CALGARY, ALBERTA--(Marketwire - March 20, 2012) - Tesla Exploration Ltd. (TSX:TXL.TO - News) ("Tesla" or the "Company") today announces its 2011 annual and fourth quarter operating and financial results.
(000s, except per
share data) Three months ended Year Ended
(unaudited) December 31 December 31
2011 2010 Change 2011 2010 Change
$ $ % $ $ %
Revenue 62,319 40,054 56 225,450 118,337 91
reimbursables 48,559 33,340 46 162,107 101,040 60
Gross margin(1) 11,691 11,081 6 39,761 32,747 21
As a % of revenue
reimbursables 24% 33% 25% 32%
Net earnings (loss) 719 (1,913) n/m 576 (3,370) n/m
Per share - basic 0.03 (0.08) n/m 0.03 (0.16) n/m
EBITDA (2) 7,486 5,471 37 23,923 15,123 58
Per share - basic 0.33 0.24 37 1.05 0.73 44
Cash flow from
operations (3) 5,933 5,347 11 22,277 12,696 75
Per share - basic 0.26 0.23 11 0.98 0.61 60
for the period -
basic 22,793 22,795 n/m 22,794 20,729 10
Capital expenditures 4,642 6,250 (26) 12,877 13,948 (8)
As at 31 31
2011 2010 Change
$ $ %
Working capital 10,411 7,521 38
Total assets 141,088 128,258 10
borrowings (4) 29,073 35,859 (19)
Equity 57,993 55,388 5
1. Gross margin is defined as gross profit before depreciation and
amortization. Gross margin is a measure that does not have a meaning
prescribed under IFRS in Canada and accordingly, may not be comparable
to similar measures used by other companies.
2. EBITDA is defined as income before interest, taxes, depreciation,
amortization and impairments, gains or losses on foreign exchange, gains
or losses on sales of capital assets, bad debt provisions and stock-
based compensation. EBITDA for the three and twelve months ended
December 31, 2010 includes $47,000 and $961,000 of transaction costs
related to Tesla's combination with Norex. EBITDA and EBITDA per share
are presented because they are frequently used by securities analysts
and others for evaluating companies and their ability to service debt.
EBITDA is a measure that does not have any standardized meaning
prescribed under IFRS in Canada and accordingly, may not be comparable
to similar measures used by other companies. The Company is consistent
with its calculation of EBITDA year over year.
3. Cash flow from operations is defined as "Cash provided by operating
activities before changes in non-cash working capital." Cash flow from
operations and cash flow from operations per share are measures that
provide shareholders and potential investors with additional information
regarding the Company's liquidity and its ability to generate funds to
finance its operations. Management utilizes these measures to assess the
Company's ability to finance operating activities and capital
expenditures. Cash flow from operations and cash flow from operations
per share are not measures that have any standardized meaning prescribed
by IFRS in Canada, and accordingly, may not be comparable to similar
measures used by other companies. The Company is consistent with its
calculation of cash flow from operations year over year.
4. Includes capital lease obligations and long-term debt, including current
-- Tesla generated $23.9 million of EBITDA(2) and $225.4 million of
revenues in 2011, a significant improvement over 2010 with a sharp
increase in activity in Canada during the first quarter of 2011 and an
increase in US activity throughout the year offsetting declines in
International and Offshore operations.
-- Tesla peaked at eleven crews and over 100,000 channels in Canada during
the first quarter of 2011 almost all of which was on three-dimensional
("3D") and three-component ("3C") programs.
-- Canadian operations utilized over 30,000 stations of 3C recording
equipment, including 10,000 stations owned by the Company. The Company
acquired an additional 3,000 stations during 2011 to support demand for
the 2012 winter. This equipment is particularly valuable to
understanding the unique geophysical aspects of the unconventional
resource plays in North America such as the oilsands and shale plays
where a large portion of Tesla's current workload was located.
-- Tesla operated four crews in the US during the second half of 2011 after
an extremely wet first half of the year. Multiple crews gained valuable
experience utilizing wireless systems further developing strategic
alliances with clients and equipment suppliers.
-- Tesla incorporated a new subsidiary, Tesla Exploration Trinidad Ltd.
("Tesla Trinidad"), and has worked on a significant project in Trinidad
throughout the year further expanding the Company's geographical
footprint. Tesla Trinidad substantially completed survey, line cutting
and drilling operations during the year and prepared for the
commencement of recording in early 2012.
-- Tesla Offshore continued to generate positive results despite the impact
of the Macondo oil spill on activity levels in the Gulf. Construction
activity peaked during the summer months supporting client operations on
as many as 16 vessels. Geophysical activity benefitted from several deep
tow projects throughout the year.
-- Tesla International operated a crew in the UK throughout the year on
hydrocarbon and mineral projects while two crews operated in east Africa
during a substantial part of the second half of the year. Tesla
International added a fleet of purpose built pontoon vessels during the
fourth quarter to support its lake and transition zone operations.
Fourth Quarter Financial Results:
The Company's consolidated revenues including reimbursables increased 56% in the fourth quarter of 2011 compared to the fourth quarter of 2010. North American land operations were the main driver behind the improvement with a significant increase in US activity along with the continued progress of Tesla Trinidad's current operation. The US division operated three crews continuously throughout the fourth quarter of 2011 on large three-dimensional ("3D") programs requiring increased levels of equipment and personnel compared to a maximum of three crews operating periodically throughout the fourth quarter of 2010 on smaller scale programs. This increased activity also led to a corresponding increase in third-party contractor revenues. Tesla Trinidad continued with front-end operations on its program during the fourth quarter of 2011 contributing revenues related to survey, line clearance, drilling and weather standby. Canadian revenues also improved slightly despite a late winter start-up with a strong December and a greater weighting of 3D and three-component ("3C") work during the quarter compared to the fourth quarter of 2010 when crews had a significant amount of two-dimensional ("2D") programs. International revenues decreased slightly from the comparative quarter due mainly to reduced revenues from operations in Africa. The fourth quarter of 2011 included a full workload for the UK crew, operating activity, standby and demobilization charges on the program in northern Ethiopia and a lake project in the Democratic Republic of Congo ("DRC"). In the fourth quarter of 2010 revenues were earned from the demobilization from eastern Ethiopia, a significant project in Uganda and a series of projects in the UK. Tesla Offshore's activity levels declined throughout the fourth quarter heading into the historically slower winter months with activity levels remaining behind the fourth quarter of 2010. The continued impact of the Macondo oil spill and resulting lease sale cancelations has reduced activity levels in the Gulf from those in 2010. The Company's revenue excluding reimbursables increased 46%.
Gross margin in the fourth quarter of 2011 was slightly ahead of the fourth quarter of 2010. The Company had improvements in gross margin in Canada and US land operations which more than offset the decline in International gross margin. Canada gross margins benefitted from increased operating revenue, including fourth quarter 3C work which generates higher margins. US gross margins followed the increase in activity levels while Offshore gross margins fell in line with reduced activity levels. International gross margin declined from the comparative quarter due to the reduced level of revenues and poor results on the mobilization and early phase of the DRC lake project in late 2011. The fourth quarter of 2010 had benefitted from the completion of the demobilization from eastern Ethiopia. Trinidad had limited gross margin during the quarter due to the delay in recording start up. Limited margin was expected during the front-end phase of operations. Gross margin as a percentage of total revenue (including reimbursables) decreased to 19% in the fourth quarter of 2011 from 28% in the fourth quarter of 2010 due to the significant increase in flow-through reimbursables associated with US land acquisition revenues, the low margin nature of the front-end phase of the Trinidad operations being conducted mainly by a third-party contractor and the decline in International gross margin percentage for the reasons noted above. Gross margin as a percentage of revenue (excluding reimbursables) declined to 24% in the fourth quarter of 2011 compared to 33% in the fourth quarter of 2010 as improvements in Canada and US land operations were offset by a decline in International operations and the weight of Trinidad's low margin front-end operations. Offshore maintained a similar gross margin percentage to that recognized in the comparative quarter.
The Company's EBITDA in the fourth quarter of 2011 improved over the EBITDA in the fourth quarter of 2010 due to the growth in absolute gross margin along with reduced general and administrative costs associated with a reduction in bonus accruals.
The Company's working capital decreased $1.5 million during the quarter to $10.4 million. Operating cash flows during the quarter and net cash on hand contributed to fund working capital requirements for the Canadian winter season and $4.9 million of capital expenditures.
Total long-term borrowings were reduced by $2.2 million during the quarter to $29.1 million. Long-term debt was reduced by $1.5 million and regular payments were made on outstanding finance leases.
Shareholders' equity increased $0.3 million to $58.0 million during the quarter as earnings during the quarter were partially offset by a reduction in accumulated other comprehensive income as a result of the strengthening of the Canadian dollar against the base currencies of the Company's foreign subsidiaries.
2011 Financial Results:
The Company's consolidated revenues including reimbursables increased 91% in 2011 compared to 2010. North American land operations were the main driver behind the improvement with a sharp increase in activity in Canada during the first four months of 2011 with a focus on 3C acquisition in the oil sands and shale plays. There was a significant increase in US activity during the second half of 2011 and a benefit from the start-up of Tesla Trinidad's operations. These increased activity levels also led to a corresponding increase in third-party contractor revenues. International revenues decreased against the comparative period with reduced utilization of crews during the second quarter of 2011 due to delays in project start-ups in eastern Africa. The continued impact of the Macondo oil spill and resulting lease sale cancelations has reduced Tesla Offshore's activity levels in the Gulf of Mexico from those experienced in 2010. The Company's revenue excluding reimbursables increased 60%.
Gross margin showed continued growth in 2011 compared to 2010. The Company had significant improvements in gross margin in Canada due to the sharp increase in first quarter activity and a greater weighting of higher margin 3D/3C work. This major improvement in Canada, along with increases in US land operations, more than offset the declines in International and Offshore gross margins. International gross margins were negatively impacted by the reduced utilization of crews in east Africa and the competitive nature of bids in the region along with the poor results on the mobilization and early phase of the DRC lake project in late 2011. Offshore gross margins fell in line with reduced activity levels and the increased competition for a small number of projects in the Gulf of Mexico. Gross margin as a percentage of total revenue (including reimbursables) decreased to 18% in 2011 from 28% in 2010 due to the significant increase in flow-through reimbursables associated with Canada and US land acquisition revenues and the low margin nature of the front-end phase of the Trinidad operations being conducted mainly by a third-party contractor. Gross margin as a percentage of revenue (excluding reimbursables) declined to 25% in 2011 compared to 32% in 2010 as improvements in Canada and US land operations were more than offset by declines in International and Offshore operations and the weight of Trinidad's low margin front-end operations.
The Company's EBITDA also continued to improve in 2011 compared to 2010 due to the growth in absolute gross margin and a decline in general and administrative costs. The Company's consolidated net income in 2011 was a significant improvement over the consolidated net loss incurred in 2010 which also benefitted from a $4.4 million gain on the Norex acquisition.
The Company's working capital increased $2.9 million during the year to $10.4 million. Operating cash flows during the year and net cash on hand contributed to fund increased working capital requirements in Canada, the US and Trinidad and $8.6 million of capital expenditures.
Total long-term borrowings were reduced by $6.8 million during the year to $29.1 million. Long-term debt was reduced by $6.4 million. Finance lease obligations were reduced by $0.4 million during the year as regular payments on outstanding finance leases totalling $4.5 million more than offset additional lease financing for the acquisition of 3,000 stations of 3C recording equipment and certain vehicles during the year. At December 31, 2011, the Company had $27.2 million of unused committed bank credit and lease facilities.
Shareholders' equity increased $2.5 million to $58.0 million during the year due to earnings generated, an increase in contributed surplus relating to share-based payment charges and growth in accumulated other comprehensive income with the weakening of the Canadian dollar against the base currencies of the Company's foreign subsidiaries.
North America Land Operations
Activity levels in Canada continue to be driven by the large number of operators in the oil sands and shale plays. Strong demand has allowed the Company to operate eight crews from the beginning of January 2012 with almost all crews booked through the end of March at improved rates from the previous winter. The Company's equipment, including 13,000 3C stations, has been fully utilized during this period. With additional rental equipment, the Company is operating approximately 100,000 channels in Canada this winter. The size of crews in terms of equipment and personnel employed continues to grow and has created personnel shortages and increased costs throughout the industry as competition for certain skill sets increases. The Company was able to secure the necessary personnel to support its winter operations despite initial shortfalls in early January. The warm weather this winter has created issues with equipment as the constant thawing and freezing cycle traps cables in ice causing damage and negatively impacts production. A limited amount of winter work will extend into April this year. Low natural gas prices will continue to limit exploration activity during the summer months although there are signs of an improvement over last summer. The Company expects to operate one crew periodically during May and June with a second crew operational during the third quarter with activity in both western and eastern Canada.
In the US, the Company has operated three crews during most of the first quarter of 2011, with most programs operating wireless systems. Activity levels will decline at the end of the first quarter with one or two crews operating periodically throughout the summer. With the low natural gas price, the Company continues to see a rise in activity levels in oil and liquids rich shale plays such as the Bakken, Utica (Eastern Ohio) and Marcellus (Pennsylvania and West Virginia). Activity is expected to increase in the Denver-Julesburg ("DJ") Basin at the end of the second quarter. Pricing of services continues to be the driving factor in this market with improvements in utilization rates increasing due to requirements for higher channel counts and third-party multi-client programs driving the demand for services.
The project in Trinidad is progressing slower than expected. Planned production levels for front-end operations were slightly behind plan due to the impact of continued weather delays and the challenges of the difficult terrain in which the project is based. The recording phase was set to begin in late November but was delayed for a period of stand-down for prolonged wet weather throughout December and early January on a cost recovery basis. Front-end work, including survey, line clearance and drilling, reached completion in February. Recording commenced in mid-January with offshore support commencing in early February and is expected to continue into April due to continued weather and vandalism delays, both of which are covered by standby charges allowing for cost recovery. Margins were limited in 2011 during the front-end phase of operations which were completed mostly by a third-party contractor. However, the Company expects to realize planned margins on the recording phase of operations along with turnkey margin as the project reaches completion. The turnkey margin will likely be at a reduced level than originally planned due to the delays in the project and resulting cost overruns. Tesla is working with its operating partners in Trinidad and other nearby countries in an attempt to secure future work in the region.
Tesla International completed the first phase of a transition zone ("TZ") project on Lake Albert in the DRC in early 2012 and has since commenced the second phase of the project consisting of an additional 200 kilometres. Production levels on the second phase have improved significantly from the challenges encountered early in the first phase of the project and margins are expected to improve. There remains significant interest in the lake zones of the Rift Valley with Tesla International well placed to exploit the TZ acquisition opportunities in the area. As such the TZ crew is expected to remain busy during the remainder of 2012.
The UK and European crew has seen a sustained demand for acquisition services in both the hydrocarbon and minerals sectors. Indicators suggest that this demand will be maintained, and potentially increased during 2012, offering potential for further growth to Tesla International's operations in this area. This crew continues to be fully utilized and has secured projects that will see it continue work through to the end of the third quarter of 2012 on projects throughout the UK and Europe.
Tesla International is also in the final stages of moving equipment from northern Ethiopia to a Duty Free Zone in order to facilitate efficient remobilization following the successful completion of a project in the region. The Company will maintain a presence in Ethiopia and is currently pursuing projects in Ethiopia and surrounding areas.
Bid activity remains busy with a multitude of prospective work programs in the UK and Europe. Key areas of East Africa are expected to see a return to greater activity following political stabilisation and the interest of some of the major operators in developing their activities in the area. Tesla International expects to be successful in obtaining additional work from both of these opportunities and from exploiting some potential new areas of activity to extend its current backlog.
The UK technical services office remains steady with a number of processing and interpretation projects recently awarded and underway with full utilization of capacity expected to continue. The Jakarta processing office continues to face increased competition and lower processing prices, but has several projects underway and additional opportunities continue to be pursued to maintain backlog.
The western Gulf of Mexico lease sale took place on December 14, 2011. While this is not a significant lease sale historically, it did start the reactivation process for activity in the Gulf of Mexico. The more significant central and eastern Gulf of Mexico lease sale has now been scheduled for June 20, 2012. This is positive news for Tesla Offshore. New lease sales should lead to an increase in geophysical operations as operators will require geophysical surveys for the purpose of securing drilling permits and evaluating new lease properties. The drilling moratorium has now been lifted and operators report that drilling permit approvals on existing leases are moving forward, albeit slowly.
While geophysical operations remain slow during the winter months, Tesla Offshore has managed to generate several deep tow projects during the first quarter of 2012. Construction activity has also slowed down considerably and will stay that way until spring when special projects will resume.
Tesla Offshore has increased the number of project tender responses and the amount of attention and effort put toward opportunities outside the Gulf of Mexico. Tesla Offshore recently completed a project in Israel, is currently supporting Tesla Trinidad's operations through the first quarter of 2012 and has secured a multi-year project in Alaska. As long-term clients expand into these and other areas, Tesla Offshore is configuring systems and staff to profitably provide services to support their operations.
Tesla Offshore joined the multi-district litigation claim as a moratorium affected claimant for damages suffered as a result of the Macondo oil spill. Moratorium claims were not covered by the recently announced settlement proposal and will be the subject of future litigation. The amount of compensation and timing of claim settlement is unknown at this time.
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 twelve months ended December 31, 2011.
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, internationally through its wholly owned subsidiaries Tesla Exploration International Ltd. and Tesla Exploration Trinidad Ltd., and in the United States through Tesla Exploration Inc. and Tesla Offshore LLC. Since the Company's inception in 2000, Tesla has grown both organically and through acquisitions funded by retained earnings and prudent levels of borrowing, from a Canadian focused land seismic business to a global provider of a broad suite of geophysical and related services. Tesla trades on the TSX under the symbol "TXL".