Tesla Exploration Ltd. (TSX:TXL) ("Tesla" or the "Company") today announces its
2014 first quarter operating and financial results.
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(000s, except per share data) Three months ended
(unaudited) March 31,
2014 2013 Change
$ $ %
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Revenue 61,493 66,356 (7)
Revenue excluding reimbursables 49,984 53,919 (7)
Gross margin(1) 16,324 25,279 (35)
As a % of revenue excluding
reimbursables 33% 47%
Net earnings 3,129 10,289 (70)
Per share - basic 0.14 0.46 (70)
Adjusted EBITDA (2) 10,057 19,076 (47)
Per share - basic 0.45 0.84 (46)
Cash flow from operations (3) 7,342 15,776 (53)
Per share - basic 0.33 0.70 (53)
Weighted average shares outstanding
for the period - basic 22,391 22,579 (1)
Capital expenditures 16,210 3,088 425
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As at March 31, December 31,
2014 2013 Change
$ $ %
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Working capital 4,977 11,925 (58)
Total assets 160,748 141,616 14
Total long-term borrowings (4) 33,993 31,608 8
Equity 70,452 65,239 8
(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 First Quarter Highlights:
-- Tesla generated $16.3 million of gross margin, $10.1 million of Adjusted
EBITDA and net income of $3.1 million on $61.5 million of revenues
during the first quarter of 2014. Improvements for Tesla USA were more
than offset by declines for Tesla Canada, Tesla International and Tesla
Offshore.
-- Tesla Canada peaked at eight crews and operated over 90,000 channels
during the seasonally strong first quarter of 2014 mainly in the
Oilsands, Horn River and Heavy Oil regions of western Canada. Canadian
operations utilized its 13,000 stations (39,000 channels) of cable
three- component ("3C") recording equipment and up to 18,000 field
station units ("FSUs") (54,000 channels) of a wireless multi-component
acquisition system ("Hawk"), including 12,000 Hawk FSUs (36,000
channels) owned by the Company.
-- To meet growing demand for wireless capabilities, Tesla Canada continued
to expand the Company's wireless multi-component acquisition system base
with the purchase of 6,000 multi- component geophones and 6,000 Hawk
FSUs (18,000 channels) in January for utilization during the recent
winter. The Company now owns 22,100 Hawk FSUs (66,300 channels).
-- Tesla USA continued work under an extended seismic services agreement
with a multi-client geophysical company utilizing 10,000 Hawk FSUs
(30,000 channels) for most of the first quarter of 2014. Existing work
commitments extend through June 2014.
-- Tesla USA kept a smaller second crew utilized during the first quarter
of 2014.
-- Tesla Offshore's Bluefin Autonomous Underwater Vehicle ("AUV") was
delivered and field tested early in 2014 and successfully completed its
first project in the Gulf of Mexico during late February 2014.
Subsequent technical issues are expected to keep the AUV out of service
until the end of May 2014 when it is forecast the AUV will return to
work on a significant backlog of project commitments.
-- Tesla Offshore experienced a challenging quarter in both the geophysical
and construction divisions with reduced levels of activity, poor weather
and delays in getting the AUV fully operational.
-- Tesla International operated a crew in the UK on a large three-
dimensional ("3D") nodal program during the first quarter of 2014 and
has developed a significant backlog of 3D programs for the remainder of
2014.
-- Tesla International began operations on the first of two contracted land
projects in Kenya late in the first quarter of 2014 following an
extended mobilization into the country. Management is pursuing other
opportunities in the region and expects to be operational in Kenya for
most of 2014.
-- Tesla International recently finished mobilization on a marine program
in the Democratic Republic of the Congo ("DRC"). Operations began in
late-April and will remain active into the third quarter of 2014.
-- Tesla International settled its Somaliland contract termination claim
during the first quarter of 2014 resulting in the recognition of
additional revenues in the quarter.
First Quarter Financial Results:
The Company's consolidated revenues including reimbursables decreased 7% in the
first quarter of 2014 compared to the first quarter of 2013. The Company's
revenue excluding reimbursables also decreased 7%. Improvements in activity
levels for Tesla USA were more than offset by declines in activity levels for
Tesla Canada, Tesla International and Tesla Offshore. The Company's gross margin
declined in the first quarter of 2014 compared to the first quarter of 2013 due
to the reduction in revenues and a decline in gross margin percentage. Gross
margin as a percentage of total revenue (including reimbursables) decreased to
27% in the first quarter of 2014 from 38% in the first quarter of 2013 due to
the challenges faced by Tesla International and Tesla Offshore during the
current quarter. Gross margin as a percentage of revenue excluding reimbursables
declined to 33% in the first quarter of 2014 compared to 47% in the first
quarter of 2013 for similar reasons. Reimbursable revenues declined slightly as
a decrease in front- end work undertaken by Tesla Canada was partially offset by
the increased activity and front-end work undertaken by Tesla USA and to a
lesser extent increased reimbursables for Tesla International.
Tesla Canada's total revenues declined due to drops in both acquisition and
reimbursable revenues. Despite lower levels of activity across the industry,
Tesla Canada benefited from its long-term customer relationships and
efficiencies from new technology and crew performance to secure a significant
portion of the available work. Tesla Canada operated an average of over six
crews during the first quarter of 2014, peaking at eight crews in early March.
Tesla Canada also operated up to eight crews during the first quarter of 2013.
Revenues were negatively impacted by a drop in activity days, reductions in
rates and a heavier weighting of two-dimensional ("2D") projects. This was
partially offset by strong utilization of 3C equipment, including a heavy
weighting of Hawk multi-component wireless equipment which derives higher
revenues than conventional single-component cable equipment. Tesla Canada's
gross margin declined with the drop in operating revenues.
Despite a soft US seismic land acquisition market, Tesla USA saw an increase in
revenues driven mainly by increased activity levels and, to a lesser extent, an
increase in front-end related reimbursables. Activity levels improved
significantly with two Hawk crews operating throughout most of the quarter on
large 3D programs. Operations in the US were limited during the first quarter of
2013 with the initial Hawk system in Canada until early March when Tesla USA
returned to work under its agreement with a multi-client geophysical company.
Tesla USA's gross margin increased with the improvement in operating revenues
and benefitted from the utilization of additional Hawk equipment purchased in
June 2013.
Tesla International's revenues declined from the comparative quarter. 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. During
the first quarter of 2013, Tesla International completed projects in Tanzania
and the DRC and began mobilization into Somaliland for a contract in the
country. Tesla International also completed projects in Europe and the UK.
Current quarter gross margins decreased due to cost overruns incurred in Kenya
despite the benefits of the Somaliland settlement and a successful project in
the UK.
Tesla Offshore's revenue declined significantly during the first quarter of 2014
compared to the first quarter of 2013. There were industry-wide declines in both
geophysical and construction activity quarter over quarter. Further, Tesla
Offshore was unable to generate significant revenues from its AUV following its
delivery during the quarter due to ongoing technical issues. Management is
working with the AUV supplier to rectify the issues. Tesla Offshore's gross
margin was negative due to the reduced operating revenues, poor weather and
significant costs incurred to address the AUV's technical issues.
The Company's Adjusted EBITDA decreased in the first quarter of 2014 compared to
the first quarter of 2013. The decline was due to a decrease in absolute gross
margin for reasons noted above. General and administrative costs remained fairly
consistent quarter over quarter. The Company's consolidated net income also
decreased in the first quarter of 2014 compared to the first quarter of 2013 due
to a decline in Adjusted EBITDA and increased depreciation related to the
Company's recent Hawk and AUV purchases. This was partially offset by a
corresponding reduction in income tax expense.
The Company's working capital decreased $6.9 million during the quarter to $5.0
million including a net cash deficit of $9.7 million. Operating cash flows,
operating lines and a $3.0 million draw on long-term debt were used to repay
$1.3 million of regular finance leases and fund $16.0 million of capital
expenditures during the quarter including 6,000 Hawk FSUs and Tesla Offshore's
AUV.
Total long-term borrowings increased by $2.4 million during the quarter to $34.0
million. Draws on long- term debt of $3.0 million and the weakening of the
Canadian dollar against US dollar denominated long- term borrowings were
partially offset by regular payments made on outstanding finance leases.
Shareholders' equity increased $5.3 million to $70.5 million during the quarter
due to the earnings generated during the quarter, 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 along with an
increase in contributed surplus relating to share-based payment charges.
Outlook:
Despite challenges in certain regions during the first quarter of 2014, the
outlook remains positive throughout the Company. Significant contracts are in
place across all 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
Tesla Canada operated three Hawk crews into April, two of which worked on large
3D programs until mid- month as spring break-up hit western Canada. This
activity will lead to improved revenues in the second quarter of 2014 compared
to the second quarter of 2013. Improvement in natural gas prices may lead to an
increase in exploration activity during the summer months. However, at this
time, the Company only expects to operate one crew periodically during the
remainder of the second and third quarters from potential activity in both
western and eastern Canada. There is optimism regarding fall and winter work
based upon early bid requests from new clients, First Nations approvals for
specific projects and expected recurring work for existing clients. Tesla Canada
expects to be able to capitalize on these opportunities utilizing its cable 3C
recording equipment along with both owned and rented multi- component Hawk
wireless systems.
In the US, a 10,000 FSU Hawk crew continues work on 3D programs under an
agreement with a multi- client geophysical company. This crew will be operating
in Pennsylvania into June 2014 with additional projects likely to follow in the
third quarter of 2014. Tesla USA continues to work on terms for an extension to
the existing multi-year agreement. While the strong relationship will be
maintained, any arrangement will likely have a reduced commitment moving forward
and allow Tesla USA the opportunity to utilize this system to pursue projects
with different clients and diversify its revenue stream. A second crew utilizing
a 6,000 FSU Hawk system has projects scheduled for the third quarter of 2014
with a number of additional bids outstanding. This system had been relocated to
Canada for the conclusion of the winter season. The US seismic market remains
soft with heavy competition for available projects. 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) and Denver-Julesburg
("DJ") Basin.
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. 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.
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 in the current work schedule due to
permit challenges, this crew has a backlog of 2D and 3D programs that should see
the crew highly utilized throughout 2014. Several of these programs require the
use of a single-component nodal system. Rental and purchase options for this
system are being reviewed including the use of the Company's inventory of Hawk
FSUs which sees the first use of 3C sensors on a large scale 3D project in the
region. Management is also pursuing opportunities to expand its European
presence.
Tesla International began operations on a 2D project in Kenya in late March with
an additional program contracted to follow that will keep this African crew busy
late into 2014. 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. Tesla International has also
recently completed mobilization and start-up operations on a marine project in
the DRC that should keep a second African crew utilized until the end of the
second quarter of 2014.
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 the recent discoveries in
Uganda and successes in Northern Kenya. There remains significant interest in
the lake zones of this Rift Valley Trend with Tesla International well placed to
exploit the transition zone ("TZ") acquisition opportunities in the area. 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 expects to be successful in obtaining
additional work from both these opportunities and from exploiting some potential
new areas of activity to extend its current backlog.
Following the termination of a contract in Somaliland due to security concerns,
Tesla International engaged with the Somaliland Ministry of Energy and has left
a limited asset base in Somaliland pending the creation of the region's Oil
Police Support Unit and the outcome of active bids in the region.
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
As previously disclosed, a significant focus of Tesla Offshore's commitment to
expansion centers on its recent purchase of a Bluefin 21 AUV. The AUV was
delivered and began field tests early in 2014 and successfully completed its
first project in the Gulf of Mexico during late February. Subsequent to the
first project, the AUV encountered a number of technical issues that have kept
the AUV from servicing the backlog of projects that management has obtained.
Management is working with the AUV supplier to rectify the issues and the AUV is
expected to be operational again by the end of May 2014.
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 and is
optimistic regarding significant AUV work in Southeast Asia. Tesla Offshore has
hired several experienced personnel to manage and optimize use of
state-of-the-art technology in geophysical survey operations, including the AUV
service line. This includes the recruitment of one of our longstanding top
contractors to manage AUV operations, as well as a seasoned AUV Party Chief with
thirteen years of experience performing AUV operations worldwide and the
establishment of an alliance with a custom software developer with equal AUV
experience and the ability to develop needed applications for handling AUV and
other sensor data sets. 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 ramp up following the
seasonal winter slowdown. Tesla Offshore's dedicated geophysical vessel is
working on a limited backlog of turnkey work until the AUV returns to
operations. Additional opportunities are expected from the Central and Eastern
Gulf of Mexico lease sales that took place in March 2014. In mid-April, Tesla
Offshore remobilized the first of two geophysical vessels to continue the large
scale day-rate exploration projects that were put on hold for the winter months.
The second vessel remobilized in early May. Both vessels are expected to work
continuously until the end of the third 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. Despite a
reduced level of trawling and positioning work in the Gulf of Mexico, special
project work relating to survey support for removal systems is expected to begin
in May, much earlier than in the prior year. 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
multi-year project in Alaska has been placed on standby awaiting word of
approved permit clarifications and a return to full operations. As long-term
clients continue to expand into international areas, Tesla Offshore continues
configuring systems and staff to profitably provide services to support those
expansions.
Tesla Offshore has completed development for the provision of 3D seismic
interpretation and completed its first project in early May, with a second
project well under way at that time. The backlog of awarded prospects for this
new service continues to grow. To date, the 3D seismic interpretation projects
awarded to Tesla Offshore have been in conjunction with award of 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.
On October 30, 2013, the Company received notice that a complaint had been filed
under maritime law against Tesla Offshore and a vessel owner and operator (the
"Defendants") by an unrelated third-party (the "Plaintiff") in the United States
District Court for the Eastern District of Louisiana (the "Court"). The
Plaintiff is seeking in excess of $10 million USD ($11 million) from the
Defendants for alleged physical damages and economic losses resulting from an
incident involving a time chartered vessel under contract to Tesla Offshore in
November 2012. The vessel owner and operator filed its defense against the
Plaintiff's claim and brought a cross-claim charge against Tesla Offshore
related to the incident. Tesla Offshore has responded to the complaint by
denying any and all liability and fault and filing a cross claim against the
vessel owner and operator. Tesla Offshore notified its insurance underwriters of
the claim and a coverage dispute exists. Tesla Offshore has filed a complaint
against its insurer, insurance broker and the vessel owner and operator's
insurer for wrongful failure to honor their obligations to defend Tesla Offshore
and insure the claim. Tesla Offshore's insurer subsequently informed Tesla
Offshore that it would defend Tesla Offshore against this claim subject to a
reservation of rights. The Company has engaged its own legal counsel to defend
Tesla Offshore against the claims and ensure appropriate coverage by the
insurer. The direction and financial consequences, if any, of these claims
cannot be determined at this time and, consequently, no provision has been
recorded in the Company's consolidated financial statements.
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, 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.
About Tesla
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".
FOR FURTHER INFORMATION PLEASE CONTACT:
Mr. Richard Habiak
President and CEO
(403) 216-0990
Mr. Stuart Craven
Vice President and CFO
(403) 692-4602