Norex Exploration Services Inc.
TSX : NRX

Norex Exploration Services Inc.

November 11, 2009 20:07 ET

Norex Reports Improved Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 11, 2009) - Norex Exploration Services Inc. (TSX:NRX) ("Norex" or the "Company") today announced its 2009 third quarter and nine month operating and financial results.

Third quarter highlights:

- As a result of vigilant cost control, the Company reported significantly improved results in the third quarter of 2009 over the comparable quarter of 2008. Despite a 45% drop in third quarter revenue to $10.9 million, the Company reported improved EBITDA of negative $0.7 million, compared to negative EBITDA of $1.5 million in the third quarter of 2008.

- Operations in Canada and the United States continued to expand geographically during the quarter. The Company's Canadian operations maintained a crew in the Utica shale gas play in Quebec. In the United States, the Company operated a crew in California where there has been a renaissance in oil-directed drilling.

- The Company maintained a strong balance sheet in the quarter and exited September with $2.7 million in cash on hand, $4.3 million in working capital and a manageable debt load.

- Norex was successful in extending the maturities on capital leases due in September and October 2009. The Company expects to extend maturities on additional leases that come due in November 2009 and May 2010.

- On November 9, 2009, the Company announced the renewal of its service contract with WesternGeco, a Schlumberger business segment, for the provision of seismic data acquisition services in the United States.

Consolidated revenue, which includes revenue from procuring third party sub-contractor services, decreased 45% to $10.9 million in the three months ended September 30, 2009 compared to $19.9 million in the three months ended September 30, 2008. Seismic acquisition revenue from services performed directly by Norex decreased 69% in the third quarter of 2009 to $4.3 million compared to $13.6 million in the third quarter of 2008. This decrease was due to reduced customer spending resulting from current economic conditions and weak commodity prices, and pricing pressures for our services as a result of increased competition in our industry.

Consolidated gross profit was $0.1 million, or 0.9% of total revenue for the three months ended September 30, 2009, compared to $0.2 million, or 1.0% 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 2.2% in the third quarter of 2009 compared to 1.4% for the same period last year. The low gross profit and gross profit percentages in the current quarter reflect competitive pricing pressures for the Company's services in both Canada and the United States and a reduction in activity in the quarter. To combat these issues, the Company aggressively reduced its staffing levels in the first half of the year, implemented salary and wage reductions and took steps to reduce its operating and administrative costs.

Consolidated EBITDA for the third quarter of 2009 was negative $0.7 million ($0.02 per share) compared to negative $1.5 million ($0.04 per share) for the third quarter of 2008. Our results for the third quarter of 2009 highlight the effectiveness of the cost reduction initiatives implemented earlier in 2009. The consolidated net loss was $2.4 million, ($0.04 per diluted share), compared to $3.1 million, ($0.08 per diluted share), in the same quarter of last year.

Year-to-date highlights:

- During the first nine months of 2009, the Company continued to build on its presence in the resource plays in North America and has expanded its geographic diversification. The Company was active in the oil sands of Alberta, the potash industry in Saskatchewan, the Marcellus shale in the northeastern United States, the Bakken oil play in Saskatchewan and North Dakota, California with renewed industry oil exploration and development, and the Utica shale gas play in Quebec.

- Consolidated revenue for the nine month period ended September 30, 2009 was $46.4 million compared to $76.2 million in the same period last year. Seismic acquisition revenue decreased 40% to $31.7 million for the first nine months of 2009 compared to $53.1 million in the first nine months of 2008. Gross profit as a percentage of seismic acquisition revenue decreased to 16.9% for the nine months ended September 30, 2009 compared to 22.3% in the similar period of 2008.

- While persistent low commodity prices and the downturn in the economy continued to plague activity in the industry, EBITDA was $1.9 million ($0.04 per share) in the first nine months of 2009, compared to $7.1 million ($0.18 per share) in the same period of 2008.

- The Company reported a net loss of $3.7 million ($0.08 per diluted share) compared to net earnings of $3,000 ($0.00 per diluted share) in the nine months ended September 30, 2008.



Financial Highlights

Three Months Nine Months
Ended Sept. 30 % Ended Sept. 30 %
($000's, except per (Unaudited) Increase (Unaudited) Increase
share data) 2009 2008 (decrease) 2009 2008 (decrease)
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Revenue 10,945 19,863 (45) 46,372 76,172 (39)
Seismic acquisition
revenue(4) 4,277 13,645 (69) 31,670 53,065 (40)
Gross Profit (2) 93 197 (53) 5,359 11,830 (55)
EBITDA (1) (723) (1,533) 1,924 7,070 (73)
- Per share ($0.02) ($0.04) $0.04 $0.18 (78)
Trailing 12 months
EBITDA (1) 5,789 12,322 (53)
Net (Loss) Earnings (2,386) (3,091) (3,713) 3
- Per share, basic and
diluted ($0.04) ($0.08) ($0.08) $0.00
Working capital 4,277 (3,205) 4,277 (3,205) 233
Total long term
borrowings (3) 9,272 12,484 9,272 12,484 (26)
Capital expenditures 14 6,454 68 14,611 (99)
Weighted avg. shares
outstanding (000's) 55,317 38,606 46,958 38,603
Shares outstanding,
end of period (000's) 55,317 38,606 55,317 38,606
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Outlook

While low natural gas prices plagued activity in the third quarter of 2009 recent improvements in natural gas and oil prices have had a positive effect on our customers' plans to complete seismic programs in the fourth quarter of 2009 and the first quarter of 2010. In particular, healthy activity levels are expected in the oil sands and the Horn River shale gas play during the upcoming winter. Our United States operation continues to feel the effects of lower industry capital spending and severe price competition. 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 has partially cushioned the impact of these competitive pressures.

The Company expects sequentially improved activity levels in the fourth quarter of 2009 and the first quarter of 2010 compared to the second and third quarters of 2009. The Company has implemented significant cost cutting measures during the first quarter of 2009; the benefit of which has been evident in subsequent quarters. The Company continues to look for further cost savings but is mindful of maintaining its capacity to fully participate in a recovery expected to begin in 2010.

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. 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):



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Three Months Nine Months
Ended Sept. 30 Ended Sept. 30
($000's) 2009 2008 2009 2008
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Seismic acquisition revenue (A) 4,277 13,645 31,670 53,065
Subcontractor revenue 6,668 6,218 14,702 23,107
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Total revenue (B) 10,945 19,863 46,372 76,172

Less:
Direct costs 4,184 13,448 26,311 41,235
Subcontractor costs 6,668 6,218 14,702 23,107
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Gross Profit (C) 93 197 5,359 11,830
Gross Profit as % of seismic
acquisition rev (C/A) 2.2% 1.4% 16.9% 22.3%
Gross Profit as % of total revenue (C/B) 0.9% 1.0% 11.6% 15.5%
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NOREX EXPLORATION SERVICES INC.
Consolidated Balance Sheets
As at September 30, 2009 and December 31, 2008

(in thousands of dollars) (unaudited)

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September 30 December 31
2009 2008

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Assets

Current assets:
Cash $ 2,709 $ 3,176
Accounts receivable 12,171 24,812
Prepaid expenses and deposits 916 1,152
Income taxes receivable 2,624 3,092
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18,420 32,232

Property and equipment 34,462 44,582
Intangible assets 1,068 1,368

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$ 53,950 $ 78,182
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Liabilities and Shareholders' Equity

Current liabilities:
Operating line of credit $ - $ 5,591
Accounts payable and accrued liabilities 9,855 17,519
Income taxes payable - 954
Current portion of long-term debt 2,340 2,875
Current portion of capital lease obligations 1,948 3,681
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14,143 30,620

Long-term debt 4,889 7,719
Capital lease obligations 95 420
Future income taxes 2,275 4,623
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21,402 43,382

Shareholders' equity:
Share capital 27,389 23,358
Contributed surplus 3,167 3,047
Accumulated other comprehensive income 182 2,872
Retained earnings 1,810 5,523
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32,548 34,800

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$ 53,950 $ 78,182
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NOREX EXPLORATION SERVICES INC.
Consolidated Statements of (Loss) Earnings and Comprehensive (Loss) Income
For the three and nine months ended September 30, 2009 and 2008

(in thousands of dollars, except per share amounts)
(unaudited)

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Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
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Revenue $ 10,945 $ 19,863 $ 46,372 $ 76,172

Operating expenses:
Direct costs 4,184 13,448 26,311 41,235
Subcontractors 6,668 6,218 14,702 23,107
General and administrative
expenses 816 1,730 3,435 4,760
Depreciation and amortization 2,265 2,240 6,973 6,261
Interest expense 137 216 496 674
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(Loss) earnings before other
items (3,125) (3,989) (5,545) 135
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Other items:
Loss (gain) on disposal of
equipment 124 14 120 (59)
Stock-based compensation 65 215 120 700
Foreign exchange loss (gain) 94 (743) 421 (1,134)
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(Loss) earnings before income
taxes (3,408) (3,475) (6,206) 628
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Income taxes (recovery):
Current (845) (1,857) (20) (222)
Future (177) 1,473 (2,473) 847
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(1,022) (384) (2,493) 625
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Net (loss) earnings for the
period (2,386) (3,091) (3,713) 3
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Cumulative translation
adjustment (1,865) 758 (2,690) 633
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Comprehensive (loss) income $ (4,251) $ (2,333) $ (6,403) $ 636
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Net (loss) earnings per
share:
Basic and Diluted $ (0.04) $ (0.08) $ (0.08) $ -
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NOREX EXPLORATION SERVICES INC.
Consolidated Statements of Retained Earnings and Accumulated Other
Comprehensive Income
For the three and nine months ended September 30, 2009 and 2008

(in thousands of dollars)
(unaudited)

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Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
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Retained earnings, beginning of
period $ 4,196 $ 16,799 $ 5,523 $ 13,705

Net (loss) earnings for the
period (2,386) (3,091) (3,713) 3

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Retained earnings, end of
period $ 1,810 $ 13,708 $ 1,810 $ 13,708
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Accumulated other comprehensive
income (loss), beginning of
period $ 2,047 $ (125) $ 2,872 $ -

Cumulative translation adjustment
for the period (1,865) 758 (2,690) 633

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Accumulated other comprehensive
income, end of period $ 182 $ 633 $ 182 $ 633
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NOREX EXPLORATION SERVICES INC.
Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2009 and 2008

(in thousands of dollars) (unaudited)

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Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
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Cash provided by (used in):

Operations:
Net (loss) earnings for
the period $ (2,386) $ (3,091) $ (3,713) $ 3
Items not involving cash:
Depreciation and
amortization 2,265 2,240 6,973 6,261
Loss (gain) on disposal of
equipment 124 14 120 (59)
Stock-based compensation 65 215 120 700
Unrealized foreign
exchange loss (gain) 92 (724) 479 (1,072)
Future income taxes
(reduction) (177) 1,473 (2,473) 847
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(17) 127 1,506 6,680

Change in non-cash operating
working capital (338) 1,424 4,820 4,756
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(355) 1,551 6,326 11,436

Investing:
Acquisition of property
and equipment (14) (6,454) (68) (14,611)
Proceeds on disposal of
equipment 205 100 702 431
Acquisition of intangible
assets - (1,005) - (1,025)
Change in non-cash working
capital - 4,492 - 4,492
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191 (2,867) 634 (10,713)

Financing:
Change in operating lines
of credit (net) - 569 (5,591) (313)
Repayment of long-term
debt (585) (638) (4,365) (1,703)
Proceeds on long-term debt - 4,500 1,000 7,500
Repayment of capital lease
obligations (572) (1,102) (2,058) (3,412)
Issuance of common shares
- net - 4 3,755 4
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(1,157) 3,333 (7,259) 2,076

Effect of exchange rate changes
on cash position (130) 143 (168) 143
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(Decrease) increase in cash (1,451) 2,160 (467) 2,942
Cash, beginning of period 4,160 782 3,176 -
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Cash, end of period $ 2,709 $ 2,942 $ 2,709 $ 2,942
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Supplemental cash flow
information:
Interest and financing
costs paid $ 134 $ 175 $ 487 $ 656
Taxes paid (383) 478 522 2,633
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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 "outlook", "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; 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 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 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 contacts below.

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