital Expenditures 2,150 2,604 7,021 8,544
Weighted average shares outstanding
(000's) 38,601 35,396 38,595 34,149
Total shares outstanding (000's) 38,601 35,402 38,601 35,402
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(i) Excludes one-time charges of $450,000 incurred during the three months
ended September 30, 2007 related to the terminated acquisition of SAE.


Year to date highlights and other items:

- For the nine months ended September 30, 2007, consolidated revenue was $75.4 million compared to $86.9 million for the nine months ended September 30, 2006, representing a decrease of 13%. EBITDA was $8.5 million, or $0.22 per share, excluding one-time SAE transaction costs, compared to $15.7 million, or $0.46 per share, for the same period in 2006. The decline in revenue and EBITDA was primarily attributable to continued weakness in the western Canadian oil and gas industry throughout the year which reduced demand for the Company's services and placed downward pressure on pricing for seismic services.

- Norex made excellent progress on its U.S. expansion initiatives as USEC revenue was up 37% on the year to $20.3 million compared to $14.9 million for the nine months ended September 30, 2006. Gross profit for the USEC division increased 12% to $3.8 million for the USEC division compared to $3.4 million for the nine months ended September 30, 2006. A slow start in the first quarter in the USEC division was more than overcome by gains made in the second and third quarters, with momentum expected to continue into the fourth quarter.

- On a trailing twelve month basis, EBITDA was $11.8 million, excluding SAE transaction costs, versus $16.8 million in the comparable period of 2006, representing a decline of 30%.

- Net earnings for the nine months ended September 30, 2007 was $0.8 million, or $0.02 per share, compared to $8.0 million, or $0.23 per share, for the same period last year.

Outlook

The Company believes its operational and financial strengths will enable it to continue to pursue its growth strategy in the United States and position it for the challenging industry landscape in western Canada.

Supported by awarded work as of the date of this news release, Norex expects to field an average of eight crews in the fourth quarter of 2007. This crew count is only marginally lower than the fourth quarter of 2006, with the majority of its crews operating in the United States or central and eastern Canada. Management continues to re-direct efforts and resources to expansion initiatives in the U.S. in order to meet the expected demand for our services. We have been successful at establishing a reputation based on our operational performance and efficiency and, as a result, have made solid inroads with the larger exploration and production companies in the U.S. We expect this momentum to continue.

Norex also anticipates a busy winter in the Alberta oilsands, including the completion of a $6.3 million contract with a major oilsands customer in northern Alberta. The award of this contract is evidence of our technical and operational capabilities in the provision of oilsands seismic services. With a number of oilsands contracts either awarded or in the process of being negotiated for the upcoming winter season, Norex will continue to build upon its leadership position in the seismic data acquisition industry in western Canada.

Based on accumulated backlog, the Company is cautiously optimistic that activity levels will be solid in the first quarter of 2008 primarily due to progress made in expanding its operations in the United States and also from secured and potential contracts in the Alberta oilsands. The Company cautions that its field crews can be delayed or impacted by weather conditions and various permits required by its clients to complete their programs. In addition, the potential ramifications of the Alberta government's oil and gas royalty review could lead to a delay or cancellation of work that has been awarded in Alberta. Although Norex has yet to experience first hand the curtailment of its customers' seismic activities in Alberta, certain customers have made their intentions known regarding their reduction in Alberta-based exploration. While the Company's activity levels remain relatively strong in northern British Columbia and southern Saskatchewan, it is concerned about the prospects of reduced Alberta exploration activities for conventional oil and gas in the future.

Norex has created one of the largest seismic acquisition Company in Canada. The Company's strong competitive position will allow it to weather the inevitable cycles in our industry and potentially take advantage of these cycles to grow its business further.

Notes

(1) "EBITDA" is a financial measure that does not have any standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and may not be comparable to similar measures presented by other companies. EBITDA is a measure of the Company's operating profitability. EBITDA provides an indication of the results generated by the Company's principal business activities prior to how these activities are financed, assets are amortized or how the results are taxed in various jurisdictions. EBITDA is calculated from the Consolidated Statements of Earnings and Retained Earnings and is calculated as net earnings plus or minus interest expense, income taxes, depreciation and amortization, stock based compensation, gains or losses on disposal of equipment and foreign exchange gains or losses.

(2) "Gross profit" is a financial measure that does not have any standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and may not be comparable to similar measures presented by other companies. Gross profit is provided to assist investors in determining Norex's ability to generate earnings from its field operations and is calculated by subtracting direct field expenses and subcontractor expenses from revenue. These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies.

(3) Includes long term debt and capital lease obligations, including current portions thereof.



CONSOLIDATED BALANCE SHEETS
As at September 30, 2007 and December 31, 2006
(in thousands of dollars)
(unaudited)
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September 30, December 31,
2007 2006
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Assets

Current assets:
Cash $ 598 $ 1,251
Short-term investments 113 -
Accounts receivable 14,460 24,365
Prepaid expenses and deposits 433 333
Income taxes receivable - 625
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15,604 26,574

Property and equipment 33,879 31,890
Goodwill 7,097 7,097
Intangible assets 2,373 2,721
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$ 58,953 $ 68,282
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Liabilities and Shareholders' Equity

Current liabilities:
Operating lines of credit $ - $ 1,390
Accounts payable and accrued liabilities 8,679 15,355
Income taxes payable 75 351
Current portion of long-term debt 1,086 1,412
Current portion of capital lease obligations 5,092 5,232
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14,932 23,740

Long-term debt 132 702
Capital lease obligations 4,840 6,413
Future income taxes 3,314 3,018
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23,218 33,873
Shareholders' equity:
Share capital 23,352 23,246
Contributed surplus 1,025 566
Retained earnings 11,358 10,597
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35,735 34,409

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$ 58,953 $ 68,282
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CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND RETAINED EARNINGS

(in thousands of dollars, except per share
amounts)
(unaudited)
----------------------------------------------------------------------------
Three months ended Nine months ended
Sept 30, Oct 31, Sept 30, Oct 31,
2007 2006 2007 2006
----------------------------------------------------------------------------
Revenue $ 17,031 $ 26,547 $ 75,408 $ 90,813

Expenses:
Direct costs 5,994 10,309 30,394 33,381
Subcontractors 9,147 12,069 32,907 39,453
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Earnings before the
undernoted 1,890 4,169 12,107 17,979

General and administrative
expenses 979 1,242 3,652 3,609
Depreciation and amortization 1,681 1,225 4,882 3,441
Interest expense 222 216 785 658
Loss (gain) on disposal of
equipment - (32) 102 (822)
Stock-based compensation 213 163 461 380
Foreign exchange 425 - 553 23
Other expenses 450 - 450 -
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3,970 2,814 10,885 7,289
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Earnings (loss) before income
taxes (2,080) 1,355 1,222 10,690

Income taxes:
Current (recovery) (805) 477 165 3,056
Future (reduction) 385 (97) 296 590
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(420) 380 461 3,646
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Net earnings (loss) (1,660) 975 761 7,044

Retained earnings, beginning
of period 13,018 8,727 10,597 2,658
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Retained earnings, end of
period $ 11,358 $ 9,702 $ 11,358 $ 9,702
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Net earnings (loss) per share:
Basic $ (0.04) $ 0.03 $ 0.02 $ 0.20
Diluted $ (0.04) $ 0.03 $ 0.02 $ 0.19
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
----------------------------------------------------------------------------
Three months ended Nine months ended
Sept 30, Oct 31, Sept 30, Oct 31,
2007 2006 2007 2006
----------------------------------------------------------------------------
Cash provided by (used in):

Operations:
Net earnings (loss) $ (1,660) $ 975 $ 761 $ 7,044
Items not involving cash:
Depreciation and
amortization 1,681 1,225 4,882 3,441
Loss (gain) on disposal of
equipment - (32) 102 (822)
Stock-based compensation 213 163 461 380
Unrealized foreign exchange loss 190 - 296 -
Future income taxes
(reduction) 385 (97) 296 590
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809 2,234 6,798 10,633
Change in non-cash
operating working capital (4,200) 1,274 3,069 7,524
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(3,391) 3,508 9,867 18,157
Investing:
Acquisition of property and
equipment (764) (415) (4,449) (4,775)
Proceeds on disposal of property
and equipment - 185 140 1,495
Business acquisitions - - - (212)
Bank indebtedness on
acquisitions - - - (6,867)
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(764) (230) (4,309) (10,359)
Financing:
Decrease operating lines of
credit (net) - (689) (1,390) (1,285)
Repayment of long-term debt (303) (289) (896) (957)
Repayment of capital lease
obligations (1,656) (857) (4,029) (4,016)
Proceeds on issue of common
shares - 8 104 44
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(1,959) (1,827) (6,211) (6,214)

Increase (decrease) in cash (6,114) 1,451 (653) 1,584
Cash, beginning of period 6,712 - 1,251 (133)
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Cash, end of period $ 598 $ 1,451 $ 598 $ 1,451
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Supplemental cash flow
information:
Interest paid $ 224 $ 216 $ 561 $ 658
Income taxes paid $ 69 $ 1,412 $ 69 $ 4,622
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Forward-looking Statements

Certain information set forth in this news release, including management's assessment of the Company's future plans and operations, contains forward-looking statements, which are based on the Company's current internal
expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Some of the forward-looking statements may be identified by words such as "expects", "anticipates", "believes", "projects", "intends", "continues", "estimates", "objective", "ongoing", "may", "will", "should", "might", "plans" and similar expressions.

These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. The Company provides seismic data acquisition services and is exposed to a number of risks and uncertainties that are common to companies in the same business. These risks and uncertainties include demand for the Company's services which is affected by, among other things, the speculative nature of resource exploration and development activities, changes in commodity prices, general economic, market and business conditions; competition for capital and skilled personnel and shortages thereof; the competitive nature of the seismic industry; the ability to keep pace with constantly changing technology; uncertainty in various factors in the oil and gas industry, including the ability to comply with current and future health, safety, environmental and other laws; the general risk inherent to seismic data acquisition activities; risks relating to expansion including pressure on operational and technical resources; risks relating to the reliance on key officers, employees and consultants, including an unexpected loss or departure of any one of them; cancellation of work previously awarded to the Company; the possibility of a conflict of interest arising for the directors and officers of Norex who are participants in other sectors of the oil and gas industry; risks relating to having shareholders who are able to exert influence over the affairs of Norex; the possibility of the need for future financing, which may not be available on favourable terms; the volatility of the trading market for the shares of Norex; actions by governmental or regulatory authorities including increasing taxes and changes in other regulations; and the occurrence of unexpected events involved in resource exploration including, but not limited to, adverse weather conditions and wind. Adverse weather or field operating conditions can also negatively impact field productivity and, as a result, the Company's overall profitability. Certain jobs awarded to the Company are on a "turnkey" pricing basis where the Company bears the risk of lost productivity, increased input and/or subcontractor costs. As a result, factors reducing field productivity and any in increases in the Company's input costs could have a material affect on the Company's profitability.

The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involved a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements.

The information contained in this press release should not be considered all-inclusive as it excludes changes that may occur in general economic, political and environmental conditions. The Company cautions that actual performance will be affected by a number of factors, many of which are beyond its control. Investors are cautioned against attributing undue certainty to forward-looking statements. The forward-looking information and statements contained in this press release speak only as of the date of each respective document and, subject to its obligations under applicable law, the Company does not intend, and does not assume any obligation, to update these forward looking statements if conditions or opinions should change.

Norex, and its divisions Conquest Seismic Services and US subsidiary, Conquest Seismic Services, Inc., provide premium 2D, 3D, 4D and 3C land-based seismic data acquisition services in Canada and the United States. Norex is the largest operator of ARAM-ARIES® recording equipment in Canada and provides state-of-the-art technology to the North American oil and gas industry. Norex trades on the TSX under the symbol "NRX"

Contact Information

  • Norex Exploration Services Inc.
    Mr. Paul Crilly, CA
    President and CEO
    (403) 216-5929
    or
    Norex Exploration Services Inc.
    Mr. Rob Morin, CA
    Vice-President Finance and CFO
    (403) 216-5923