Tesla Reports 2015 Third Quarter Results and Renewal of Credit Facilities

Symbol: TXL

Stock Exchange: TSX

CALGARY, Nov. 16, 2015 /CNW/ - Tesla Exploration Ltd. ("Tesla" or the "Company") today announces its 2015 third quarter operating and financial results and the renewal of credit facilities.

Selected Highlights








(000s, except per share data)


 Three months ended 


 Nine months ended 


(unaudited)


September 30,


September 30,




2015

2014

Change

2015

2014

Change



$

$

%

$

$

%

Revenue


30,255

18,940

60

74,618

105,063

(29)

Revenue excluding reimbursables


24,067

17,444

38

63,644

89,826

(29)

Gross margin1


7,157

4,049

77

15,488

24,017

(36)


As a % of revenue excluding reimbursables


30%

23%


24%

27%


Net earnings (loss)


(12,860)

(5,177)

(148)

(36,366)

(9,050)

(302)


Per share - basic 


(0.59)

(0.24)

(146)

(1.66)

(0.41)

(305)

Adjusted EBITDA2


2,693

(1,447)

 n/m 

1,336

6,571

(80)


Per share - basic 


0.12

(0.07)

 n/m 

0.06

0.30

(80)

Cash flow from (used in) operations


3,364

(6)

 n/m 

1,662

6,199

(73)


Per share - basic


0.15

(0.00)

 n/m 

0.08

0.28

(71)

Weighted average shares outstanding for the period - basic


21,891

21,895

(0)

21,891

22,164

(1)

Capital expenditures


393

3,940

(90)

1,396

22,793

(94)









As at





September 30,

December 31,






2015

2014

Change






$

$

%

Working capital3





(29,962)

(3,406)

780

Total assets





87,908

117,119

(25)

Total long-term borrowings4





36,435

35,971

1

Equity





25,121

56,383

(55)

 

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. Adjusted 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. Adjusted EBITDA and Adjusted EBITDA per share are presented because they are frequently used by securities analysts and others for evaluating companies and their ability to service debt.  Adjusted 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 Adjusted EBITDA year-over-year.

3. Includes $24,000,000 term credit facility presented as current.

4. Capital lease obligations, including current portions.


 

2015 Third Quarter Highlights

  • Tesla continues to report as a going concern. On November 15, 2015 the Company completed the renewal of its credit facilities which are demand in nature and subject to a formal review in June 2016. This facility allows the Company to continue operations through June 30, 2016.
  • Tesla generated $7.2 million of gross margin on $30.3 million of revenues resulting in Adjusted EBITDA of $2.7 million and a net loss of ($12.9) million during the third quarter of 2015. Tesla International, Tesla Canada, Tesla USA reported an increase in revenue during the quarter while Tesla Offshore experienced declines in activity during the quarter.
  • Tesla Canada had 2 crews operational during the seasonally slow third quarter of 2015 using the Company's multi-component wireless acquisition system ("Hawk").
  • Tesla Canada completed advance work and mobilization for several other Hawk programs heading into the third quarter of 2015.
  • Tesla USA made significant progress on a large three dimensional survey during the quarter which has now been completed. Tesla USA also supported a microseismic monitoring project earning considerably more revenue than it had in recent quarters.
  • Tesla International generated significant marine and land acquisition revenues for its multi-source program in Ethiopia completing the project and began demobilizing to prepare for a large two-dimensional program in the Democratic Republic of the Congo early next year.
  • Tesla International conducted acquisition activities for its large three-dimensional ("3D") program in the UK which has now been completed as demobilization begins for another program in Ireland.
  • Tesla Offshore's Bluefin Autonomous Underwater Vehicle ("AUV") returned to service during the quarter and completed a significant portion of its backlog. The Company is aggressively marketing the system to new and existing clients.
  • The Company continues to actively manage its cost structure and overheads in an attempt to remain competitive in this difficult market, while retaining key employees and providing opportunities for future operational and financial success. The Company continues to make a concerted effort to optimize field crew size and operational practices. In addition, the Company has significantly reduced planned capital spending for 2015 and 2016.
  • Tesla has shifted its microseismic focus towards passive monitoring for measuring induced seismicity in response to the Subsurface Order No 2 implemented by the Alberta Energy Regulator (AER) and similar changes from the British Columbia Oil and Gas Commission (BCOGC). The detection and characterization of induced seismicity related to hydraulic fracturing is an emerging business line that provides the Company with significant growth opportunities given the current and pending governmental policies on reporting these induced seismic events.

 

Third Quarter Financial Results

The Company's consolidated revenues including reimbursables increased 60% to $30.3 million in the third quarter of 2015 compared to $18.9 million in the third quarter of 2014. The Company's revenue excluding reimbursables increased 38% to $24.1 million from $17.4 million for the same periods. Tesla experienced strong improvements in activity levels in the North American Land segment as well as in the UK and Africa, which was slightly offset by decreased activity in the Offshore division. The Company's gross margin improved to $7.2 million in the third quarter of 2015 from $4.0 million in the third quarter of 2014 due to the increase in revenues as well as stronger margin percentages in Canada, US land and International operations. Gross margin increased to 24% of revenue including reimbursables from 21% and to 30% from 23% of revenue excluding reimbursables. Margin percentages increased due to the continued focus by the Company on cost containment and operational efficiencies, as well as the execution of longer term projects. The crew in Ethiopia completed the acquisition phase of the large multi-source survey during the quarter and is now completing its demobilization. The majority of the crew is now mobilizing to the Democratic Republic of the Congo ("DRC") for another large project that should commence at the beginning of 2016. The Canadian division completed several short projects which was an improvement compared to the historically slow summer months. The US division also made substantial progress on a large three dimensional survey ("3D") in Pennsylvania during the quarter which the crew has now completed and finished demobilization activities in early October. Reimbursable revenues increased due to a large amount of front-end work for the Pennsylvania program.

The third quarter is traditionally much slower for Tesla Canada. Lower levels of activity are usually experienced until late in the quarter across western Canada until crops have been harvested and accessibility to northern locations improves. Acquisition revenues improved from the comparative quarter with four projects completed. This was in contrast to very limited activity in 2014 as clients cancelled or postponed exploration programs due to the uncertain commodity price environment. The Company operated one to two crews for part of the quarter. Clients continue to request discounts for fewer available projects in the spring and summer months. The resulting increase in competition both within Canada as well as from US companies looking to redeploy idle equipment has put pressure on the Company's prices. The Company continued to experience demand for its Hawk wireless equipment; however, the increased efficiency with this system has not seen a corresponding increase in revenue and margin as jobs have shortened in length creating gaps in scheduling where the Company must maintain a crew without generating revenue. Tesla Canada has been successful in reducing field overhead costs which resulted in significantly improved margin and margin percentage during the quarter.

Tesla USA continues to face a very weak US seismic land acquisition market due to a reduced number of programs as companies focus on completion and production efficiencies. This has resulted in an even greater surplus of equipment across the industry. Tesla USA was able to complete most of a large 3D project during the latter part of the quarter. This project has now been completed successfully with the crew completing the demobilization in October. The Company had hoped that this project would allow Tesla USA to generate operational momentum and roll onto additional projects, but none materialized. The Company continues to focus on reducing the costs with this division in order to maintain a sustainable business to continue serving the US market. In the third quarter of 2014, Tesla USA operated one small 2D project and one microseismic monitoring project.

Tesla International's revenues increased significantly over the comparative quarter. During the third quarter of 2015, revenues were generated from the division's large multi-source program in Ethiopia as well as a large 3D survey in the UK. The Company completed the marine and land acquisition activity with great success and strong margins during the quarter. Much of the crew is mobilizing to the DRC for a large vibroseis project in the eastern part of the country. There are many other projects that Tesla International is currently pursuing and the Company expects the Africa crew to be highly utilized throughout 2016. The UK crew completed its mobilization and a significant portion of the acquisition activity for a large 3D project during the third quarter of 2015. This project has now been completed with the crew moving to Ireland for a smaller 2D project before the end of the year. Political sentiment for oil and gas exploration has improved throughout the year and Tesla International has several bids outstanding which could keep the UK crew fully utilized throughout 2016.

Tesla Offshore's revenue declined during the third quarter of 2015 compared to 2014. Geophysical revenues decreased quarter-over-quarter despite the return to service of the Company's Autonomous Underwater Vehicle ("AUV") in August as the low commodity price environment saw reduced exploration activity during what is traditionally a very strong quarter for the division. Increased competition in the AUV market in the Gulf of Mexico has put pressure on Tesla Offshore's pricing and margins. The construction division continues to be hampered by a weak market for positioning and trawling services even during the historically busy summer months.

The Company had Adjusted EBITDA of $2.7 million ($0.12 per share) in the third quarter of 2015 compared to negative Adjusted EBITDA of ($1.5) million (($0.07) per share) in the third quarter of 2014. The improvement was due to higher margins on more activity as well as a decrease in general and administrative costs excluding bad debt expense quarter-over-quarter. The decrease in general and administrative costs was a result of cost cutting initiatives across the Company.

The Company had a consolidated net loss of ($12.9) million (($0.59) per share) in the third quarter of 2015 compared with a consolidated net loss of ($5.2) million (($0.24) per share) in the third quarter of 2014. The improvement in Adjusted EBITDA was offset by a provision for bad debts of $1.6 million and a onetime impairment charge to goodwill of $8.4 million. Excluding this impairment charge net loss was ($4.5) million (($0.20) per share).

 Outlook

Despite many challenges facing Tesla at the current time, the outlook is encouraging for the Company moving forward. Several important contracts are in place and the Company anticipates improved AUV performance as it continues to improve its operations in the Gulf of Mexico while pursuing opportunities internationally. Several large projects in Africa should enable Tesla to overcome the recent downturn in the North American land seismic market. Through its strong customer relationships and operational performance, the Company maintains a backlog that provides the Company with opportunities for success over the remainder of 2015 and the first half of 2016. Tesla continues to look for ways to improve its profitability, expand its service offerings and the geographical areas in which it operates. In an attempt to adapt to the current economic environment, Tesla has, and continues to reduce overheads across all divisions. These measures include layoffs of field and administrative personnel, salary rollbacks, suspension of the Company's RRSP/401k matching program, reduction of director fees as well as a concerted effort to optimize field crew size and operational practices. In addition, the Company has reduced most of its planned capital spending for 2015 and the first half of 2016. The Company has recently signed the terms for a new demand credit facility agreement with its lender and believes this facility will allow the Company to continue operations through June 30, 2016.

North America Land Operations
In Canada, the fourth quarter of 2015 and the first quarter of 2016 should improve on the activity of a year ago as several of Tesla Canada's biggest clients have scheduled large programs from December to March. Having longer programs will reduce downtime for mobilization and allow the Company to improve crew efficiencies. Overall, the volume of work available to bid remains low as the continued low value of West Texas Intermediate and Western Canadian Select benchmark oil prices resulting from "lower for longer" commodity price outlook has seen many upstream producers reduce their exploration budgets significantly. Uncertainty in the industry stemming from new federal and provincial governments have caused many companies to take an even more conservative approach to exploration in the short and medium term. Competitors and equipment rental companies have provided an increased capacity in Canada for both single component and three component wireless equipment which is contributing to increased pricing pressure. Fierce competition has extended to project management companies further exacerbating this pressure. Weakness in the US has also resulted in certain US competitors focusing more of their efforts in Canada however, the weakness in the Canadian Dollar vis-à-vis the US Dollar should continue to make it difficult for US competitors to make inroads in Canada. Despite the reduced size of the seismic industry in total, Tesla has been able to maintain its key clients and increase its market share. The Company hopes to weather this period and distinguish itself as the seismic contractor of choice throughout Canada. The Company remains well positioned to service the market with its 22,000 combined FSU Hawk system in North America. The Company continues to focus on developing efficiencies with this system and with general crew size and field operations in order to remain competitive in terms of pricing for the limited programs available and to create the most value possible from the work secured.

The US seismic market remains weak with heavy competition for available projects as oil and gas companies focus on completions and existing production over exploration and associated seismic activity. Client budgets have been reallocated to enhance drilling and production operations which detrimentally affected scheduling of certain projects. This may be driven by a need to assess current land positions with consideration given to moving into deeper resource horizons. Additionally, anti-hydraulic fracturing groups have been gaining momentum in their ability to delay passage of legislation acceptable to industry and stakeholders. Pricing of services continues to be the driving factor in this competitive market with requirements for higher channel counts, wireless recording systems and third-party multi-client programs driving the demand for services. Activity levels are being focused on low cost oil and liquids rich shale plays such as the Marcellus (western Pennsylvania and West Virginia), and Eagleford (south Texas) basins. Despite the success of Tesla USA in Pennsylvania during the quarter, the outlook for this market remains uncertain. A number of bids remain outstanding as the Company attempts to secure work for the first half of 2016; however, there are no significant projects currently signed. The Company has continued to reduce its personnel costs in the US Land operation.

Tesla has shifted its microseismic focus towards passive monitoring for measuring induced seismicity in response to the Subsurface Order No 2 implemented by the Alberta Energy Regulator (AER) and similar changes from the British Columbia Oil and Gas Commission (BCOGC). The detection and characterization of induced seismicity related to hydraulic fracturing is an emerging business line that provides the Company with growth opportunities given the current and pending governmental policies on reporting these induced seismic events.

South and Central America Operations
Tesla continues to be open to opportunities to expand the Company's footprint in South and Central America on a limited basis. Tesla has reduced its marketing efforts due to lack of success and in an effort to contain costs throughout the Company. Tesla will maintain a presence in the region and will opportunistically continue to develop relationships with local and international operators and vendors as it awaits a political and economic environment that is conducive to pursuing projects more vigorously.

International Operations
Tesla International's UK and European crew has experienced sustained demand for acquisition services in both the hydrocarbon and renewables sectors both in the UK and mainland Europe. Delays due to lack of government cooperation and permit challenges appear to be subsiding. This crew has a backlog of 2D and 3D programs that it is continuing to execute in the fourth quarter of 2015 and should see the crew active for much of the first half of 2016.

East Africa continues to experience relatively higher levels of activity following political stabilisation and the interest of some of the major operators in developing their activities in the area. This activity has been discouraged somewhat by the sustained low commodity price environment. The first key area involves interests along the Great Rift Valley Trend from Tanzania into Ethiopia. This interest is in pursuing plays based on discoveries in Uganda and successes in Northern Kenya. There remains interest in the lake zones of this Rift Valley Trend. The second area of increased exploration activity is near coastal blocks from Mozambique northward to Somalia which are hinged on recent major gas discoveries offshore East Africa. Tesla International has been successful in obtaining work from both these opportunities and from exploiting new areas of activity to extend its current backlog. Due to the ongoing seismic activity in these areas, the Company has begun to experience greater competition in these areas which has somewhat pressured the Company's margins and ability to secure work in recent months.

The African crew is currently preparing for a large vibroseis project in the DRC which will commence the acquisition phase in early 2016. Several tenders are outstanding for projects throughout East Africa including Ethiopia, the DRC, Mozambique, and Tanzania as well as a large project in Niger in West Africa. These projects could see the African crew fully utilized throughout 2016.

The UK technical services office remains steady with a number of in-seam seismic, unconventional gas (coal bed and tight reservoirs), and geophysical interpretation projects and is pursuing additional projects to strengthen backlog.

Offshore Operations
Tesla Offshore's commitment to expansion remains centered on the successful operation of the Company's AUV. The AUV provides much needed services to existing clients and opens new markets for Tesla Offshore related to deep water oil and gas field development across the globe. Tesla Offshore has received invitations to tender projects in Southeast Asia, Brazil, Angola, West Africa and Turkey. Despite the challenges throughout 2014 and 2015, the Company remains encouraged by the recent operational results in the third quarter. Tesla Offshore has worked through the majority of its backlog and is now aggressively marketing the AUV and bidding for additional projects. Other geophysical projects will be limited throughout the winter months; however, the Company's strong relationships are expected to result in additional opportunities beginning late in the first quarter of 2016.

Construction activities remain lower than historical levels driven by a reduction in drilling activity on the shelf of the Gulf of Mexico. In addition to a reduced level of trawling and positioning work in the Gulf of Mexico, special project work relating to survey support for removal systems was also delayed. While there are a number of opportunities in play, the construction division will see reduced activity levels while the industry remains abnormally slow.   

Tesla Offshore continues to pursue opportunities outside the Gulf of Mexico. The Company has established a presence in Brazil, has held meetings with potential clients in the country and is utilizing an in-country manager to pursue opportunities. Tesla Offshore will continue to support long-term clients as they expand into international areas.

Tesla Offshore now provides 3D seismic interpretation services and has completed a number of projects during the last three quarters. The backlog of awarded prospects for this new service continues to grow.  To date, the 3D seismic interpretation projects awarded to Tesla Offshore have primarily been in conjunction with the AUV utilization to perform the required Archaeological Survey aspect for these project areas.  Tesla Offshore continues to pursue alliances and broaden service offerings such as geotechnical acquisition and multi-streamer along with high-resolution shallow seismic services to further expand the Company's opportunities.

Executive Changes

The Company wishes to announce today that David Cooper, Managing Director of Tesla Exploration International, has advised Tesla senior management team of his resignation effective October 9, 2015. Since joining Tesla, Mr. Cooper has made many significant contributions to the Company as both Finance Director and later Managing Director of Tesla International. "Mr. Cooper was an important part of Tesla's growth over the last 5+ years, we wish him the best in his future endeavours" said Richard Habiak President and Chief Executive Officer. The Company has appointed Quinten Bailey, formerly South American Operations Manager for Tesla, as Mr. Cooper's replacement as Managing Director of Tesla Exploration International. "Mr. Bailey has demonstrated exceptional leadership and organizational skills throughout many years in various capacities for several of Tesla's divisions. "We are very pleased for him to take another step in his career with us" said Mr. Habiak.

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 and nine months ended September 30, 2015.

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 seismic land data acquisition in a multitude of environments in Canada through Tesla Exploration Partnership, in the U.S.A. through Tesla Exploration Inc., in South and Central America through Tesla Exploration Trinidad Ltd., Tesla Exploration Colombia S.A.S. and Tesla Do Brasil Geotecnia Ltda., which was incorporated in 2014 to explore offshore opportunities off the coast of Brazil. Tesla serves other markets in Europe and Africa through Tesla Exploration International Limited. Tesla has an international data processing office in the United Kingdom. Tesla Offshore LLC operates geophysical hazard surveys and provides positioning services for construction and diving operations in the Gulf of Mexico and internationally using its own vessel and other chartered vessels. Tesla trades on the TSX under the symbol "TXL".

SOURCE Tesla Exploration Ltd.

For further information: Requests for shareholder information should be directed to: Mr. Richard Habiak, President and CEO, (403) 216-0990; Mr. Graham Reid, Vice President and CFO, (403) 692-4602

RELATED LINKS
www.teslaexploration.com

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