Tesla Exploration Ltd.
TSX : TXL

Tesla Exploration Ltd.

August 14, 2012 17:05 ET

Tesla Reports 2012 Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2012) - Tesla Exploration Ltd. (TSX:TXL) ("Tesla" or the "Company") today announces its 2012 second quarter operating and financial results.

Selected Highlights
(000s, except per share data) Three months ended Six Months Ended
(unaudited) June 30 June 30
2012 2011 Change 2012 2011 Change
$ $ % $ $ %
Revenue 18,258 30,768 (41 ) 121,083 115,893 4
Revenue excluding reimbursables 16,915 19,589 (14 ) 101,821 75,049 36
Gross margin1 551 1,883 (71 ) 34,234 18,675 83
As a % of revenue excluding reimbursables 3 % 10 % 34 % 25 %
Net earnings (6,945 ) (5,370 ) (29 ) 10,004 189 n/m
Per share - basic (0.31 ) (0.24 ) (30 ) 0.44 0.01 n/m
EBITDA 2 (4,029 ) (1,951 ) (107 ) 24,310 11,063 120
Per share - basic (0.18 ) (0.09 ) (107 ) 1.07 0.49 120
Cash flow from operations 3 (2,810 ) (2,146 ) (31 ) 22,812 10,702 113
Per share - basic (0.12 ) (0.09 ) (32 ) 1.00 0.47 114
Weighted average shares outstanding for the period - basic 22,689 22,795 n/m 22,737 22,795 n/m
Capital expenditures 19,847 4,940 302 21,453 6,383 236
As at June 30 December 31
2012 2011 Change
$ $ %
Working capital 6,050 10,411 (42 )
Total assets 118,915 141,088 (16 )
Total long-term borrowings 4 22,362 29,073 (23 )
Equity 67,929 57,993 17

(1) Gross margin is defined as gross profit before depreciation and amortization. Gross margin is a measure that does not have a meaning prescribed under IFRS in Canada and accordingly, may not be comparable to similar measures used by other companies.

(2) EBITDA is defined as income before interest, taxes, depreciation, amortization and impairments, gains or losses on foreign exchange, gains or losses on sales of capital assets, bad debt provisions and stock-based compensation. EBITDA and EBITDA per share are presented because they are frequently used by securities analysts and others for evaluating companies and their ability to service debt. EBITDA is a measure that does not have any standardized meaning prescribed under IFRS in Canada and accordingly, may not be comparable to similar measures used by other companies. The Company is consistent with its calculation of EBITDA year over year.

(3) Cash flow from operations is defined as "Cash provided by operating activities before changes in non-cash working capital." Cash flow from operations and cash flow from operations per share are measures that provide shareholders and potential investors with additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management utilizes these measures to assess the Company's ability to finance operating activities and capital expenditures. Cash flow from operations and cash flow from operations per share are not measures that have any standardized meaning prescribed by IFRS in Canada, and accordingly, may not be comparable to similar measures used by other companies. The Company is consistent with its calculation of cash flow from operations year over year.

(4) Includes capital lease obligations and long-term debt, including current portions.

Second Quarter Highlights:

  • The Company entered into an extended seismic services agreement (the "Agreement") with a multi-client geophysical company under which the Company is guaranteed 18 crew months of activity during a 24 month period with an option to extend the Agreement for an additional 24 months by mutual agreement of the parties.
  • The Company purchased 10,000 stations of a wireless multi-component seismic acquisition system ("Hawk") and auxiliary equipment at a cost of approximately $18.0 million which was financed out of cash on hand ($4.5 million) and lease financing ($13.5 million). Tesla USA began utilizing the Hawk system in mid-June with production exceeding planned results.
  • Tesla Trinidad successfully completed the Guayaguayare project in Trinidad.
  • Tesla Offshore almost doubled revenues from the comparative quarter benefitting from improved weather and operating days in the Gulf of Mexico, support work for Tesla Trinidad and the start- up of a special project in Alaska.
  • Tesla International operated a crew in the UK and Ireland on hydrocarbon and mineral projects throughout the quarter. The Company also supplied vibrosies units for a project in Oman.
  • The Company hired and appointed Rob Kendall to lead Tesla's Research and Special Projects group. Mr. Kendall is currently the President of the Canadian Society of Exploration Geophysicists.
  • The Company renewed and increased its Canadian credit facility which consists of a $15 million operating loan, a $30 million revolving credit facility and a $20 million (previously $15 million) finance lease facility.
  • The Company repaid $18.2 million of long-term debt during the quarter with cash generated from first quarter operations.

Second Quarter Financial Results:

The Company's consolidated revenues including reimbursables decreased 41% in the second quarter of 2012 compared to the second quarter of 2011 while the Company's revenue excluding reimbursables decreased 14%. Significant declines in activity levels for Tesla Canada and Tesla International were only partially offset by an improvement in activity levels for Tesla Offshore. The second quarter is historically a slow quarter in Canada due to spring break up. The warm weather in Canada this spring resulted in an early end to the 2012 winter season and limited activity levels and associated reimbursables in Canada during April of 2012 compared to the extended winter season experienced in April of 2011. Tesla USA had limited work during the second quarter of 2012 until the start-up of two crews in mid-June including the first program for Tesla USA's recently purchased Hawk system under the Agreement with a multi- client geophysical company. In the second quarter of 2011, Tesla USA operated up to three crews but realized limited revenues with significant standby time due to poor weather conditions. Tesla Trinidad completed the Guayaguayare program in April of 2012 contributing revenues comparable to those in the second quarter of 2011 when front-end operations on the program were just getting underway. Tesla International was negatively impacted by little activity in Africa during the second quarter of 2012 whereas revenues were generated from mobilization charges and operations for two crews in Africa during the second quarter of 2011. Activity levels in the UK and Ireland during the second quarter of 2012 were similar to those in the second quarter of 2011. Tesla Offshore's geophysical and construction activity levels both improved in the second quarter of 2012 compared to the second quarter of 2011 when operations were limited with the continued negative impact of the Macondo oil spill on activity levels in the Gulf.

Second quarter gross margin in 2012 dropped compared to the second quarter of 2011. North American land operations saw a decrease in activity levels for Tesla Canada while gross margin improved for Tesla USA and Tesla Trinidad. Tesla International's gross margin declined with the lack of work in Africa. Tesla Offshore's gross margin benefitted with the increase in activity. Gross margin as a percentage of total revenue (including reimbursables) decreased to 3% in the second quarter of 2012 from 6% in the second quarter of 2011. Gross margin percentage remains low due to the reduced activity levels in Canada and Africa along with significant field overheads in Canada generally incurred during the second quarter to inventory, test and begin repairs to the large volume of equipment returned to base from the field following spring break up. Tesla Offshore maintained its gross margin percentage during the current quarter compared to the second quarter of 2011.

The Company's EBITDA in the second quarter of 2012 decreased compared to the second quarter of 2011 due to the decline in absolute gross margin along with a slight increase in general and administrative costs.

The Company's working capital decreased $28.7 million during the quarter to $6.1 million including net cash of $4.8 million. Operating cash flows generated during the first quarter were used to repay $18.2 million of long-term debt and fund $6.1 million of capital expenditures (net of $13.7 million of lease financed expenditures) during the second quarter of 2012. Operating lines were utilized to fund ongoing operations in certain jurisdictions during the second quarter.

Total long-term borrowings were reduced by $6.7 million during the quarter to $22.4 million. At June 30, 2012, the Company had $47.5 million of unused committed bank credit and lease facilities.

During the quarter, the Company renewed and increased its Canadian credit facility which consists of a $15 million operating loan, a $30 million revolving credit facility and a $20 million (previously $15 million) finance lease facility. All facilities are available in either Canadian or US currency at Tesla's discretion.

Shareholders' equity decreased $6.2 million to $67.9 million during the quarter due to the loss incurred. This was partially offset by an increase in contributed surplus relating to share-based payment charges and an increase in accumulated other comprehensive income with the weakening of the Canadian dollar against the functional currency of the Company's US subsidiaries.

Outlook:

North America Land Operations

In Canada, low natural gas prices continue to limit exploration activity during the summer months and a wet spring deferred several projects into the fall when crops come off. Tesla Canada activated two crews in mid-July, one in the west and one in the east with periodic work scheduled throughout the third quarter consistent with activity levels in 2011. Current bidding activity suggests strong demand for fall and winter programs. The Company anticipates operating up to five crews during the fourth quarter of 2012, similar to 2011, and up to nine crews during the first quarter of 2013, an additional crew compared to the first quarter of 2012, with continued focus on three-component ("3C") technology. This increased demand should lead to continued strong crew rates and earlier start dates where possible. Tesla is working to secure appropriate personnel and equipment, including potential wireless solutions, to support what is shaping up to be another busy winter season.

Tesla USA began utilizing the 10,000 station Hawk 3C system in mid-June under the Agreement with a multi-client geophysical company. Production is exceeding planned results and should generate improved margins from those realized under current industry metrics. This crew expects to continue work under the Agreement for a significant portion of 2012. A second crew was also mobilized in mid-June and will continue working periodically throughout the remainder of the year. With the low natural gas price, the Company continues to see a rise in activity levels in oil and liquids rich shale plays such as the Bakken, Utica (Eastern Ohio) and Marcellus (Pennsylvania and West Virginia). Activity is expected to increase in the Denver-Julesburg ("DJ") Basin during the remainder of 2012. Pricing of services continues to be the driving factor in this market with improvements in utilization rates increasing due to requirements for higher channel counts, wireless recording systems and third-party multi-client programs driving the demand for services.

The project in Trinidad was completed in mid-April with equipment remaining in the country. Tesla is working with its operating partners in Trinidad and other nearby countries in an attempt to secure future work in the region.

International Operations

Tesla International's UK and European crew has seen a sustained demand for acquisition services in both the hydrocarbon and minerals sectors. Indicators suggest that this demand will be maintained, and potentially increased, offering an opportunity for further growth to Tesla International's operations in this area. This crew continues to be fully utilized and has secured projects that will see it continue work through to the end of 2012 on projects throughout the UK and Europe.

Tesla International is currently maintaining equipment in a Duty Free Zone near Djibouti, with vibrosies units in Oman, in order to facilitate efficient mobilization to potential projects in the region. The Company is currently pursuing projects in East Africa and surrounding areas.

Tesla International is also in the final stages of scheduled maintenance on its vessel fleet with other equipment back at its base in Uganda. There remains significant interest in the Rift Valley basin trend with Tesla International well placed to exploit both transition zone ("TZ") and terrestrial acquisition opportunities in the area. One contract has already been awarded and should see the TZ crew active before the end of the third quarter with other potential opportunities for the remainder of 2012.

Bid activity remains busy with a multitude of prospective work programs in the UK and Europe. Key areas of East Africa and North Africa are expected to see a return to greater activity following political stabilization and the interest of some of the major operators in developing their activities in the area. Tesla International expects to be successful in obtaining additional work from both of these opportunities and from exploiting some potential new areas of activity to extend its current backlog and recently opened a branch office in Islamabad to explore opportunities in the region.

The UK technical services office remains steady with a number of processing and interpretation projects recently awarded and underway with full utilization of capacity expected to continue. The Jakarta processing office continues to face increased competition and lower processing prices, but has recently being awarded some sizable projects that will keep the office fully utilized in the coming months. Additional opportunities continue to be pursued to maintain backlog.

Offshore Operations

The reactivation process for activity in the Gulf of Mexico is underway as the central and eastern Gulf of Mexico lease sale was held on June 20, 2012. This is positive news for Tesla Offshore. New lease sales generally lead to an increase in geophysical operations as operators require geophysical surveys for the purpose of securing drilling permits and evaluating new lease properties. Tesla Offshore has already obtained work as a direct result of this lease sale that should keep one vessel occupied until the weather turns in late fall.

Tesla Offshore has managed to land several significant geophysical projects that have two geophysical vessels active well into the fall and the possibility of an additional two geophysical vessels to be activated during the third quarter of 2012. There is potential for a portion of this work to be carried over into the spring of 2013 dependent upon weather in the Gulf of Mexico this fall.

Construction activity has picked up during the summer months with trawling and special projects underway during periods of improved weather. Tesla Offshore will support up to 15 vessels throughout the third quarter before winding down early in the fourth quarter.

Tesla Offshore has increased the number of project tender responses and the amount of attention and effort put toward opportunities outside the Gulf of Mexico. Tesla Offshore began work on a multi-year project in Alaska, recently completed a small geophysical project in Argentina and signed a contract for work in Israel. As long-term clients expand into these and other areas, Tesla Offshore is configuring systems and staff to profitably provide services to support their operations.

Forward-looking Statements:

Certain information set forth in this press 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 are based on current expectations, estimates and projections that involve a number of 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. These include, but are not limited to, the risks outlined in the "Business Risks" section of the Company's MD&A for the three months ended March 31, 2012.

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.

About Tesla

Tesla provides geophysical and related services in Canada, internationally through its wholly owned subsidiaries Tesla Exploration International Ltd. and Tesla Exploration Trinidad Ltd., and in the United States through Tesla Exploration Inc. and Tesla Offshore LLC. Since the Company's inception in 2000, Tesla has grown both organically and through acquisitions funded by retained earnings and prudent levels of borrowing, from a Canadian focused land seismic business to a global provider of a broad suite of geophysical and related services. Tesla trades on the TSX under the symbol "TXL".

Contact Information

  • Tesla Exploration Ltd.
    Mr. Richard Habiak
    President and CEO
    (403) 216-0990

    Tesla Exploration Ltd.
    Mr. Stuart Craven
    Vice President and CFO
    (403) 692-4602