Norex Exploration Services Inc.
TSX : NRX

Norex Exploration Services Inc.

August 11, 2009 20:50 ET

Norex Reports 2009 Second Quarter Results

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

Second quarter highlights:

- The Company further strengthened its balance sheet with the completion of a $3.8 million private placement of its common shares. The Company exited the quarter with $4.2 million in cash on hand and a manageable debt load which is expected to allow the Company to withstand the current slump in oil and gas exploration activity in North America.

- Norex completed the renewal of its credit facilities providing up to $35 million in operating and revolving term loans, and negotiated amendments to its bank covenants to reflect the current state of the oil and gas industry.

- The Company moved aggressively to reduce operating costs, cut staffing levels and implement salary and wage reductions across the entire organization.

- Utilizing its large operational foot print across Canada and the United States, the Company was active in the emerging Utica shale gas play in Quebec, the Williston Basin in Montana and the Marcellus shale in the northeast United States.

- The Company completed a technically advanced four dimensional, three component ("3C") job for a Canadian customer. The program further highlights the Company's leadership in 3C seismic recording applications in North America. 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.

"The Company completed major steps in further strengthening its financial position to weather the slowdown in our industry. Our proactive cost cutting measures were rewarded with better than expected financial performance in what is traditionally our slowest quarter," commented Paul Crilly, President and CEO. "We expect that our employees' sacrifices and hard work will be rewarded with the emergence of yet a stronger and more growth-oriented company as industry conditions improve."

Consolidated revenue, which includes revenue from procuring third party sub-contractor services, decreased 58% to $5.3 million in the three months ended June 30, 2009 compared to $12.7 million in the three months ended June 30, 2008. Seismic acquisition revenue from services performed directly by Norex decreased 51% in the second quarter of 2009 to $4.1 million compared to $8.4 million in the second quarter of 2008. This decrease was due to reduced customer spending resulting from current economic conditions and weaker commodity prices, pricing pressures for the Company's services and increased competition in our industry. The seasonal downturn in activity levels in western Canada accounted for the expected sequentially lower revenue compared to the first quarter of 2009. This reduction in activity levels in western Canada across the oilfield service sector in the second quarter is the result of "spring breakup" whereby thawing conditions create restrictions on the use of roadways and inhibits oilfield activity due to wet ground conditions. While the Company's objective is to maintain and grow its large market presence in western Canada, it is also focused on expansion in the U.S. and eastern Canada, where proportionately more industry activity is experienced throughout the year.

Consolidated gross profit was $0.4 million, or 7.6% of total revenue for the three months ended June 30, 2009, compared to $1.4 million, or 10.7% 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 9.9% in the second quarter of 2009 compared to 16.2% for the same period last year. The decrease in gross profit and gross profit percentages reflect competitive pricing pressures for the Company's services in both Canada and the United States and a reduction in activity in the quarter. The Company aggressively reduced its staffing levels in the first and second quarters, implemented salary and wage reductions and took steps to reduce its operating and administrative costs.

Consolidated EBITDA for the second quarter of 2009 was negative $0.9 million ($0.02 per share) compared to negative $0.1 million ($0.00 per share) for the second quarter of 2008. The second quarter of 2008 reflected a later spring break-up in western Canada providing an operating window into April 2008. The consolidated net loss was $2.5 million, ($0.05 per diluted share), compared to $1.5 million, ($0.04 per diluted share), in the same quarter of last year.

Year-to-date highlights:

- Consolidated revenue totaled $35.4 million for the six months ended June 30, 2009 compared to $56.3 million in the same period last year. Seismic acquisition revenue decreased 31% to $27.4 million for the first six months of 2009 compared to $39.4 million in the first six months of 2008. Gross profit as a percentage of seismic acquisition revenue decreased to 19.2% for the six months ended June 30, 2009 compared to 29.5% in the similar period of 2008.

- Throughout the first six months of 2009, the Company has continued to build on its presence in the resource plays in North America. The Company was active in the oil sands of Alberta, the potash industry in Saskatchewan, the Marcellus shale in the northeastern United States, the Williston Basin in Montana and the Utica shale gas play in Quebec.

- For the first six months of 2009, the Company has successfully completed six 3C seismic data recording jobs generating revenue exceeding $6.3 million.

- Despite some of the most challenging industry conditions in the past two decades, EBITDA was $2.6 million ($0.06 per share) in the first six months of 2009, compared to $8.6 million ($0.22 per share) in the same period of 2008.

- The Company reported a net loss of $1.3 million ($0.03 per diluted share) compared to net earnings of $3.1 million ($0.08 per diluted share) in the six months ended June 30, 2008.



Financial Highlights

Three Months Six Months
Ended June 30 % Ended June 30 %
($000's, except (Unaudited) Increase (Unaudited) Increase
per share data) 2009 2008 (decrease) 2009 2008 (decrease)
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Revenue 5,337 12,685 (58) 35,427 56,309 (37)
Seismic acquisition
revenue(5) 4,110 8,364 (51) 27,393 39,420 (31)
Gross Profit(2) 406 1,356 (70) 5,266 11,633 (55)
(Loss) earnings
before other
items(4) (3,398) (2,522) (2,420) 4,124 (159)
EBITDA(1) (879) (122) 2,647 8,603 (69)
- Per share ($0.02) ($0.00) $0.06 $0.22 (73)
Trailing 12 months
EBITDA 4,979 14,766 (66)
Net (loss) Earnings (2,516) (1,458) (1,327) 3,094 (143)
- Per share, basic
and diluted ($0.05) ($0.04) ($0.03) $0.08 (138)
Working capital 4,951 2,358 4,951 2,358 110
Total long term
borrowings(3) 10,429 9,804 10,429 9,804 6
Capital expenditures 48 5,507 54 8,157 (99)
Weighted avg. shares
outstanding (000's) 46,769 38,601 42,710 38,601
Shares outstanding,
end of period
(000's) 55,317 38,601 55,317 38,601
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Outlook

Persistently low natural gas prices in the third quarter of 2009 continue to undermine oil and gas exploration and development activity in Canada and the United States. The Company is currently experiencing similar activity levels and pricing competition to that of the second quarter. In western Canada, Norex has recently received bids and expressions of interest for the fourth quarter and upcoming winter season. In particular, healthy activity levels are expected in the oil sands and the Horn River shale gas play. While delayed relative to the Canadian industry, the full effects of commodity price weakness and deteriorating economic conditions are currently being experienced in the oil and gas industry in the United States. The Company is encountering significant pricing pressures for its services in the United States. Norex's ability to operate some of the most efficient field crews in the industry and its deployment of state of the art equipment has partially cushioned the impact of these competitive pressures.

The Company expects weakness in commodity prices and customer spending plans to continue until late 2009 at a minimum. The Petroleum Services Association of Canada has revised its forecast 2009 drilling activity to fall nearly 45% from the prior year to 9,500 wells drilled in western Canada. This forecast represents the lowest level of drilling activity in the last decade. The current US rig count has fallen 52% since July 2008. The Company has implemented significant cost cutting measures during the first quarter; the benefit of which was evident in the second quarter. The Company continues to look for further cost savings but is mindful of maintaining its capacity to fully participate in a recovery expected 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) "Earnings before other items" is a supplemental measure of
profitability on the Consolidated Statements of (Loss) Earnings which
provides comparability of operating results to the prior year.
Earnings before other items is calculated from the Consolidated
Statements of (Loss) 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 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 Six Months
Ended June 30 Ended June 30
($000's) 2009 2008 2009 2008
----------------------------------------------------------------------------
Seismic acquisition revenue (A) 4,110 8,364 27,393 39,420
Subcontractor revenue 1,227 4,321 8,034 16,889
----------------------------------------------------------------------------
Total revenue (B) 5,337 12,685 35,427 56,309

Less:
Direct costs 3,704 7,008 22,127 27,787
Subcontractor costs 1,227 4,321 8,034 16,889
----------------------------------------------------------------------------
Gross Profit (C) 406 1,356 5,266 11,633
Gross Profit as % of seismic
acquisition rev (C ÷ A) 9.9% 16.2% 19.2% 29.5%
Gross Profit as % of total
revenue (C ÷ B) 7.6% 10.7% 14.9% 20.7%
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NOREX EXPLORATION SERVICES INC.
Consolidated Balance Sheets
As at June 30, 2009 and December 31, 2008
(in thousands of dollars)
(unaudited)

----------------------------------------------------------------------------
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June 30 December 31
2009 2008
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Assets

Current assets:
Cash $ 4,160 $ 3,176
Accounts receivable 8,198 24,812
Prepaid expenses and deposits 1,234 1,152
Income taxes receivable 2,250 3,092
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15,842 32,232

Property and equipment 38,568 44,582
Intangible assets 1,202 1,368

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$ 55,612 $ 78,182
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Liabilities and Shareholders' Equity

Current liabilities:
Operating line of credit $ - $ 5,591
Accounts payable and accrued liabilities 6,003 17,519
Income taxes payable 71 954
Current portion of long-term debt 2,340 2,875
Current portion of capital lease obligations 2,477 3,681
----------------------------------------------------------------------------
10,891 30,620

Long-term debt 5,474 7,719
Capital lease obligations 138 420
Future income taxes 2,375 4,623
----------------------------------------------------------------------------
18,878 43,382

Shareholders' equity:
Share capital 27,389 23,358
Contributed surplus 3,102 3,047
Accumulated other comprehensive income 2,047 2,872
Retained earnings 4,196 5,523
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36,734 34,800

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$ 55,612 $ 78,182
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NOREX EXPLORATION SERVICES INC.
Consolidated Statements of (Loss) Earnings and Comprehensive (Loss) Income
For the three and six months ended June 30, 2009 and 2008
(in thousands of dollars, except per share amounts)
(unaudited)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
----------------------------------------------------------------------------

Revenue $ 5,337 $ 12,685 $ 35,427 $ 56,309

Operating expenses:
Direct costs 3,704 7,008 22,127 27,787
Subcontractors 1,227 4,321 8,034 16,889
General and administrative
expenses 1,285 1,478 2,619 3,030
Depreciation and amortization 2,387 2,167 4,708 4,021
Interest expense 132 233 359 458
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(Loss) earnings before other
items (3,398) (2,522) (2,420) 4,124
----------------------------------------------------------------------------

Other items:
Loss (gain) on disposal of
equipment 19 (73) (4) (73)
Stock-based compensation 42 250 55 485
Foreign exchange loss (gain) 722 (5) 327 (391)
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(Loss) earnings before
income taxes (4,181) (2,694) (2,798) 4,103
----------------------------------------------------------------------------

Income taxes (recovery):
Current (9) (895) 825 1,635
Future (1,656) (341) (2,296) (626)
----------------------------------------------------------------------------
(1,665) (1,236) (1,471) 1,009

----------------------------------------------------------------------------
Net (loss) earnings for the
period (2,516) (1,458) (1,327) 3,094

Cumulative translation
adjustment (1,483) 3 (825) (125)
----------------------------------------------------------------------------

Comprehensive (loss) income $ (3,999) $ (1,455)$ (2,512) $ 2,969

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Net (loss) earnings per share:

Basic and Diluted $ (0.05) $ (0.04)$ (0.03) $ 0.08
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NOREX EXPLORATION SERVICES INC.
Consolidated Statements of Retained Earnings and Accumulated
Other Comprehensive Income (Loss)
For the three and six months ended June 30, 2009 and 2008
(in thousands of dollars)
(unaudited)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
----------------------------------------------------------------------------

Retained earnings, beginning
of period $ 6,712 $ 18,257 $ 5,523 $ 13,705

Net (loss) earnings for the
period (2,516) (1,458) (1,327) 3,094

----------------------------------------------------------------------------

Retained earnings, end of
period $ 4,196 $ 16,799 $ 4,196 $ 16,799
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Accumulated other comprehensive
income (loss), beginning of
period $ 3,530 $ (128)$ 2,872 $ -

Cumulative translation
adjustment for the period (1,483) 3 (825) (125)

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Accumulated other comprehensive
income (loss), end of period $ 2,047 $ (125)$ 2,047 $ (125)
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NOREX EXPLORATION SERVICES INC.
Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2009 and 2008
(in thousands of dollars)
(unaudited)

----------------------------------------------------------------------------
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Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
----------------------------------------------------------------------------

Cash provided by (used in):

Operations:
Net (loss) earnings for the
period $ (2,516) $ (1,458)$ (1,327) $ 3,094
Items not involving cash:
Depreciation and amortization 2,387 2,167 4,708 4,021
Loss (gain) on disposal of
equipment 19 (73) (4) (73)
Stock-based compensation 42 250 55 485
Unrealized foreign exchange
loss (gain) 705 - 387 (348)
Future income taxes (reduction) (1,656) (341) (2,296) (626)
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(1,019) 545 1,523 6,553

Change in non-cash operating
working capital 86 3,030 5,158 3,332
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(933) 3,575 6,681 9,885

Investing:
Acquisition of property and
equipment (48) (5,507) (54) (8,157)
Proceeds on disposal of equipment 258 296 497 331
Acquisition of intangible assets - (20) - (20)
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210 (5,231) 443 (7,846)

Financing:
Change in operating lines of
credit (net) - (2,048) (5,591) (882)
Repayment of long-term debt (585) (507) (3,780) (1,065)
Proceeds on long-term debt - 3,000 1,000 3,000
Repayment of capital lease
obligations (763) (1,192) (1,486) (2,310)
Issuance of common shares - net 3,755 - 3,755 -
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2,407 (747) (6,102) (1,257)

Effect of exchange rate changes
on cash position (116) - (38) -
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Increase (decrease) in cash 1,568 (2,403) 984 782
Cash, beginning of period 2,592 3,185 3,176 -
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Cash, end of period $ 4,160 $ 782 $ 4,160 $ 782
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Supplemental cash flow
information:
Interest and financing costs
paid $ 128 $ 197 $ 353 $ 481
Taxes paid 30 797 59 2,155
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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".

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