Norex Exploration Services Inc.
TSX : NRX

Norex Exploration Services Inc.

November 14, 2008 18:01 ET

Norex Reports Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 14, 2008) - Norex Exploration Services Inc. ("Norex" or the "Company") (TSX:NRX) today announced its 2008 third quarter operating and financial results.

"We completed a number of key initiatives in the third quarter, including the purchase of a competitor's U.S. business and the signing of a service contract with a large, multi-national customer. However, unusually low industry activity in western Canada, challenging weather conditions in the U.S. and expenses related to our U.S. expansion undermined our profitability in the quarter. We have implemented cost cutting and efficiency improvements in our entire operations and will continue to focus on maximizing our profitability" commented Mr. Paul Crilly, President and CEO.

Third quarter highlights:

- Our customers continue to embrace our new three component ("3C") seismic recording services, with 14 programs initiated or completed to date. 3C technology allows clients to acquire shear wave data in addition to the conventional pressure wave currently captured and processed for seismic imaging. Shear wave data allows our customers to better assess fault and fracture networks in shale gas reservoirs which is critical for the placement of well bores and completion of multi-stage fracs. Shear wave data also allows our customers to better assess the existence of oil versus water for example in their reservoir imaging. The commercial launch of this technology has proven to be especially timely with the proliferation of shale gas development and other resource plays.

- In conjunction with the signing of a service contract with a multi-national customer operating in the U.S., the Company deployed an additional crew in early October 2008. The Company expects this crew will be active for the next year. In conjunction with this contract, Norex has purchased an additional ten 67,000lb vibroseis machines.

- The Company fielded two crews in Quebec to meet the demand for our services in the Utica Shale play. This emerging shale gas development is garnering a significant amount of exploration interest from Canadian and U.S. customers.

- On July 7, 2008 the Company purchased certain business assets from a competitor in the U.S., Polaris U.S.A. This acquisition provided Norex with a strong contingent of personnel and a solid customer list on which to expand the Company's United States operations further.

- Consolidated revenue increased 17% to $19.9 million in the third quarter of 2008 compared to $17.0 million in the same period last year. Gross profit was $0.2 million, or 0.1% of seismic acquisition revenue, compared to $1.9 million or 17.1% of seismic acquisition revenue for the three months ended September 30, 2007.

- The Company's U.S. and eastern Canada ("USEC") division reported revenue of $17.2 million in the third quarter compared to $12.5 million for the same period in 2007. Gross profit was $2.1 million, or 18% of seismic acquisition revenue, compared to $2.7 million, or 37% of seismic acquisition revenue, for the three months ended September 30, 2007. The impact of hurricanes in the quarter and the costs associated with the integration of the Polaris U.S.A. acquisition negatively impacted our field margins.

- Western Canadian operations generated $2.7 million of revenue for the three months ended September 30, 2008 compared to $4.5 million for the three months ended September 30, 2007. The Company experienced lower than anticipated activity levels in western Canada. The Company took advantage of low field activity to complete repair and maintenance programs on its vibroseis fleet and recording equipment.

- EBITDA was negative $1.5 million ($0.04 per share) in the third quarter of 2008, compared to positive $0.5 million ($0.01 per share) in the same period of 2007.

- The Company recorded a net loss of $3.1 million ($0.08 per diluted share) compared to a net loss of $1.7 million ($0.04 per diluted share) in the three months ended September 30, 2007.

- Mr. Graham Reid CA was appointed as the Company's Vice President of Finance and CFO. Mr. Reid has extensive experience in the oilfield service industry and is a valuable addition to the Company's executive team.

Year to date highlights:

- Consolidated revenue totaled $76.2 million for the nine months ended September 30, 2008 compared to $75.4 million in the same period last year. Seismic acquisition revenue increased 18% to $53.1 million for the first nine months of 2008 compared to $45.0 million in the first nine months of 2007. Gross profit as a percentage of seismic acquisition revenue(4) decreased to 22.3% for the nine months ended September 30, 2008 compared to 26.9% in the similar period of 2007.

- The USEC division generated revenue of $35.0 million for the first nine months of 2008 compared to $20.5 million for the same period in 2007. Gross profit was $5.1 million, or 21.5% of seismic acquisition revenue, compared to $4.0 million, or 31.0% of seismic acquisition revenue, for the nine months ended September 30, 2007.

- Western Canadian operations generated $41.1 million of revenue compared to $54.9 million for the nine months ended September 30, 2007. Seismic acquisition revenue was $29.6 million compared to $32.1 million for the nine months ended September 30, 2007. Gross profit was $6.7 million, or 22.7% of seismic acquisition revenue, compared to $8.1 million, or 25.3% of seismic acquisition revenue, in 2007.

- EBITDA for the nine months ended September 30, 2008 was $7.1 million ($0.18 per share) in the first nine months of 2008, compared to $8.0 million ($0.21 per share) in the same period of 2007.

- The Company generated nominal net earnings ($0.00 per diluted share) compared to net earnings of $0.8 million ($0.02 per diluted share) in the nine months ended September 30, 2007.

- In the second quarter, Norex completed the purchase of an additional 5,000 channels of recording equipment, bringing its total channel count of ARAMARIES equipment to 17,300 channels. The Company continues to see an increase in the channel counts for 3D programs, as customers increase both their surface coverage and sub-surface image resolution of their seismic data acquisition programs.




Financial Highlights

Three Months Nine Months
Ended Sept. 30 % Ended Sept. 30 %
($000's, except per (Unaudited) Increase (Unaudited) Increase
share data) 2008 2007 (decrease) 2008 2007 (decrease)
----------------------------------------------------------------------------
Revenue 19,863 17,031 17 76,172 75,408 1
Seismic acquisition
revenue(4) 13,645 11,037 24 53,065 45,014 18
Gross Profit (2) 197 1,890 (90) 11,830 12,107 (2)
EBITDA (1) (1,533) 461 (433) 7,070 8,005 (12)
- Per share $ (0.04) $ 0.01 - $ 0.18 $ 0.21 (14)
Trailing 12 months
EBITDA 12,322 11,757 5
Net Earnings (Loss) (3,091) (1,660) 3 761
- Per share, basic
and diluted ($0.08) ($0.04) $ 0.00 $ 0.02
Working capital (3,205) 672 (3,205) 672
Total long term
borrowings (3) 12,484 11,150 12,484 11,150
Capital expenditures 6,454 2,150 14,611 7,021
Weighted avg. shares
outstanding (000's) 38,606 38,601 38,603 38,595
Shares outstanding,
end of period
(000's) 38,606 38,601 38,606 38,601
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Outlook

While the recent downward pressure in oil and natural gas prices in North America has impacted our customers' exploration and development budgets, to date we have seen less of an impact in our U.S. operations. We will continue to focus geographically in the U.S. where our market share is relatively smaller and weather conditions permit year round activity.

It is anticipated that the instability of capital and credit markets together with slowing economic growth will have a continued negative influence on the oil and gas industry. Based on awarded contracts, we expect a reasonably active fourth quarter in our USEC division with lower year over year activity in western Canada. A seasonal increase in activity for the first quarter of 2009 in western Canada is anticipated, although we expect a 10% to 15% reduction in crew activity compared to the first quarter of 2008. Our USEC division is expected to be modestly busier in the first quarter of 2009 compared to the first quarter of 2008.

In response to challenging industry conditions, the Company has implemented cost control and efficiency measures, reduced capital expenditures to maintenance purposes only and has focused on improved profitability. The Company has demonstrated its ability to grow through corporate acquisitions and organically over the last three years and continues to look for opportunities to expand its operations further in North America and international markets.

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 (Loss) and Comprehensive Loss, Retained Earnings and Accumulated Other Comprehensive Loss 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):



----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
($000's) 2008 2007 2008 2007
----------------------------------------------------------------------------
Seismic acquisition revenue (A) 13,645 11,037 53,065 45,014
Subcontractor revenue 6,218 5,994 23,107 30,394
----------------------------------------------------------------------------
Total revenue (B) 19,863 17,031 76,172 75,408

Less:
Direct costs 13,448 9,147 41,235 32,907
Subcontractor costs 6,218 5,994 23,107 30,394
----------------------------------------------------------------------------
Gross Profit (C) 197 1,890 11,830 12,107
Gross Profit as % of seismic
acquisition rev (C ÷ A) 0.1% 17.1% 22.3% 26.9%
Gross Profit as % of total revenue
(C ÷ B) 0.1% 11.1% 15.5% 16.1%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOREX EXPLORATION SERVICES INC.
Consolidated Balance Sheets
As at September 30, 2008 and December 31, 2007

(in thousands of dollars)
(unaudited)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30 December 31
2008 2007

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

Assets

Current assets:
Cash $ 2,942 $ -
Accounts receivable 16,895 29,238
Prepaid expenses and deposits 814 455
Income taxes receivable 1,255 -
Future income taxes 281 586
----------------------------------------------------------------------------
22,187 30,279

Property and equipment 43,531 34,075
Goodwill 7,097 7,097
Intangible assets 2,935 2,257
----------------------------------------------------------------------------
$ 75,750 $ 73,708
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Operating line of credit $ 4,432 $ 4,745
Accounts payable and accrued liabilities 15,268 15,916
Income taxes payable - 1,264
Current portion of long-term debt 2,007 1,523
Current portion of capital lease obligations 3,686 5,099
----------------------------------------------------------------------------
25,393 28,547

Long-term debt 5,313 -
Capital lease obligations 1,478 3,477
Future income taxes 3,880 3,338
----------------------------------------------------------------------------
36,064 35,362

Shareholders' equity:
Share capital 23,358 23,352
Contributed surplus 1,987 1,289
Accumulated other comprehensive income 633 -
Retained earnings 13,708 13,705
----------------------------------------------------------------------------
39,686 38,346

----------------------------------------------------------------------------
$ 75,750 $ 73,708
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOREX EXPLORATION SERVICES INC.
Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss)

(in thousands of dollars, except per share amounts)
(unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
2008 2007 2008 2007
----------------------------------------------------------------------------
Revenue $ 19,863 $ 17,031 $ 76,172 $ 75,408

Expenses:
Direct costs 13,448 9,147 41,235 32,907
Subcontractors 6,218 5,994 23,107 30,394
----------------------------------------------------------------------------
Earnings before the undernoted 197 1,890 11,830 12,107

General and administrative
expenses 1,730 1,429 4,760 4,102
Depreciation and amortization 2,240 1,681 6,261 4,882
Interest and finance expense 216 222 674 785
Loss (gain) on disposal of
property and equipment 14 - (59) 102
Stock-based compensation 215 213 700 461
Foreign exchange (gain) loss (743) 425 (1,134) 553
----------------------------------------------------------------------------
3,672 3,970 11,202 10,885
(Loss) earnings before income
taxes (3,475) (2,080) 628 1,222

Income taxes:
Current (1,857) (805) (222) 165
Future 1,473 385 847 296
----------------------------------------------------------------------------
(384) (420) 625 461
----------------------------------------------------------------------------
Net (loss) earnings (3,091) (1,660) 3 761

Cumulative foreign currency
translation adjustment 758 - 633 -
----------------------------------------------------------------------------
Comprehensive (loss) income $ (2,333) (1,660) $ 636 $ 761
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net (loss) earnings per share:
Basic and Diluted $ (0.08) (0.04) $ - $ 0.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOREX EXPLORATION SERVICES INC.
Consolidated Statements of Retained Earnings and Accumulated
Other Comprehensive Income

(in thousands of dollars)
(unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
2008 2007 2008 2007
----------------------------------------------------------------------------

Retained earnings, beginning of
period $ 16,799 $ 13,018 $ 13,705 $ 10,597

Net (loss) earnings for the period (3,091) (1,660) 3 761
----------------------------------------------------------------------------

Retained earnings, end of period $ 13,708 $ 11,358 $ 13,708 $ 11,358
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Accumulated other comprehensive
loss, beginning of period $ (125) $ - $ - $ -

Cumulative foreign currency
translation adjustment 758 - 633 -
----------------------------------------------------------------------------
Accumulated other comprehensive
income, end of period $ 633 $ - $ 633 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOREX EXPLORATION SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)
(unaudited)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
2008 2007 2008 2007
----------------------------------------------------------------------------

Cash provided by (used in):

Operations:
Net (loss) earnings for the period $ (3,091) $ (1,660) $ 3 $ 761
Items not involving cash:
Depreciation and amortization 2,240 1,681 6,261 4,882
Loss (gain) on disposal of
property and equipment 14 - (59) 102
Stock-based compensation 215 213 700 461
Unrealized foreign exchange (gain)
loss (724) 190 (1,072) 296
Future income taxes 1,473 385 847 296
----------------------------------------------------------------------------
127 809 6,680 6,798
Change in non-cash working
capital 1,424 (4,200) 4,756 3,069
----------------------------------------------------------------------------
1,551 (3,391) 11,436 9,867

Investing:
Acquisition of property and equipment (6,454) (764) (14,611) (4,449)
Proceeds on disposal of equipment 100 - 431 140
Acquisition of intangible asset (1,005) - (1,025) -
Change in non-cash working capital 4,492 - 4,492 -
----------------------------------------------------------------------------
(2,867) (764) (10,713) (4,309)

Financing:
Increase (decrease) operating line of
credit (net) 569 - (313) (1,390)
Repayment of long-term debt (638) (303) (1,703) (896)
Proceeds from long-term debt 4,500 - 7,500 -
Repayment of capital lease
obligations (1,102) (1,656) (3,412) (4,029)
Issuance of common shares - net 4 - 4 104
----------------------------------------------------------------------------
3,333 (1,959) 2,076 (6,211)

Effect of exchange rate changes on
cash position 143 - 143 -

----------------------------------------------------------------------------
Increase (decrease) in cash 2,160 (6,114) 2,942 (653)
Cash, beginning of period 782 6,712 - 1,251
----------------------------------------------------------------------------
Cash, end of period $ 2,942 $ 598 $2,942 $ 598
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental cash flow information:
Interest and financing costs paid $ 175 $ 224 $ 656 $ 561
Taxes paid 478 69 2,633 69
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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 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
    VP Finance and CFO
    (403) 216-5929