Norex Exploration Services Inc.
TSX : NRX

Norex Exploration Services Inc.

August 15, 2007 02:13 ET

Norex Reports 2007 Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 15, 2005) - Norex Exploration Services Inc. ("Norex" or the "Company") (TSX:NRX) today announced consolidated revenue of $8.7 million for the second quarter ended June 30, 2007 compared to $18.0 million for the comparable period in 2006. While revenue decreased in Canada, the Company's expansion plans in the United States continued to gain traction with the Company's USEC ("United States and Eastern Canada") division revenue increasing 151% to $5.2 million. Western Canadian activity reflected reduced demand for our services as producers reduced exploration and development programs amidst concerns over natural gas storage levels and commodity price weakness. Second quarter performance in western Canada was further exacerbated by wet weather and a prolonged spring breakup. While record rainfall also affected Norex's U.S. operations, particularly in Kansas, this division contributed an additional $1.2 million to Norex's gross profit compared to the same period last year.

"While results in western Canada were clearly disappointing, they were consistent with the present state of the western Canadian oil and gas industry. We made excellent strides in expanding our presence and improving profitability in the U.S. during the quarter and expect to operate up to five crews in our USEC division later in the third quarter. In western Canada, we are encouraged with the flow of bids from our customers and our present accumulation of backlog, the benefits of which we will see late in the third quarter. Our recently announced expansion plans into South America will provide a third platform for Norex's growth, add further geographic diversification, and strengthen quarterly revenue and cash flows", said Paul Crilly, President and CEO of Norex. "We ended a difficult second quarter with $6.7 million of cash on our balance sheet, a conservative amount of debt, and the ability to capitalize on further expansion opportunities."

Highlights for the three months ended June 30, 2007:

- Although a significant reduction in activity levels was experienced in western Canada, revenue in the United States more than doubled to $5.2 million compared to $2.1 million in the second quarter of the prior year

- Our USEC division generated gross profit of $1.1 million compared to ($0.1) million last year. Overall, Norex's gross profit decreased in the quarter to $0.3 million from $3.0 million in the same period last year primarily related to weak industry activity in western Canada. The Company incurred abnormally high equipment and repair costs, as it took advantage of lower activity levels to complete repair and maintenance on its fleet of equipment after a busy first quarter

- The Company initiated 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.

- EBITDA(1) was negative $1.0 million compared to $1.8 million in the comparable period of 2006. Included in the current quarter were employee severance costs of $0.2 million and an allowance for bad debts of $0.1 million.

- Net loss was $1.9 million, or ($0.05) per share, compared to net earnings of $0.8 million, or $0.02 per share, in the prior year.

- Amidst depressed industry conditions in Western Canada, Norex has maintained a strong balance sheet with $6.7 million of cash on hand and $3.0 million of working capital at June 30, 2007, in addition to conservative debt levels (total long term debt at June 30, 2007 represented 88% 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 June 30, 2006 and July 30, 2006. These prior year periods have not been audited or reviewed by the Company's external auditors. Information for the three months ended June 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 April and the inclusion of July in the three month period ended July 31, 2006 may reduce the comparability of this period to the three month period ended June 30, 2007. Readers are advised to take these limitations into consideration when reviewing the comparative information for the three months ended June 30, 2006 and the three months ended July 30, 2006.



Three Months Ended Six Months Ended
June 30 June 30
(Unaudited) (Unaudited)
($000's, except per share data) 2007 2006 2007 2006
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Revenue 8,693 17,957 58,377 63,748
Gross Profit (2) 253 3,013 10,218 15,497
EBITDA (1) (985) 1,779 7,545 13,311
- Per share ($0.03) $0.05 $0.20 $0.40
Trailing 12 month EBITDA (1) - - 13,253 14,632
Net Earnings (Loss) (1,896) 799 2,421 7.452
- Per share, basic ($0.05) $0.02 $0.06 $0.22
- Per share, diluted ($0.05) $0.02 $0.06 $0.21
Working capital 2,985 711 2,985 711
Total long term borrowings (3) 11,723 10,160 11,723 10,160
Capital Expenditures 1,892 3,943 5,010 5,940
Weighted average shares outstanding
(000's) 38,601 35,394 38,592 33,668
Total shares outstanding (000's) 38,601 35,394 38,601 35,394
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Year to date highlights and other items:

- For the six months ended June 30, 2007, revenue was $58.4 million compared to $63.7 million for the six months ended June 30, 2006, representing a decrease of 8%. EBITDA was $7.5 million, or $0.20 per share, compared to $13.3 million, or $0.40 per share, for the same period in 2006. The decline in revenue and EBITDA was primarily attributable to weakness in the western Canadian oil and gas industry throughout the first half which reduced demand for the Company's services and placed downward pressure on pricing for seismic services.

- On a trailing twelve month basis, EBITDA was $13.3 million versus $14.6 million in the comparable period of 2006, representing a decrease of only 9%.

- Net earnings for the first half was $2.4 million, or $0.06 per share, compared to $7.5 million, or $0.22 per share, in the first half of 2006.

- On August 7, 2007, Norex announced that it had entered into an agreement to acquire the outstanding shares of South American Exploration, LLC ("SAE"), a privately held seismic data acquisition company with operations based in Lima, Peru. Acquisition highlights include:

-- SAE has a proven management team, with extensive operational experience in South America.

-- Purchase consideration consists of cash on closing of approximately US$14.5 million, which primarily reflects the tangible asset value of SAE, with remaining consideration payable to a maximum of US$22 million based on the subsequent financial performance of SAE.

-- Assuming a closing date of August 31, 2007, EBITDA for SAE for the remainder of 2007 is estimated to range between US$7.0 and US$9.0 million based on the current contract backlog.

-- Management of SAE estimates 2008 EBITDA for SAE to range between US$10 million and US$15.0 million.

-- SAE will provide Norex with a strategic foothold in South America through a proven management team. SAE has a strong customer base with large E&P clients in Peru and a backlog of work which is estimated to generate revenue of up to US$35 million primarily in 2007

-- SAE provides surveying and shot hole drilling services in South America in conjunction with their seismic data acquisition services. Norex intends to extend these services into its North American operations. In addition, SAE provides seismic data processing services which will also be offered to Norex's existing clientele.

-- The acquisition is expected to close on August 31, 2007 and is subject to obtaining financing for the initial cash consideration, regulatory approval and further due diligence.

Outlook

Based on awarded work as of the date of this report, the Company expects a significant recovery in its activity levels in western Canada late in the third quarter and for the remainder of the year. The Company believes its strong market position and operational strengths have enabled it to weather the challenging times in western Canada and emerge with a stronger competitive position.

The Company intends to expand its presence in the United States and eastern Canada and anticipates operating up to five crews (subject to weather and permitting constraints)) later in the third quarter of 2007. The Company has a strong market presence in the Appalachian basin of the northeastern United States and will continue to build its position in the Rocky Mountain district.

The acquisition of SAE is expected to close on August 31, 2007 and make a strong contribution to consolidated revenue and EBITDA in the second half of 2007. This acquisition is anticipated to be accretive to earnings and cash flows in 2007, based on contracts awarded and expected contract execution dates.

The total capital expenditure program remains at $9.0 million for the year, but may be revised in order to capitalize on potential contract awards.

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 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 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 June 30, 2007 and December 31, 2006

(000's)
(unaudited)
------------------------------------------------------------------
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June 30 December 31
2007 2006
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Assets

Current assets:
Cash $ 6,713 $ 1,251
Accounts receivable 8,375 24,365
Prepaid expenses and deposits 523 333
Income taxes receivable - 625
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15,611 26,574

Property and equipment 33,294 31,890
Goodwill 7,097 7,097
Intangible assets 2,489 2,721
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$ 58,491 $ 68,282
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Liabilities and Shareholders' Equity
Current liabilities:
Operating lines of credit $ - $ 1,390
Accounts payable and accrued liabilities 5,945 15,355
Income taxes payable 711 351
Current portion of long-term debt 1,194 1,412
Current portion of capital lease obligations 4,776 5,232
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12,626 23,740

Long-term debt 327 702
Capital lease obligations 5,426 6,413
Future income taxes 2,929 3,018
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21,308 33,873

Shareholders' equity:
Share capital 23,352 23,246
Contributed surplus 813 566
Retained earnings 13,018 10,597
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37,183 34,409

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$ 58,491 $ 68,282
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Consolidated Statements of Earnings (Loss) and Retained Earnings

(000's, except per share amounts)
(unaudited)
--------------------------------------------------------------------------
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Three months ended Six months ended
June 30 July 31 June 30 July 31
2007 2006 2007 2006
--------------------------------------------------------------------------

Revenue $ 8,693 $ 16,244 $ 58,377 $ 64,266

Expenses:
Direct costs 6,030 7,108 23,759 23,072
Subcontractors 2,410 6,574 24,400 27,384
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Earnings before the undernoted 253 2,562 10,218 13,810

General and administrative
expenses 1,238 1,023 2,674 2,367
Depreciation and amortization 1,623 1,166 3,201 2,216
Interest expense 245 202 563 442
Loss (gain) on disposal of
equipment 101 (790) 102 (790)
Stock-based compensation 52 145 249 217
Foreign exchange loss 128 - 128 23
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3,387 1,746 6,917 4,475

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Earnings (loss) before income
taxes (3,134) 816 3,301 9,335

Income taxes:
Current (recovery) (1,055) 71 969 2,579
Future (183) 252 (89) 687
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(1,238) 323 880 3,266

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Net earnings (loss) (1,896) 493 2,421 6,069

Retained earnings, beginning of
period 14,914 8,234 10,597 2,658

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Retained earnings, end of period $ 13,018 $ 8,727 $ 13,018 $ 8,727
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Net earnings (loss) per share:
Basic $ (0.05) $ 0.01 $ 0.06 $ 0.17
Diluted $ (0.05) $ 0.01 $ 0.06 $ 0.16
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Consolidated Statements of Cash Flows
(000's)
(unaudited)
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Three months ended Six months ended
June 30 July 31 June 30 July 31
2007 2006 2007 2006
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Cash provided by (used in):

Operations:
Net earnings (loss) $ (1,896) $ 493 $ 2,421 $ 6,069
Items not involving cash:
Depreciation and amortization 1,623 1,166 3,201 2,216
Loss (Gain) on disposal of
equipment 101 (790) 102 (790)
Stock-based compensation 52 145 249 217
Unrealized foreign exchange loss 105 - 105 -
Future income taxes
(reduction) (183) 252 (89) 687
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(198) 1,266 5,989 8,399

Change in non-cash operating
working capital 15,924 464 7,270 6,250
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15,726 1,730 13,259 14,649

Investing:
Acquisition of property and
equipment (1,868) (3,862) (4,317) (4,360)
Proceeds on disposal of property
and equipment 339 1,310 426 1,310
Bank indebtedness on
acquisitions - - - (212)
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(1,529) (2,552) (3,891) (3,262)

Financing:
Increase (decrease) operating
lines of credit (net) (7,778) 689 (1,390) (7,463)
Repayment of long-term debt (299) (285) (593) (668)
Repayment of capital lease
obligations (819) (1,718) (2,027) (3,159)
Proceeds on issue of common shares
(net) - - 104 36
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(8,896) (1,314) (3,906) (11,254)

Increase (decrease) in cash 5,301 (2,136) 5,462 133
Cash, beginning of period 1,412 2,136 1,251 (133)
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Cash, end of period $ 6,713 $ - $ 6,713 $ -
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Supplemental cash flow
information:
Interest paid $ 239 $ 202 $ 561 $ 442
Income taxes paid $ - $ 3,150 $ - $ 3,150


Forward-looking Statements

Certain information set forth in this MD&A, 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 the constantly changing technology; uncertainty in certain factors in the oil and gas industry, 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 management, 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; 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 active 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 U.S. subsidiary, Conquest Seismic Services, Inc., provide premium 2D, 3D and 4D 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

  • Requests for shareholder information should be directed to:
    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