Norex Exploration Services Inc.
TSX : NRX

Norex Exploration Services Inc.

May 14, 2009 17:01 ET

Norex Reports $1.2 Million in First Quarter Earnings

CALGARY, ALBERTA--(Marketwire - May 14, 2009) - Norex Exploration Services Inc. ("Norex" or the "Company") (TSX:NRX) today announced its 2009 first quarter results.

First quarter highlights:

- The Company successfully expanded its deployment of three component ("3C") seismic data recording services, completing five jobs generating $5.4 million of revenue in the quarter ended March 31, 2009. This next generation of 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.

- Despite reduced capital spending of our customers generally, Norex still deployed up to 3 crews in the oil sands during the quarter. The Company's diversification into mining related applications was rewarded in the quarter as 9% of revenue in the first quarter was derived from potash related activity in Saskatchewan.

- The Company generated $3.5 million of EBITDA in the first quarter and $1.2 million of net earnings.

- Seismic acquisition revenue in the United States increased 27% to $8.5 million in the first quarter of 2009 as compared to the first quarter in 2008.

- Subsequent to quarter end, the Company announced a $3.8 million non-brokered equity financing that is expected to close May 15, 2009. The Company also renewed its credit facilities with its primary lender which includes up to a $15 million operating line of credit and up to $20 million in revolving term facilities.

"In response to weak commodity prices and lower customer spending plans, we have implemented significant cost cutting measures during the first quarter, the benefit of which will be fully recognized in future quarters. These measures, combined with the equity financing and renewal of credit facilities, will further strengthen the Company's ability to not only weather the current industry slowdown, but position itself to take advantage of opportunities as they arise." commented Mr. Paul Crilly, President and CEO.

Consolidated revenue, which includes revenue from procuring third party sub-contractor services, for the first quarter ended March 31, 2009 decreased $13.5 million to $30.1 million compared to $43.6 million for the same period of 2008. Consolidated seismic acquisition revenue decreased 25% to $23.3 million in the three months ended March 31, 2009 as compared to the same period in the prior year. Revenue in the current quarter reflected the Company's continued expansion into the United States which helped to offset the decline in revenue in Canada. Although revenue decreased in the current quarter as compared to the first quarter of 2008, the Company's presence in the Alberta oil sands, and its activity related to potash mining development in Saskatchewan helped cushion a decline in conventional oil and gas activity in western Canada. In the first quarter of 2009, revenue from the Company's United States operation accounted for 38% of total consolidated revenue as compared to only 20% in the first quarter of 2008 reflecting the Company's focus toward geographic diversification.

Gross profit was $4.9 million, or 16% of total revenue for the three months ended March 31, 2009, compared to $10.3 million, or 24% of total revenue in 2008. As a percentage of seismic acquisition revenue, or revenue from the services provided directly by Norex, gross profit was 21% in the first quarter of 2009 compared to 33% for the same period in 2008. The decrease in gross profit and gross profit percentages reflects more competitive pricing pressure for the Company's services in both Canada and the U.S., an increase in weather related delays and higher crew mobilization/demobilization costs in the quarter. In addition, the fixed cost infrastructure to support operations has the effect of reducing the gross profit percentages as the level of seismic acquisition revenue decreases.

Consolidated EBITDA for the three months ended March 31, 2009 was $3.5 million ($0.09 per share) compared to $8.7 million ($0.23 per share) for the same period of 2008. Consolidated net earnings of $1.2 million ($0.03 per share) was generated in the quarter ended March 31, 2009, compared to consolidated earnings of $4.6 million ($0.12 per share) for the same period in 2008.



Financial Highlights

Three Months Ended
March 31 %
(Unaudited) Increase
($000's, except per share data) 2009 2008 (decrease)
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Revenue 30,090 43,624 (31)
Seismic acquisition revenue(5) 23,283 31,056 (25)
Gross Profit (2) 4,860 10,279 (53)
Earnings before other items (4) 978 6,646 (85)
EBITDA (1) 3,526 8,725 (60)
- Per share $0.09 $0.23 (61)
Net Earnings 1,189 4,552 (74)
- Per share, basic and diluted $0.03 $0.12 (75)
Working capital 2,729 5,104 (47)
Total long term borrowings (3) 11,777 8,423 40
Capital expenditures 6 2,649
Weighted avg. shares outstanding (000's) 38,606 38,601
Shares outstanding, end of period (000's) 38,606 38,601
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Outlook

Resource plays, including shale gas development, continue to be a major driver for the Company's activity in both Canada and the United States. In the second quarter, the Company expects to commence projects in the emerging Utica shale gas play in Quebec, the Bakken play in Montana, and the Marcellus shale in the northeast United States.

The Company expects weak commodity prices and lower customer spending plans to persist for the foreseeable future. The Canadian Association of Oilwell Drilling Contractors has revised its forecast 2009 drilling activity to fall 41% to 10,000 wells drilled in western Canada. This forecast represents the lowest level of drilling activity since 1998. The current US rig count for 2009 has fallen 52% since November 2008. In response, the Company has implemented significant cost cutting measures during the first quarter; the benefit of which will be fully recognized in future quarters. These measures include staff reductions, company wide rollbacks in salaries and field wages of up to 15%, and mandatory days off without pay. The Company has targeted a 25% reduction in its vehicle fleet to reduce its monthly lease obligations.

Norex exited the first quarter with $2.6 million of cash, a strong working capital position, and only $11.8 million of total long-term debt. With further cost efficiencies realized in its operations and the recently announced equity financing, the Company is well positioned to maintain, if not grow its market share in the current economic climate.

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 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.

(3) Includes long term debt and capital lease obligations, including current portions thereof, but excludes future income taxes.

(4) "Earnings before other items" is a supplemental measure of profitability on the Consolidated Statements of Earnings which provides comparability of operating results to the prior year. Earnings before other items is calculated from the Consolidated Statement of Earnings as revenue less operating expenses (direct costs and subcontractor expenses), general and administrative expenses, depreciation and amortization, and interest expense.

(5) 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 a small administration fee. In accordance with generally accepted accounting principles, these subcontract revenue and costs 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
Ended
($000's) March 31, 2009 March 31, 2008
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Seismic acquisition revenue (A) 23,283 31,056
Subcontractor revenue 6,807 12,568
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Total revenue (B) 30,090 43,624

Less:
Direct costs 18,423 20,777
Subcontractor costs 6,807 12,568
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Gross Profit (C) 4,860 10,279
Gross Profit as % of seismic
acquisition revenue (C ÷ A) 21% 33%
Gross Profit as % of total revenue (C ÷ B) 16% 24%
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NOREX EXPLORATION SERVICES INC.
Consolidated Balance Sheets
As at March 31, 2009 and December 31, 2008
(in thousands of dollars)
(unaudited)

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March 31 December 31
2009 2008
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Assets

Current assets:
Cash $ 2,592 $ 3,176
Accounts receivable 19,889 24,812
Prepaid expenses and deposits 822 1,152
Income taxes receivable 2,213 3,092
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25,516 32,232

Property and equipment 42,937 44,582
Intangible assets 1,346 1,368
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$ 69,799 $ 78,182
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Liabilities and Shareholders' Equity

Current liabilities:
Operating lines of credit $ - $ 5,591
Accounts payable and accrued liabilities 17,295 17,519
Income taxes payable 84 954
Current portion of long-term debt 2,340 2,875
Current portion of capital lease obligations 3,068 3,681
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22,787 30,620

Long-term debt 6,059 7,719
Capital lease obligations 310 420
Future income taxes 3,983 4,623
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33,139 43,382

Shareholders' equity:
Share capital 23,358 23,358
Contributed surplus 3,060 3,047
Accumulated other comprehensive income 3,530 2,872
Retained earnings 6,712 5,523
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36,660 34,800
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$ 69,799 $ 78,182
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NOREX EXPLORATION SERVICES INC.
Consolidated Statements of Earnings and Comprehensive Income
For the three months ended March 31, 2009 and 2008
(in thousands of dollars, except per share amounts)
(unaudited)

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March 31, March 31,
2009 2008
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Revenue $ 30,090 $ 43,624

Operating expenses:
Direct costs 18,423 20,777
Subcontractors 6,807 12,568
General and administrative expenses 1,334 1,554
Depreciation and amortization 2,321 1,854
Interest expense 227 225
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Earnings before other items 978 6,646
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Other items:
Gain on disposal of property and equipment (23) -
Foreign exchange gain (395) (384)
Stock-based compensation expense 13 235
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(405) (149)
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Earnings before income taxes 1,383 6,795

Income taxes
Current 834 2,530
Future (reduction) (640) (287)
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194 2,243

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Net earnings for the period 1,189 4,552

Cumulative translation adjustment 658 (128)
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Comprehensive income $ 1,847 $ 4,424
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Net earnings per share
Basic and diluted $ 0.03 $ 0.12
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NOREX EXPLORATION SERVICES INC.
Consolidated Statements of Retained Earnings and Accumulated Other
Comprehensive Income
For the three months ended March 31, 2009 and the year ended December 31,
2008
(in thousands of dollars)
(unaudited)

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March 31, December 31,
2009 2008
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Retained earnings, beginning of period $ 5,523 $ 13,705

Net earnings (loss) for the period 1,189 (8,182)
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Retained earnings, end of period $ 6,712 $ 5,523
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March 31, December 31,
2009 2008
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Accumulated other comprehensive income,
beginning of period $ 2,872 $ -

Cumulative translation adjustment for
the period 658 2,872
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Accumulated other comprehensive income,
end of period $ 3,530 $ 2,872
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NOREX EXPLORATION SERVICES INC.
Consolidated Statements of Cash Flows
For the three months ended March 31, 2009 and 2008
(in thousands of dollars)
(unaudited)

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March 31, March 31,
2009 2008
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Cash provided by (used in):

Operations:
Net earnings for the period $ 1,189 $ 4,552
Items not involving cash:
Depreciation and amortization 2,321 1,854
Stock-based compensation expense 13 235
Gain on disposal of property and equipment (23) -
Future income taxes (reduction) (640) (287)
Unrealized foreign exchange gain (318) (346)
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2,542 6,008
Change in non-cash operating working capital 5,072 301
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7,614 6,309

Investing:
Acquisition of property and equipment (6) (2,649)
Proceeds on disposal of property and equipment 239 35
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233 (2,614)

Financing:
Change in operating lines of credit (net) (5,591) 1,166
Proceeds on long-term debt 1,000 -
Repayment of long-term debt (3,195) (558)
Repayment of capital lease obligations (723) (1,118)
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(8,509) (510)

Effect of exchange rate changes on cash
position 78 -
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(Decrease) increase in cash (584) 3,185
Cash, beginning of period 3,176 -
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Cash, end of period $ 2,592 $ 3,185
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Supplemental cash flow information:
Interest and financing costs paid $ 225 $ 284
Taxes paid $ 29 $ 1,359
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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 favorable 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. There can be no assurance that the financing described in this press release will receive the required shareholder approval to proceed.

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".

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