Pulse Seismic Inc.

Pulse Seismic Inc.

November 09, 2009 23:59 ET

Pulse Seismic Inc. reports Q3 2009 results

CALGARY, ALBERTA--(Marketwire - Nov. 9, 2009) - Douglas Cutts, President and Chief Executive Officer of Pulse Seismic Inc. (TSX:PSD) ("Pulse" or "the Company"), reports the financial and operating results of Pulse for the three and nine months ended September 30, 2009. The interim consolidated financial statements, accompanying notes and MD&A have been filed on SEDAR. These documents are also available on Pulse's website www.pulseseismic.com.
Despite weak data library sales during the first nine months of 2009, Pulse generated cash EBITDA(a) of $8.7 million, repaid $5.2 million of long term debt and strengthened its balance sheet, increasing cash by $3.2 million. Although economic conditions have improved slightly from the start of 2009, the current economic environment continues to be challenging and uncertain amidst global economic weakness, low natural gas prices and volatile financial markets. A significant portion of Pulse's seismic data is located in natural gas exploration and production areas. Although oil prices continued to recover during the third quarter of 2009, natural gas prices continued to show weakness through record high storage levels in the United States and reduced consumer demand. Natural gas drilling activity levels in western Canada have been very low throughout 2009, which negatively impacted Pulse's overall financial results.

HIGHLIGHTS

- Seismic data library sales for the three months ended September 30,
2009 were $2.7 million, compared to $8.1 million for the same period
in 2008.

- Cash EBITDA(a) for the three months ended September 30, 2009 was
$1.4 million ($0.03 per share basic and diluted), compared to
$6.1 million ($0.11 per share basic and diluted) for the three months
ended September 30, 2008.

- Net loss from continuing operations was $1.3 million ($0.02 per share
basic and diluted) for the three months ended September 30, 2009,
compared to net earnings from continuing operations of $2.2 million
($0.04 per share basic and diluted) for the same period in 2008.

- The working capital position was $13.8 million (including cash of
$16.4 million and current portion of long term debt of $7.0 million)
at September 30, 2009 compared to $7.3 million (including cash of
$8.9 million and current portion of long term debt of $8.0 million)
at September 30, 2008 and $14.4 million (including cash of
$13.2 million and current portion of long term debt of $6.8 million)
at December 31, 2008.

- In the third quarter of 2009 a total of 31,700 common shares were
purchased and cancelled through the normal course issuer bid program
for a total cost of approximately $37,000.



FINANCIAL HIGHLIGHTS

('000's except per share data and number of shares)

3 months ended 9 months ended Year ended
September 30, September 30, Dec. 31,
---------------------- ----------------------- -----------
2009 2008 2009 2008 2008
---- ---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue from
continuing
operations:
Data library
sales $ 2,678 $ 8,103 $ 13,209 $ 26,827 $ 36,894
Participation
surveys 2,382 5,870 7,254 6,307 8,509
-----------------------------------------------------------
Total revenue
from
continuing
operations $ 5,060 $ 13,973 $ 20,463 $ 33,134 $ 45,403

Amortization
of seismic
data library $ 4,825 $ 8,321 $ 18,580 $ 21,549 $ 32,438

Net earnings
(loss) from
continuing
ops $ (1,291) $ 2,189 $ (3,358) $ 2,520 $ 880
Net earnings
(loss) from
continuing
ops per
share:
Basic and
diluted $ (0.02) $ 0.04 $ (0.06) $ 0.05 $ 0.02

Net earnings
(loss) $ (1,205) $ 2,189 $ (3,258) $ 2,226 $ 586
Net earnings
(loss) per
share:
Basic and
diluted $ (0.02) $ 0.04 $ (0.06) $ 0.04 $ 0.01

Funds from
continuing
opera-
tions(a) $ 3,333 $ 11,640 $ 14,814 $ 25,950 $ 35,188
Funds from
continuing
operations
per share(a):
Basic $ 0.06 $ 0.22 $ 0.28 $ 0.48 $ 0.65
Diluted $ 0.06 $ 0.21 $ 0.28 $ 0.48 $ 0.65

Cash
EBITDA (a) $ 1,353 $ 6,105 $ 8,747 $ 20,844 $ 28,196

Working
capital :
Cash $ 16,448 $ 8,860 $ 16,448 $ 8,860 $ 13,244
Non-cash
working
capital 4,343 6,468 4,343 6,468 7,918
Current
portion of
long term
debt (6,998) (8,004) (6,998) (8,004) (6,798)
-----------------------------------------------------------
Total working
capital $ 13,793 $ 7,324 $ 13,793 $ 7,324 $ 14,364

Total assets $ 99,766 $ 110,634 $ 99,766 $ 110,634 $ 112,383
Capital
expenditures:
Seismic data
purchases $ 309 $ - $ 309 $ 2,033 $ 4,557
Participation
surveys - 5,075 8,909 5,075 16,433
Changes to
work in
progress 3,059 7,438 1,430 8,261 1,681
Property &
equipment
additions - 45 25 544 556
-----------------------------------------------------------
Total capital
expenditures $ 3,368 $ 12,558 $ 10,673 $ 15,913 $ 23,227

Total long-
term debt
(net of
current
maturities
and debt
financing
costs) $ 22,073 $ 17,333 $ 22,073 $ 17,333 $ 26,188

Shareholders'
equity $ 62,804 $ 71,498 $ 62,804 $ 71,498 $ 66,288

Weighted
average
shares
outstanding:
Basic 53,110,926 53,843,690 53,318,352 54,067,344 53,985,299
Diluted 53,110,926 54,298,545 53,318,352 54,567,735 54,160,333
Shares
outstanding
at period
end 53,096,083 53,894,946 53,096,083 53,894,946 53,397,583
-------------------------------------------------------------------------

Operational Highlights:

Seismic
library:
2D in net
kilometres 257,994 257,281 257,994 257,281 257,281
3D in net
square
kilometres 12,805 11,972 12,805 11,972 12,514

(a) The Company's continuous disclosure documents provide discussion and
analysis of "cash EBITDA", "funds from continuing operations" and
"funds from continuing operations per share". These financial
measures do not have standard definitions prescribed by GAAP in
Canada and, therefore, may not be comparable to similar measures
disclosed by other companies. The Company has included these non-GAAP
financial measures because management, investors, analysts and others
use them as measures of the Company's financial performance. The
Company's definition of cash EBITDA is cash available for interest
payments, cash taxes if applicable, debt servicing, discretionary
capital expenditures and the payment of dividends, and is calculated
as earnings before interest, taxes, depreciation and amortization
less participation survey revenue, plus non-cash and non-recurring
G&A expenses. Cash EBITDA excludes participation survey revenue as
these funds are directly used to fund specific participation surveys
and this revenue is not available for discretionary capital
expenditures. The Company believes cash EBITDA assists investors in
comparing Pulse's results on a consistent basis without regard to
participation survey revenue and non-cash items, such as
depreciation and amortization, which can vary significantly depending
on accounting methods or non-operating factors such as historical
cost. The Company's definition of funds from continuing operations is
cash flow from continuing operations as prescribed by Canadian GAAP
but excluding the impact of changes in non-cash working capital.
Funds from continuing operations represent the cash that was
generated during the period, regardless of the timing of collection
of receivables and payment of payables. Funds from continuing
operations per share is defined as funds from continuing operations
divided by the weighted average number of shares outstanding for the
period.


OPERATIONS UPDATE

During the third quarter of 2009 Pulse purchased 713 net kilometres of 2D data and conducted a 108 net square kilometre 3D participation survey which was approximately 98% complete at September 30, 2009.

OUTLOOK

Pulse continues to anticipate that 2009 will be a weak year for total seismic revenue and profitability. Pulse remains cautious in its industry outlook for the next few quarters. The lack of clarity concerning commodity prices (particularly natural gas), capital market conditions and the effects of Alberta's royalty changes and subsequent incentive programs, which was discussed in the Company's previous quarterly reports, remains and continues to cloud the task of forecasting the energy industry's capital expenditures.

The Company is seeing an increase in interest in licensing seismic data from many clients in the exploration and production sector. A number of these expressions of interests have turned into active negotiations subsequent to the end of the third quarter, leaving Pulse's management cautiously optimistic about concluding transactions and generating revenue from seismic data library sales before year-end.
Following very weak natural gas prices throughout the third quarter, there was a marked price rally on North American indices in the middle of October, with both the Henry Hub (U.S.) and AECO (Alberta) spot prices moving towards $5 per mmbtu or thousand cubic feet, respectively. Sustained improvement in natural gas prices remains critical to reviving industry field activity in Western Canada (U.S. natural gas drilling has continued at relatively high levels throughout the past year). Pulse remains extremely cautious concerning these early price signals and notes that natural gas storage volumes remained well above their five-year weekly range and had surpassed 3.8 trillion cubic feet as of mid-October. Natural gas prices could easily decline based on a decrease in natural gas demand, warmer than expected winter weather and continued high storage levels.

The Canadian Association of Oilwell Drilling Contractors (CAODC) revised its most recent drilling and rig utilization forecast, in late October. That forecast estimates that the Canadian drilling rig fleet's utilization would average 27 percent during 2010, increasing from 24 percent in 2009. Both periods are down from 40 percent utilization in 2008. They are forecasting that 8,278 wells would be drilled in western Canada during 2009, down both from the mid-2009 forecast of 8,787 and from the 16,800 wells drilled in western Canada in 2008. The total number of wells forecast for 2010 is 8,523.
A positive indicator for the longer term is the announced intention of several exploration and production companies to make substantial packages of producing assets available for purchase. This could help revive exploration and development drilling activity by junior and intermediate-sized energy producers, many of whose business models have historically included adding value to the non-core assets of major producers acquired in such transactions. The resulting field activity requires seismic data, both from existing data sets and from new surveys. Pulse cautions that such activity, if it occurs, will not begin immediately and will be spread over a number of quarters.

The Company is therefore maintaining a highly cautious and conservative financial stance, focused on cash conservation and balance sheet integrity, that it adopted entering 2009. Pulse continues to benefit from a number of advantages that position it to weather this period of uncertainty and weak data sales revenue, including:

- Ample working capital and a strong cash position;

- Moderate debt with low interest costs and access to additional credit
if required;

- A low operating and G&A cost structure;

- Meaningful internal cost savings achieved year-to-date; and

- Low capital commitments throughout 2009.

The Company is financially sound and is prepared for continued low levels of revenue. The Company has a valuable strategic asset that will serve it well when energy industry capital spending revives.

CORPORATE PROFILE

Pulse is a market leader in the acquisition, marketing and licensing of 2D and 3D seismic data for the western Canadian energy sector. Pulse owns the second-largest licensable seismic data library in Canada, currently consisting of approximately 258,000 net kilometres of 2D seismic and 12,800 net square kilometres of 3D seismic. The library extensively covers the Western Canada Sedimentary Basin where most of Canada's oil and natural gas exploration and development occurs. The replacement value of Pulse's library is currently estimated at over $1 billion based on current field replacement costs.
Forward Looking Information

This document contains information that constitutes "forward looking information" or "forward looking statements" (collectively, "forward looking information") within the meaning of applicable securities legislation. This forward looking information includes, among other things, statements regarding:

- estimated future demand for seismic data;

- estimated future seismic data sales;

- estimated future demand for participation surveys;

- estimated costs, funding, size, commencement dates and delivery dates
of participation surveys;

- planned future participation surveys;

- planned growth of the seismic data library;

- planned future normal course issuer bid purchases;

- Pulse's business strategy; and

- Other expectations, beliefs, plans, goals, objectives, assumptions,
information and statements about possible future events, conditions,
results and performance.

Often, but not always, forward looking information uses words or phrases such as: "expects", "does not expect" or "is expected", "anticipates" or "does not anticipate", "plans" or "does not plan", "estimates" or "estimated", "projects" or "projected", "forecasts" or "forecasted", "believes" or "does not believe", "intends" or "does not intend", "likely" or "unlikely", "possible", "probable", "scheduled", "positioned", "goal", "objective", "hopes", "optimistic" or states that certain actions, events or results "should", "may", "could", "would", "might" or "will" be taken, occur or be achieved.
Undue reliance should not be placed on forward-looking information. Forward looking information is based upon current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to vary and in some instances to differ materially from those anticipated in the forward looking information.

The material risk factors include, but are not limited to:

- the demand for seismic data and participation surveys;

- the pricing of data library license sales;

- the level of pre-funding of participation surveys, and the ability of
the Company to make subsequent data library sales from such
participation surveys;

- the ability of the Company to complete participation surveys on time
and within budget;

- the price and demand for oil and natural gas;

- the level of oil and natural gas exploration and development
activities;

- the ability of the Company's customers to raise capital;

- environment, health and safety risks;

- the effect of seasonality and weather conditions on participation
surveys;

- federal and provincial government laws and regulation, including
taxation, royalty rates, environment and safety;

- competition from other seismic data library companies;

- dependence upon qualified seismic field contractors;

- dependence upon key management, operations and marketing personnel;
and

- protection of Intellectual Property.

The foregoing list of risks is not exhaustive. Additional information on these risks and other factors which could affect the Company's operations or financial results are included in the Risk Factors section of the Company's MD&A for the most recent calendar year and interim periods. Forward looking information is based upon the assumptions, expectations, estimates and opinions of the Company's management at the time the information is presented.

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