Stock Exchange: TSX
CALGARY, Nov. 13, 2014 /CNW/ - Tesla Exploration Ltd. ("Tesla" or the "Company") today announces its 2014 third quarter operating and financial results.
|(000s, except per share data)||Three months ended||Nine months ended|
|(unaudited)||September 30,||September 30,|
|Revenue excluding reimbursables||17,444||25,862||(33)||89,826||103,587||(13)|
|As a % of revenue excluding reimbursables||23%||25%||27%||38%|
|Net earnings (loss)||(5,177)||(3,701)||40||(9,050)||2,725||n/m|
|Per share - basic||(0.24)||(0.17)||41||(0.41)||0.12||n/m|
|Per share - basic||(0.07)||0.07||n/m||0.30||1.02||(71)|
|Cash flow from (used in) operations||(6)||3,288||n/m||6,199||23,298||(73)|
|Per share - basic||(0.00)||0.15||n/m||0.28||1.04||(73)|
|Weighted average shares outstanding for the period - basic||21,895||22,392||(2)||22,164||22,464||(1)|
|As at||September 30,||December 31,|
|Total long-term borrowings3||31,872||31,608||1|
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 capital lease obligations and long-term debt, including current portions.
2014 Third Quarter Highlights:
- Tesla generated $4.0 million of gross margin on $18.9 million of revenues resulting in Adjusted EBITDA of ($1.5) million and a net loss of $5.2 million during the third quarter of 2014. Bottom line improvements for Tesla Canada were more than offset by declines for Tesla USA, Tesla Offshore and, to a lesser extent, Tesla International.
- Tesla Canada has committed contracts and outstanding proposals from new and existing clients for several substantial projects planned for the upcoming winter. These work commitments will utilize a substantial portion of the Company's three-component ("3C") cable and wireless multi-component seismic acquisition systems ("Hawk").
- Tesla USA supported a microseismic monitoring project during the third quarter of 2014.
- Tesla International completed a large three-dimensional ("3D") program in the UK which saw the first use of 3C sensors in the region by utilizing up to 6,000 of the Company's Hawk field station units ("FSUs"). Tesla International has developed a significant backlog of both 2D and 3D programs in the UK and continental Europe for the remainder of 2014 and a significant portion of 2015.
- Tesla International began mobilization on the second of four committed projects in Kenya during September. Management expects to be operational in Kenya through the first quarter of 2015.
- Tesla International also began mobilization on two programs in Ethiopia. A significant land, transition zone ("TZ") and marine program is expected to last through the first half of 2015 and a small two-dimensional ("2D") program should be completed during the fourth quarter of 2014.
- Following the initial stages of mobilization, Tesla International's land project in the Democratic Republic of the Congo ("DRC") has been suspended for a period of up to twelve months due to security uncertainty in the project area. The suspension should result in the recovery of committed and reimbursable costs incurred.
- Tesla Offshore's Bluefin Autonomous Underwater Vehicle ("AUV") had improved productivity towards the end of the quarter and successfully completed a number of projects. The backlog of project commitments is being completed and outstanding proposals remain.
- Tesla Offshore had two geophysical vessels working on large scale day rate exploration commitments for most of the quarter and an additional vessel worked on a backlog of turnkey geophysical projects. The construction division remained challenged with reduced levels of activity.
- The Company announced a strategic alliance with Calfrac Well Services Ltd., NanoSeis LLC, Reservoir Imaging Ltd. and Silixa Ltd. The primary goal of the strategic alliance is to be able to provide customers with a more complete integrated solution in terms of geomechanics and geomodelling.
Third Quarter Financial Results:
The Company's consolidated revenues including reimbursables decreased 40% in the third quarter of 2014 compared to the third quarter of 2013. The Company's revenue excluding reimbursables decreased 33%. Tesla USA experienced a severe decline in activity levels resulting in a significant drop in revenues. Tesla Canada and Tesla Offshore had slightly reduced revenues while Tesla International realized a slight improvement in revenues. The Company's gross margin declined in the third quarter of 2014 compared to the third quarter of 2013 due to the reduction in revenues and a consistent gross margin percentage. Despite the significant decline for Tesla USA, gross margin as a percentage of total revenue (including reimbursables) remained at 21% in the third quarter of 2014 consistent with the third quarter of 2013 due to improvements for Tesla Canada and Tesla International. Gross margin as a percentage of revenue excluding reimbursables declined slightly to 23% in the third quarter of 2014 compared to 25% in the third quarter of 2013 due to the significant reduction by Tesla USA and to a lesser extent Tesla Offshore. Reimbursable revenues declined due to a large decrease in front-end work undertaken by Tesla USA partially offset by increased reimbursables for Tesla International.
The third quarter remained slow for Tesla Canada with low levels of activity throughout the industry. Acquisition revenues doubled from the comparative quarter with an increase in activity days and the utilization of Hawk wireless equipment. However, total revenues declined from the third quarter of 2013 when acquisition revenues were supplemented by significant front-end reimbursables for fall programs. Tesla Canada reduced its negative gross margin during the third quarter of 2014 compared to the third quarter of 2013 due to the improvement in acquisition revenues along with a focus on controlling field overhead costs during the historically slow summer period leading to bottom line improvement.
Tesla USA continues to face a weak US seismic land acquisition market due to a reduced number of programs and a surplus of equipment across the industry. Tesla USA's total revenues declined significantly with little activity and a corresponding decrease in front-end related reimbursables during the current quarter. Tesla USA's extended seismic services agreement with a multi-client geophysical company utilizing 10,000 Hawk FSUs concluded in June and was not renewed due to lack of work commitments. Revenues were limited to a small 2D program and a microseismic monitoring project. In the third quarter of 2013, Tesla USA operated this Hawk crew for the entire quarter while a second Hawk crew operated for most of June 2013. Tesla USA's gross margin decreased with the decline in operating revenues.
Tesla International's revenues increased over the comparative quarter. During the third quarter of 2014, revenues were generated mainly from a large 3D project in the UK utilizing the Company's Hawk FSUs. In Africa, Tesla International recognized revenues related to the demobilization and mobilization between projects within Kenya, along with mobilization fees for the early stages of significant projects in the DRC and Ethiopia. During the third quarter of 2013, Tesla International completed and demobilized from a TZ project in the DRC. Tesla International also realized revenues resulting from the client termination of a contract in Somaliland. The third quarter of 2013 included a reduced level of activity for the UK crew. Gross margin improved quarter over quarter due to a heavy weighting of strong performance in the UK despite low margins on mobilization and demobilization fees in Africa. The comparative quarter benefitted from the contracted termination fee on the Somaliland project.
Tesla Offshore's revenue declined during the third quarter of 2014 compared to the third quarter of 2013. Geophysical revenues improved slightly quarter-over-quarter. Tesla Offshore had two geophysical vessels working on large scale day rate exploration commitments for most of the current quarter consistent with 2013. Tesla Offshore's Bluefin AUV worked periodically during the quarter with several periods of downtime to address technical issues. Additional geophysical turnkey projects were completed during the quarter but at a reduced level compared to the third quarter of 2013. The industry-wide decline in construction activity continued resulting in a significant drop in revenues. Tesla Offshore's gross margin declined quarter-over-quarter due to the reduced operating revenues and a lower gross margin percentage across all business lines.
The Company had negative Adjusted EBITDA in the third quarter of 2014, a decline from the positive Adjusted EBITDA generated in the third quarter of 2013. The decline was due to a decrease in absolute gross margin for reasons noted above along with an increase in general and administrative costs quarter-over-quarter. The Company's consolidated net loss increased in the third quarter of 2014 compared with the third quarter of 2013 due to the above noted decline in operating results. This was partially offset by a larger income tax recovery.
The Company's working capital decreased $6.2 million during the quarter to a working capital deficit of $5.7 million including a net cash deficit of $7.5 million. The Company did not generate any cash from operations during the quarter. Cash on hand and draws of $1.6 million on operating lines were used to repay $1.3 million of regular finance leases and fund $3.0 million of capital expenditures during the quarter most of which related to the significant project start-ups in Africa. A portion of this capital expenditure will be recoverable under the terms of the DRC contract suspension.
Total long-term borrowings decreased by $0.5 million during the quarter to $31.9 million due to regular payments made on outstanding finance leases partially offset by the weakening of the Canadian dollar against US dollar denominated long-term borrowings.
Shareholders' equity decreased $3.2 million to $57.7 million during the quarter due to the net loss incurred during the quarter. This was partially offset by an increase in accumulated other comprehensive income due to the weakening of the Canadian dollar against the functional currency of the Company's foreign subsidiaries and an increase in contributed surplus relating to share-based payment charges.
In October 2014, Tesla Offshore's insurance underwriters agreed to cover the previously disclosed claim and associated legal fees relating to an incident involving a time chartered vessel under contract to Tesla Offshore in November 2012. Notwithstanding this fact, the Company has maintained its cross claim against the vessel owner and operator until a final settlement is achieved. Consequently, no provision has been recorded in the Company's consolidated financial statements.
Despite challenges in certain regions during 2014 to date, there are positives for the Company moving forward. Significant contracts are in place across most segments and backlog remains strong. Tesla continues to look for ways to expand its service offerings and the geographical areas in which it operates.
North America Land Operations
In Canada, the outlook for the fourth quarter of 2014 and the first quarter of 2015 is less positive than it previously appeared. Generally, there is a lesser volume of work available to bid as the recent decrease in the West Texas Intermediate and Western Canadian Select benchmark oil prices has seen many upstream producers reduce their exploration budgets. There is also fierce competition between project management companies for the jobs that are available which in turn has resulted in some very aggressive bidding by our competitors. Due to weakness in the US and a recently announced merger of key players in the North American seismic market, certain competitors are focusing their efforts in Canada. Competitors and equipment rental companies have provided an increased capacity in Canada for both single component and 3C wireless equipment which is also contributing to increased pricing pressure. This fall a delayed harvest deferred the start-up of two crews until mid-October while a third crew mobilized at the beginning of November. However, for reasons noted above, Tesla Canada will be challenged to keep these three crews busy for the remainder of the quarter. A significant volume of the work is vibrator source and the crews will utilize a mix of the Company's wireless multicomponent Hawk systems, cable 3C and conventional single-channel recording equipment. Bid activity for projects has slowed but there are indications that additional bids for projects in the first quarter of 2015 are forthcoming. Several relationship customers have provided some assurance of continued work this winter. There continues to be some demand from existing customers for the cable 3C recording systems; however, the volume of available work has diminished. The majority of bid requests are from clients requesting wireless recording systems. Tesla Canada plans to operate up to six crews during the first quarter of 2015, with a continued focus on 3C and wireless technology for oilsands projects and shale plays in western Canada.
The US seismic market remains weak with heavy competition for available projects as oil and gas companies focus on drilling and development over exploration and associated seismic activity. Client budgets have been reallocated to enhance drilling operations which detrimentally affected scheduling of proprietary seismic projects, with the affected projects expected to be delayed into 2015. 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 remain focused on oil and liquids rich shale plays such as the Bakken, Utica (eastern Ohio), Marcellus (western Pennsylvania and West Virginia), Eagleford (south Texas) and Denver-Julesburg ("DJ") Basin. Tesla USA's 10,000 FSU Hawk crew completed its work commitment under an agreement with a multi-client geophysical company leaving this equipment idle since the end of June. While the strong relationship will be maintained, any future arrangement will likely have a reduced commitment moving forward. There are no additional projects scheduled at this time. While this allows Tesla USA the opportunity to utilize this system to pursue projects with different clients and diversify its revenue stream, the current US market has not presented many opportunities. A second crew utilizing a 6,000 FSU Hawk system had two third quarter projects deferred into 2015. A number of bids remain outstanding for future work with a number of microseismic monitoring projects likely in the coming months. With this reduction in utilization in the US, a number of FSUs were relocated to service projects in the UK and the majority of FSUs will be relocated to support the Canadian winter season. Further, Tesla USA has continued to focus on cutting and controlling overhead costs.
Tesla continues to allocate personnel and resources into the development of a microseismic business line. The Company has entered into a number of arrangements with complementary entities and in October announced a strategic alliance with Calfrac Well Services Ltd., NanoSeis LLC, Reservoir Imaging Ltd. and Silixa Ltd. The primary goal of the strategic alliance is to be able to provide customers with a more complete integrated solution in terms of geomechanics and geomodelling.
South and Central America Operations
Tesla continues to pursue opportunities to expand the Company's footprint in South and Central America. Tesla Colombia's office in Bogota continues to provide a base for marketing efforts in the region. Tesla has expanded its marketing efforts by hiring additional nationalized personnel with experience in the relevant countries where work is being pursued. Relationships have been built with both oil and gas and mining companies operating in South and Central America. Many of these companies are Canadian-based or international operators that Tesla has done work for in other regions of the world. Management has also focused on developing relationships with local companies that can provide support to Tesla's operations in South and Central America and provide access to potential clients. While no projects have been awarded at this time, the management team has been successful in expanding the number of bid opportunities it has participated in and is optimistic regarding current and prospective bids in several countries in the region.
Tesla International's UK and European crew has seen a sustained demand for acquisition services in both the hydrocarbon and renewables sectors both in the UK and mainland Europe. Despite minor delays in the work schedule due to permit challenges, this crew has a backlog of 2D and 3D programs that should see the crew highly utilized for the balance of 2014 and well into 2015. Several of these programs will utilize a portion of the Company's inventory of Hawk FSUs.
Two key areas of East Africa are experiencing greater levels of activity following political stabilisation and the interest of some of the major operators in developing their activities in the area. The first key area involves interests along the Great Rift Valley Trend from Tanzania into Ethiopia. This interest is in chasing plays based on discoveries in Uganda and successes in Northern Kenya. There remains significant 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 some new areas of activity to extend its current backlog.
Tesla International is currently mobilizing to the second of four committed 2D projects in Kenya. The current project will last into January 2015 with the final two projects to follow. These initial projects were aggressively bid in order to enter the Kenya market. Tesla International is pursuing additional projects related to the latest concession awards in Kenya and the associated work commitments in the region in order to extend backlog in the country.
Additional African crews are currently mobilizing for projects in Ethiopia. After a short delay, Tesla International will work on a small 2D land project during the fourth quarter of 2014 while simultaneously mobilizing a crew and equipment base for a significant land, TZ and marine program before the crews merge late in the year. Acquisition operations on the large program are expected to begin in December and last through the first half of 2015. This project will utilize the asset base that has been stored in Somaliland and will require additional capital expenditure. Management is pursuing additional follow-on projects in the region.
Following the initial stages of mobilization, Tesla International's land project in the DRC has been suspended for a period of up to twelve months due to security uncertainty in the project area. The early termination should result in the recovery of committed and reimbursable costs incurred. Management anticipates the early termination fee will cover a significant portion of capital spending incurred prior to the notification of suspension.
The Company's Funded Debt to EBITDA covenant was renegotiated for September 30, 2014, December 31, 2014 and March 31, 2015 to accommodate the capital spending for the secured African contracts.
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.
There have been positive developments related to Tesla Offshore's Bluefin AUV. Following an overhaul of certain systems, the AUV had improved productivity towards the end of the third quarter of 2014 and has continued work on a backlog of projects that have been secured despite challenging weather in the Gulf of Mexico. Management is pursuing additional proposals.
In addition to providing this much needed service to our existing customer base, offering AUV services worldwide has opened new markets for Tesla Offshore related to deep water oil and gas field development across the globe. In addition to the previously reported activities in Southeast Asia and Brazil, Tesla Offshore has recently responded to bids for projects in Angola, West Africa and Turkey. Tesla Offshore has hired additional experienced personnel to manage and optimize use of state-of-the-art technology in geophysical survey operations, including the AUV service line. The company also continues to further the development of geo-hazards interpretation services for local and international clients.
Tesla Offshore's geophysical activities are beginning to wind down heading into the winter months. The two large scale day rate exploration projects have ceased operations for this year, but will resume in May 2015. Tesla Offshore's dedicated geophysical vessel is supporting the AUV operations. A second geophysical vessel is servicing a backlog of turnkey work generated from the Central and Eastern Gulf of Mexico lease sales that took place in March 2014. A shallow draft vessel worked on a project for the first half of the fourth quarter of 2014.
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. Management has formed an alliance with a representative in Brazil and 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 two 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.
The Company wishes to announce today that Stuart Craven, Vice President, Chief Financial Officer and Secretary, has advised Tesla's Board of Directors and senior management team of his resignation effective November 30, 2014. Since joining Tesla, Mr. Craven has made significant contributions to the Company.
On November 6, 2014 Randall Bergeron, President and one of the founders of Tesla Offshore, officially announced his retirement effective December 15, 2014 after 34 years in the industry including 10 years with Tesla Offshore. Mr. Bergeron had previously informed the Company of his intention and has agreed to act as a consultant for the Company on a part-time basis. The Company is pleased to announce that C.D. Schempf, another founder of Tesla Offshore and currently Senior Vice President Sales and Marketing, will succeed Mr. Bergeron and assume the position of President, in addition to maintaining his current duties.
"The leadership, integrity, and work ethic of both Mr. Bergeron and Mr. Craven will be missed. We wish Mr. Bergeron a well-deserved retirement, and Mr. Craven the best in his new endeavour", commented Richard Habiak, President and Chief Executive Officer. The Company has initiated a search process for the Chief Financial Officers' position, and further information will follow once an appointment is made.
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, 2014.
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.
Tesla provides geophysical and related services in Canada through Tesla Exploration Partnership, internationally through its wholly owned subsidiaries Tesla Exploration International Ltd., Tesla Exploration Trinidad Ltd. and Tesla Exploration Colombia S.A.S., 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".
SOURCE: Tesla Exploration Ltd.
For further information:
Requests for shareholder information should be directed to:
Mr. Richard Habiak
President and CEO
Mr. Stuart Craven
Vice President and CFO