Norex Exploration Services Inc.
TSX : NRX

Norex Exploration Services Inc.

March 30, 2010 19:43 ET

Norex Reports Fourth Quarter and 2009 Year End Results

CALGARY, ALBERTA--(Marketwire - March 30, 2010) - Norex Exploration Services Inc. ("Norex" or the "Company") (TSX:NRX) today announced its 2009 fourth quarter and year end operating and financial results. 

2009 highlights:

  • Despite one of the most challenging years for the seismic industry in decades, Norex emerged from 2009 with a strong balance sheet and one of the lowest cost structures in the industry.
  • The Company had no net debt (debt less working capital), $3.3 million in cash, and $4.5 million of working capital at December 31, 2009.
  • The Company maintained a strong presence in the majority of shale gas plays in North America, including the Marcellus, Piceance, Utica, Monteny and Horn River plays. Norex crews were also active in Bakken oil exploration and development in Saskatchewan in 2009. These unconventional plays require high resolution 3D seismic to successfully utilize advances in horizontal drilling and completion technologies.
  • The Company is at the forefront of new technologies in the seismic industry, as evidenced by its increased deployment of 3 component ("3C") recording equipment in the year. 3C seismic data acquisition technology allows customers to acquire and utilize shear wave data in addition to the conventional pressure wave data. Shear wave data is particularly valuable to understanding the unique geophysical aspects of the unconventional resource plays in North America.
  • The Company is one of the most active seismic acquisition companies in the Alberta oil sands and deployed up to three crews in the area in the first quarter of 2009. Norex bolstered its already strong presence in the oil sands by capitalizing on a resurgence of oil sand activity in the first quarter of 2010. We continue to be encouraged by the long-term prospects for activity in the oil sands, not only as customers delineate and evaluate their reserves, but also as they utilize four dimensional seismic ("4D") to monitor production within their SAGD wells.
  • During the second quarter, the Company successfully completed a $3.8 million equity offering during significant uncertainty and turmoil in the capital markets.
  • On January 10, 2010, the Company entered into a definitive agreement with Tesla Exploration Ltd. ("Tesla"), a private company, to combine their businesses through a share exchange transaction under which Tesla shareholders will exchange their common shares held, on an exempt take-over bid basis, for 8.4333 common shares of Norex. It is anticipated that the combination of Tesla and Norex will create an internationally focused, financially strong, geophysical services company that will capitalize on the attractive fundamentals for global oil and natural gas development. A special meeting of shareholders to vote on the transaction is scheduled for April 15, 2010.

Fourth Quarter Financial Results:

  • Consolidated revenue in the fourth quarter of 2009 was $14.0 million compared to $36.8 million for the three months ended December 31, 2008. Seismic acquisition revenue for the three months ended December 31, 2009 was $11.2 million as compared to $26.5 million in the same period of 2008.
  • The Company generated positive EBITDA, before the Tesla transaction costs, of $1.2 million in the fourth quarter compared to $3.9 million in the fourth quarter of the prior year. The Company reported a net loss of $1.0 million ($0.02 per share) in the fourth quarter of 2009 compared to a net loss of $8.2 million ($0.21 per share) after $9.8 million in non-cash impairment charges and stock-based compensation expense reported in the fourth quarter of 2008.

2009 Financial Results:

Consolidated revenue, which includes revenue from procuring third party sub-contractor services, decreased 47% to $60.4 million in the year ended December 31, 2009 compared to $112.9 million in the year ended December 31, 2008. Seismic acquisition revenue from services performed directly by Norex decreased 46% in 2009 to $42.9 million compared to $79.6 million in 2008. This decrease was due to reduced customer spending throughout 2009 as a result of weak economic conditions and lower commodity prices. The Company also experienced significant pricing pressures for its services due to increased competition for a lesser amount of work within the seismic industry.

Consolidated gross profit was $7.5 million, or 12.4% of total revenue for the year ended December 31, 2009, compared to $17.5 million, or 15.5% of total revenue in the same period of 2008. As a percentage of seismic acquisition revenue, excluding sub-contractor services revenue, consolidated gross profit was 17.5% for the twelve months ended December 31, 2009 compared to 22.0% for the same period last year. The low gross profit and gross profit percentages in the current year reflect competitive pricing pressures, as noted above, for the Company's services in both Canada and the United States combined with reduced activity in the field. To combat these issues, the Company aggressively reduced its staffing levels in the first half of the year, implemented salary and wage reductions, reduced its vehicle fleet and took steps to reduce its operating and administrative costs.

Adjusted EBITDA was $3.1 million ($0.06 per share) before the Tesla transaction costs of $0.3 million for the year ended December 31, 2009 compared to $10.9 million ($0.28 per share) for the year ended December 31, 2008. The consolidated net loss was $4.8 million ($0.10 per diluted share) for the year ended December 31, 2009, compared to $8.2 million, ($0.21 per diluted share), in 2008. The reduction in the net loss as compared to 2008 can be attributed to the absence of any further impairment of goodwill and intangible assets and early recognition of stock-based compensation expense.

Financial Highlights

  Three Months Ended December 31(Unaudited)   % Increase (decrease ) Year Ended December 31(Unaudited)   % Increase (decrease )
($000's, except per share data) 2009   2008       2009   2008      
Revenue   13,981     36,773   (62 )   60,353     112,945   (47 )
  Seismic acquisition revenue(4)   11,248     26,503   (58 )   42,918     79,568   (46 )
Gross Profit (2)   2,146     5,714   (62 )   7,505     17,544   (57 )
Adjusted EBITDA * (1)   1,160     3,865         3,084     10,935   (72 )
  - Per share $ 0.02   $ 0.10       $ 0.06   $ 0.28   (79 )
Net Loss   (1,043 )   (8,185 )       (4,756 )   (8,182 ) (42 )
  - Per share, basic and diluted   ($0.02 )   ($0.21 )       ($0.10 )   ($0.21 ) (52 )
Working capital   4,533     1,612         4,533     1,612   181  
Total long term borrowings (3)   8,134     14,695         8,134     14,695   (45 )
Capital expenditures   46     664         114     15,275   (99 )
Weighted avg. shares outstanding (000's)   55,317     38,606         49,065     38,603      
Shares outstanding, end of period (000's)   55,317     38,606         55,317     38,606      

* Excludes $270,000 in transaction costs incurred during the three months ended December 31, 2009 related to a proposed combination with Tesla Exploration Ltd. announced January 11, 2010.

Outlook

The Company expects sequentially improved activity levels in the first quarter of 2010 in Canada compared to the prior three quarters of 2009. In particular, healthy activity levels are expected in the oil sands and the Horn River during the winter however, pricing for these services remain under significant pressure. Our United States operation continues to feel the effects of lower exploration spending and severe price competition. It is expected that industry consolidation, which has started, will provide a catalyst to partially relieve these pressures in the future. In addition, Norex's ability to operate some of the most efficient field crews in the industry, its deployment of state of the art equipment, and the implementation of cost reduction initiatives will partially cushion the impact of these competitive pressures.

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 (Loss) Earnings and is calculated as net earnings (loss) 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.

(4) "Seismic acquisition revenue" is revenue generated on services performed directly by Norex and 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. A significant portion of the Company's revenue includes the provision of subcontracted services from which the Company generates a nominal profit. Prior to seismic data acquisition, many customers look to Norex to procure and manage third-party services related to the use of shot hole drilling, ground surveying and line-clearing. The Company is reimbursed for these expenses by its clients, plus an administration fee. In accordance with generally accepted accounting principles, these subcontract revenue and costs are included at their gross amounts in revenue and expenses. Because subcontracted services as a percentage of total revenue will vary from job to job, they may distort the movement of the actual gross margins for the seismic acquisition recording services performed directly by Norex. In order to assist readers to more clearly understand the changes in gross profits for the services directly provided by Norex, and understand the profitability of the seismic data acquisition services provided by Norex, the following table details gross profit as a percentage of seismic acquisition revenue. (note: the nominal administration fee earned on the "flow-through" of subcontracted services has been included in seismic acquisition revenue):

  Three Months
Ended December 31
Year Ended
December 31
($000's) 2009 2008    2009 2008
Seismic acquisition revenue (A) 11,248 26,503 42,918 79,568
Subcontractor revenue 2,733 10,270 17,435 33,377
Total revenue (B) 13,981 36,773 60,353 112,945
         
Less:        
Direct costs 9,102 20,789 35,413 62,024
Subcontractor costs 2,733 10,270 17,435 33,377
Gross Profit (C)   2,146   5,714   7,505    17,544
Gross Profit as % of seismic acquisition rev (C ÷ A) 19.1% 21.6% 17.5% 22.0%
Gross Profit as % of total revenue (C ÷ B) 15.3% 15.5% 12.4% 15.5%
NOREX EXPLORATION SERVICES INC.      
Consolidated Balance Sheets          
As at December 31, 2009 and December 31, 2008      
           
(in thousands of dollars)      
(unaudited)      
       
  December 31   December 31
  2009   2008
           
Assets          
Current assets:          
  Cash $ 3,273   $ 3,176
  Accounts receivable   9,529     24,812
  Prepaid expenses and deposits   1,112     1,152
  Income taxes receivable   223     3,092
    14,137     32,232
           
Property and equipment   32,163     44,582
Intangible assets   1,000     1,368
           
  $ 47,300   $ 78,182
           
Liabilities and Shareholders' Equity          
Current liabilities:          
  Operating line of credit $ -   $ 5,591
  Accounts payable and accrued liabilities   5,850     17,519
  Income taxes payable   -     954
  Current portion of long-term debt   2,340     2,875
  Current portion of capital lease obligations   1,414     3,681
    9,604     30,620
           
Long-term debt   4,304     7,719
Capital lease obligations   76     420
Future income taxes   2,125     4,623
    16,109     43,382
           
Shareholders' equity:          
  Share capital   27,389     23,358
  Contributed surplus   3,234     3,047
  Accumulated other comprehensive income   (199 )   2,872
  Retained earnings   767     5,523
           
    31,191     34,800
           
  $ 47,300   $ 78,182
NOREX EXPLORATION SERVICES INC.        
Consolidated Statements of Loss and Comprehensive Loss          
For the three and twelve months ended December 31, 2009 and 2008  
                         
(in thousands of dollars, except per share amounts)        
(unaudited)                        
                         
  Three months ended   Year ended  
  December 31   December 31  
  2009   2008   2009   2008  
                         
Revenue $ 13,981   $ 36,773   $ 60,353   $ 112,945  
                         
Operating expenses:                        
  Direct costs   9,102     20,789     35,413     62,024  
  Subcontractors   2,733     10,270     17,435     33,377  
General and administrative expenses   986     1,849     4,421     6,609  
Depreciation and amortization   2,065     2,439     9,038     8,700  
Interest expense   114     290     610     964  
                         
(Loss) earnings before other items   (1,019 )   1,136     (6,564 )   1,271  
                         
Other items:                        
Loss on disposal of equipment   5     132     125     73  
Stock-based compensation   67     1,060     187     1,760  
Foreign exchange loss (gain)   22     (1,329 )   443     (2,463 )
Transaction costs   270     -     270     -  
Goodwill and intangible asset impairment   -     8,697     -     8,697  
                         
Loss before income taxes   (1,383 )   (7,424 )   (7,589 )   (6,796 )
                         
Income taxes (recovery):                        
Current   (169 )   (263 )   (189 )   (485 )
Future   (171 )   1,024     (2,644 )   1,871  
    (340 )   761     (2,833 )   1,386  
                         
Net loss for the period   (1,043 )   (8,185 )   (4,756 )   (8,182 )
                         
Cumulative translation adjustment   (381 )   2,239     (3,071 )   2,872  
                         
Comprehensive (loss) income $ (1,424 ) $ (5,946 ) $ (7,827 ) $ (5,310 )
                         
Net loss per share:                        
Basic and Diluted $ (0.02 ) $ (0.21 ) $ (0.10 ) $ (0.21 )
NOREX EXPLORATION SERVICES INC.                      
Consolidated Statements of Retained Earnings and Accumulated  
Other Comprehensive Income                    
For the three and twelve months ended December 31, 2009 and 2008  
                         
(in thousands of dollars)                        
(unaudited)                        
                         
  Three months ended   Year ended  
  December 31   December 31  
  2009   2008   2009   2008  
                         
Retained earnings, beginning of period $ 1,810   $ 13,708   $ 5,523   $ 13,705  
                         
Net loss for the period   (1,043 )   (8,185 )   (4,756 )   (8,182 )
                         
Retained earnings, end of period $ 767   $ 5,523   $ 767   $ 5,523  
                         
Accumulated other comprehensive income, beginning of period $ 182   $ 633   $ 2,872   $ -  
                         
Cumulative translation adjustment for the period   (381 )   2,239     (3,071 )   2,872  
                         
Accumulated other comprehensive (loss) income, end of period $ (199 ) $ 2,872   $ (199 ) $ 2,872  
NOREX EXPLORATION SERVICES INC.  
Consolidated Statements of Cash Flows        
For the three and twelve months ended December 31, 2009 and 2008  
                         
(in thousands of dollars)                        
(unaudited)                        
                         
  Three months ended   Year ended  
  December 31   December 31  
  2009   2008   2009   2008  
                         
Cash provided by (used in):                        
                         
Operations:                        
  Net loss for the period $ (1,043 ) $ (8,185 ) $ (4,756 ) $ (8,182 )
  Items not involving cash:                        
    Depreciation and amortization   2,065     2,439     9,038     8,700  
    Loss on disposal of equipment   5     132     125     73  
    Goodwill and intangible asset impairment   -     8,697     -     8,697  
    Stock-based compensation   67     1,060     187     1,760  
    Unrealized foreign exchange loss (gain)   20     (1,572 )   499     (2,644 )
    Future income taxes (reduction)   (171 )   1,024     (2,644 )   1,871  
    943     3,595     2,449     10,275  
  Change in non-cash operating working capital   1,047     (3,168 )   5,867     1,588  
    1,990     427     8,316     11,863  
                         
Investing:                        
  Acquisition of property and equipment   (46 )   (664 )   (114 )   (15,275 )
  Proceeds on disposal of equipment   4     173     706     604  
  Acquisition of intangible assets   -     -     -     (1,025 )
  Change in non-cash working capital   -     (3,251 )   -     1,241  
    (42 )   (3,742 )   592     (14,455 )
                         
Financing:                        
  Change in operating lines of credit (net)   -     1,159     (5,591 )   846  
  Repayment of long-term debt   (585 )   (726 )   (4,950 )   (2,429 )
  Proceeds on long-term debt   -     4,000     1,000     11,500  
  Repayment of capital lease obligations   (553 )   (1,063 )   (2,611 )   (4,475 )
  Issuance of common shares – net   -     -     3,755     4  
    (1,138 )   3,370     (8,397 )   5,446  
Effect of exchange rate changes on cash position   (246 )   179     (414 )   322  
                         
Increase in cash   564     234     97     3,176  
Cash, beginning of period   2,709     2,942     3,176     -  
Cash, end of period $ 3,273   $ 3,176   $ 3,273   $ 3,176  
                         
Supplemental cash flow information:                        
  Interest and financing costs paid $ 123   $ 298   $ 610   $ 954  
  Taxes paid   (2,581 )   670     (2,059 )   3,303  

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 "outlook", "expects", "anticipates", "believes", "projects", "intends", "continues", "estimates", "objective", "ongoing", "may", "will", "should", "might", "plans" and similar expressions. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. 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 or events to differ materially from those anticipated and described in the forward-looking statements. These include, but are not limited to, risks that required shareholder, regulatory and third party approvals and consents are not obtained on terms satisfactory to the parties within the timelines provided for in the agreement and the risks that other conditions to the completion of the transaction with Tesla Exploration Ltd. ("Tesla") are not satisfied on the timelines set forth in the transaction agreement or at all. 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; changes in customer exploitation budgets; 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 risk of not renewing current credit facilities; the volatility of, and lack of liquidity in, 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 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 hereof 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"

Requests for shareholder information should be directed to the undersigned.

Contact Information

  • Norex Exploration Services Inc.
    Mr. Paul Crilly
    President and CEO
    (403) 216-5929
    or
    Norex Exploration Services Inc.
    Mr. Graham Reid, CA
    VP Finance and CFO
    (403) 216-5929