Tesla Reports 2015 First Quarter Results Including Salary and Directors' Fee Reductions

Symbol: TXL
Stock Exchange: TSX

CALGARY, May 11, 2015 /CNW/ - Tesla Exploration Ltd. ("Tesla" or the "Company") today announces its 2015 first quarter operating and financial results.

(000s, except per share data)			Three months ended
(unaudited)			March 31,
				2015	2014	Change
				$	$	%
Revenue				26,189	61,493	(57)
Revenue excluding reimbursables				23,443	49,984	(53)
Gross margin^1				5,351	16,324	(67)
	As a % of revenue excluding reimbursables			23%	33%
Net earnings (loss)				(14,711)	3,129	n/m
	Per share - basic			(0.67)	0.14	n/m
Adjusted EBITDA^2				17	10,057	(100)
	Per share - basic			0.00	0.45	(100)
Cash flow from (used in) operations				(191)	7,342	n/m
	Per share - basic			(0.01)	0.33	n/m
Weighted average shares outstanding for the period - basic				21,891	22,391	(2)
Capital expenditures				473	16,210	(97)
As at				March 31,	December 31,
				2015	2014	Change
				$	$	%
Working capital				(3,202)	(3,406)	(6)
Total assets				115,002	117,119	(2)
Total long-term borrowings^3				39,792	35,971	11
Equity				45,275	56,383	(20)

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.

2015 First Quarter Highlights

• Tesla generated $5.4 million of gross margin on $26.2 million of revenues resulting in Adjusted EBITDA of less than $0.1 million and a net loss of $(14.7) million during the first quarter of 2015. Tesla Canada, Tesla USA, Tesla Offshore and, Tesla International all experienced declines in activity during the quarter.
• Tesla Canada peaked at 5 crews during the first quarter of 2015 and operated nearly 1.1 million channel days including three-dimensional ("3D") and three-component ("3C") programs throughout British Columbia, Alberta and Saskatchewan. Canadian operations utilized 22,000 field station units ("FSUs") of the Company's multi-component wireless acquisition system ("Hawk") on several significant programs.
• Tesla Canada has committed contracts and outstanding proposals from new and existing clients for several projects planned for the upcoming summer. These work commitments will utilize the Company's Hawk system.
• Tesla USA supported a microseismic monitoring project during the first quarter of 2015 and was able to secure a significant program for the coming summer.
• Tesla International secured a large three-dimensional ("3D") program in the UK for the second half of 2015.
• Tesla International completed its mobilization on a significant land, transition zone ("TZ") and marine program and began acquisition activities at the end of March. This program is expected to last into the third quarter of 2015.
• Tesla Offshore's Bluefin Autonomous Underwater Vehicle ("AUV") was demobilized and returned to the manufacturer for testing and optimization in Boston and Bermuda. The system is expected to be returned to service in July.
• Tesla Offshore had several geophysical projects, with vessels working on turnkey exploration commitments for part of the seasonally slow winter season. Tesla Offshore continues to work hard to strengthen its backlog of committed geophysical, trawling and positioning projects.
• In response to the significant decrease in commodity prices and ongoing challenges facing the seismic industry, Tesla continues to develop a plan to prudently manage its cost structure and retain key employees to remain financially and operationally successful long term. This includes continuing to reduce overheads across all divisions. These measures include layoffs of field and administrative personnel, 10% reduction in salary across the Company, suspension of the Company's RRSP/401k matching plan, 20% reduction of director fees, as well as a concerted effort to optimize field crew size and operational practices. In addition, the Company has significantly reduced planned capital spending for 2015.
• Tesla continues to allocate personnel and resources to the development of a microseismic business line. The Company has entered into a number of arrangements with complementary entities including 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 integrated solution of geomechanics and geomodelling.

First Quarter Financial Results

The Company's consolidated revenues including reimbursables decreased 57% to $26.2 million in the first quarter of 2015 compared to $61.5 million in the first quarter of 2014. The Company's revenue excluding reimbursables decreased 53% to $23.4 million from $50.0 million for the same periods. Tesla experienced significant declines in activity levels across all divisions, resulting in a significant drop in revenues. The Company's gross margin declined to $5.4 million in the first quarter of 2015 compared to $16.3 million in the first quarter of 2014 due to the reduction in revenues and a 7% decrease in gross margin percentage including reimbursables to 20% from 27% in 2014 (10% decrease excluding reimbursables to 23% from 33%). Pricing pressure due to oversupply of seismic recording equipment in the North American market caused the erosion of margins in Tesla Canada and Tesla USA. Tesla International's margin was adversely affected by a lack of recording revenue as its UK crew was idle for most of the quarter, while the crew in Ethiopia continued its mobilization, only beginning the acquisition phase of the project at the end of March. Reimbursable revenues declined due to a large decrease in front-end work undertaken by Tesla Canada, Tesla USA and Tesla International. Tesla Offshore's margin improved to (12%) from (21%) due to more efficient operation of the Company's Autonomous Underwater Vehicle ("AUV") which was active during January before being demobilized to the manufacturer in February for testing and optimization.

The first quarter was much slower than it has been historically for Tesla Canada with lower levels of activity throughout the industry. Acquisition revenues halved from the comparative quarter with decrease in activity days to 311 from 512 in the first quarter of 2014 as clients cancelled or postponed programs into the latter half of 2015 and first quarter of 2016. The Company witnessed exploration spending being reduced and/or suspended in response to declining commodity prices. The Company averaged 4 crews, peaking at 5 compared to an average of 6 and a peak of 8 in the first quarter of 2014. Prices also fell as clients requested discounts for the Company's services in light of the lower commodity price environment. Cancellation of many programs resulted in increased competition both from within Canada as well as from US competitors looking to redeploy idle equipment. The Company continued to experience demand for its Hawk wireless equipment however, as it has grown more efficient with this system it 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. Accordingly Tesla Canada has continued its focus on controlling field and indirect overhead costs while optimizing its logistical and scheduling processes in an attempt to maintain its profitability.

Tesla USA continues to face a very 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. Revenues were limited to a small two-dimensional ("2D") program and a microseismic monitoring project as well as advance work for upcoming programs. In total, Tesla USA had 41 activity days compared to 209 in the comparative quarter. In the first quarter of 2014, Tesla USA operated two Hawk crews for most of the quarter on large three-dimensional ("3D") programs. Tesla USA's gross margin decreased with the decline in operating revenues.

Tesla International's revenues decreased significantly over the comparative quarter. During the first quarter of 2015, revenues were generated mainly from mobilization revenue as the Company moved its African crew into Ethiopia in advance of a large multi-source program. The Company began acquisition on this program at the end of March. The Company continued to stand down and eventually demobilized off of its anticipated project in Kenya due to issues with security and local labour that could not be resolved with the client. The client is currently disputing the charges brought forth by Tesla International for the preliminary mobilization and standby and the Company hopes to negotiate a settlement in the coming weeks. An additional project in Kenya that was planned for the second half of the year has been postponed however, the Company believes it will be awarded a new project in Ethiopia that should commence in the third quarter of 2015.  There was limited activity for the UK crew as political uncertainty has delayed the award, exploration and development of many prospective resource plays. Tesla International generated a small amount of report processing revenue in the quarter as well as mobilization revenue as the UK crew began to prepare for a significant 3D project which should begin recording in July. During the first quarter of 2014, revenues were generated from a large 3D nodal project in the UK, mobilization revenues for two projects in Africa, operational revenues in Kenya and the settlement of the Somaliland contract termination claim.

Tesla Offshore's revenue declined during the first quarter of 2015 compared to the first quarter of 2014. Geophysical revenues improved slightly quarter-over-quarter as the Company experienced better weather and more effective use of its AUV in January than in 2014 when the Company first took delivery and experienced a myriad of delays and technical deficiencies. Tesla Offshore has been able to work around these challenges throughout the AUV's first year of service however, its overall performance has not lived up to expectation. In February, the system was returned to the manufacturer in Boston where Company personnel continue to work with the manufacturer to resolve these issues and optimize the system's performance. This work will continue throughout the second quarter of 2015 including deep water testing off the coast of Bermuda. Management currently expects that the AUV will return to service in July of 2015 at its full capability. While the AUV has been demobilized, the Company's owned vessel serviced several lump sum projects during the quarter for 13 days of activity. Tesla Offshore also used a chartered vessel for 14 days of geophysical projects. The construction division continues to be hampered by a weak market for positioning and trawling services particularly during the winter months when weather reduces the available days of operation. In the first quarter of 2015 they had 88 activity days in the construction division compared to 136 in the comparative quarter.

The Company had Adjusted EBITDA of less than $0.1 million ($0.00 per share) in the first quarter of 2015 compared to Adjusted EBITDA of $10.1 million ($0.45 per share) in the first quarter of 2014. The decline was due to a decrease in absolute gross margin for reasons noted above offset by a decrease in general and administrative costs quarter-over-quarter.

The Company had a consolidated net loss of $(14.7) million (($0.67) per share) in the first quarter of 2015 compared with consolidated net income of $3.1 million ($0.14 per share) in the first quarter of 2014. The increase in the consolidated net loss was due to the above noted decline in operating results. In addition, the loss was increased by the derecognition of deferred tax assets in the quarter.

Outlook

Despite many challenges facing the Company at the current time, there are positives for the Company moving forward. Significant contracts are in place and the Company anticipates improved performance of its AUV when it is expected to return to service in July. Significant 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 has maintained a healthy backlog. 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 significantly reduced planned capital spending for 2015.

North America Land Operations
In Canada, the outlook for the remainder of 2015 continues to be very uncertain. 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 very aggressive bidding by the Company's competitors. Due to weakness in the US and the previously 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. More and more of the work available for bid is being requested using wireless systems and as such the Company remains well positioned to service this market with its 22,000 combined FSU Hawk system in North America. Demand for this system in 2015 appears to be extending into the second and third quarter, including potash programs in Saskatchewan. Tesla Canada has already secured summer work expected to begin in June or July, with additional programs currently being tendered. There remains limited visibility into the fourth quarter of 2015 however, with the stabilization of commodity prices for the time being, the Company is optimistic it will be able to secure contracts that will allow it to improve on the results of the fourth quarter of 2014 in 2015.

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 projects, with the affected projects expected to be delayed into 2016. 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 was successful in securing a large project in Pennsylvania for the third quarter of 2015. A number of bids remain outstanding as the Company attempts to secure follow on work to keep the crew active for the balance of 2015.

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 including its 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 on a limited basis. Tesla Colombia's office in Bogota continues to provide a base for marketing efforts in the region. 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 seen a sustained demand for acquisition services in both the hydrocarbon and renewables sectors both in the UK and mainland Europe. Despite delays due to permit challenges to start 2015, this crew has a backlog of 2D and 3D programs that should see the crew highly utilized for the balance of 2015 and well into 2016.

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 pursuing 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 new areas of activity to extend its current backlog.

The African crew is currently recording on a large land, TZ and marine program in Ethiopia. This project will continue into the third quarter of 2015 with a possible extension which would see recording activities well into 2016. Several tenders are outstanding and the Company believes it will secure an additional project beginning in the third quarter.

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. When operational 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 support it has received from its supplier and expects that the AUV will return to operation in July 2015 at a more efficient rate than was experienced in 2014. While it awaits the recommissioning of the AUV the Company's owned vessel continues to service its geophysical clients. Tesla Offshore has secured a significant contract for geophysical activities which will keep one vessel active throughout most of the summer months. Upon the return of the AUV the Company's owned vessel will again mobilize to support the AUV while other geophysical projects will be completed using a chartered vessel.

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 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.

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, 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.

Requests for shareholder information should be directed to: Mr. Richard Habiak, President and CEO, [phone]; Mr. Graham Reid, Vice President and CFO, [phone]