Tesla Reports 2015 Second Quarter Results and Credit Facility Update

Symbol: TXL
Stock Exchange: TSX

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

(000s, except per share data)				Three months ended			Six months ended
(unaudited)				June 30,			June 30,
				2015	2014	Change	2015	2014	Change
				$	$	%	$	$	%
Revenue				18,175	24,630	(26)	44,364	86,123	(48)
Revenue excluding reimbursables				16,134	22,398	(28)	39,577	72,382	(45)
Gross margin^1				2,979	3,644	(18)	8,330	19,968	(58)
As a % of revenue excluding reimbursables				18%	16%		21%	28%
Net earnings (loss)				(8,795)	(7,002)	(26)	(23,506)	(3,873)	n/m
	Per share - basic			(0.40)	(0.32)	(25)	(1.07)	(0.17)	n/m
Adjusted EBITDA^2				(1,374)	(2,039)	(33)	(1,357)	8,018	n/m
	Per share - basic			(0.06)	(0.09)	(33)	(0.06)	0.36	n/m
Cash flow from (used in) operations				(1,510)	(1,078)	40	(1,702)	6,264	n/m
	Per share - basic			(0.07)	(0.05)	38	(0.08)	0.28	n/m
Weighted average shares outstanding for the period - basic				21,891	22,210	(1)	21,891	22,300	(2)
Capital expenditures				530	2,643	(80)	1,003	18,853	(95)
As at							June 30,	December 31,
							2015	2014	Change
							$	$	%
Working capital^3							(28,987)	(3,406)	751
Total assets							100,206	117,119	(14)
Total long-term borrowings^4							37,140	35,971	3
Equity							35,824	56,383	(36)

1. Gross margin is defined as gross profit before depreciation and amortization.  Gross margin is a measure that does not have a meaning prescribed under IFRS in Canada and accordingly, may not be comparable to similar measures used by other companies.

2. Adjusted EBITDA is defined as income before interest, taxes, depreciation, amortization and impairments, gains or losses on foreign exchange, gains or losses on sales of capital assets, bad debt provisions and stock-based compensation. Adjusted EBITDA and Adjusted EBITDA per share are presented because they are frequently used by securities analysts and others for evaluating companies and their ability to service debt.  Adjusted EBITDA is a measure that does not have any standardized meaning prescribed under IFRS in Canada and accordingly, may not be comparable to similar measures used by other companies. The Company is consistent with its calculation of Adjusted EBITDA year-over-year.

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

4. Includes capital lease obligations and long-term debt, including current portions.

2015 Second Quarter Highlights

• Tesla continues to report as a going concern. On August 10, 2015 the Company received a non-binding offer from its lender detailing proposed terms for a revised credit facility. This facility, which is subject to final negotiation and approval by the Company and its lender, would allow the Company to continue operations through June 30, 2016 and helps to shape a successful strategy for a return to profitability.
  
  
• Tesla generated $3.0 million of gross margin on $18.2 million of revenues resulting in negative Adjusted EBITDA of ($1.4) million and a net loss of ($8.8) million during the second quarter of 2015. Tesla International reported an increase in revenue during the quarter while Tesla Canada, Tesla USA and Tesla Offshore all experienced declines in activity during the quarter.
  
  
• Tesla Canada had 1 crew operational during the seasonally slow second quarter of 2015 using the Company's multi-component wireless acquisition system ("Hawk").
  
  
• Tesla Canada completed advance work and mobilization for several other Hawk programs heading into the third quarter of 2015.
  
  
• Tesla USA supported multiple microseismic monitoring projects during the second quarter of 2015 and commenced advance work for a significant program for the third quarter.
  
  
• Tesla International generated significant marine and land acquisition revenues for its multi-source program in Ethiopia.
  
  
• Tesla International commenced mobilization for its large three-dimensional ("3D") program in the UK which will begin recording in the third quarter of 2015.
  
  
• Tesla Offshore's Bluefin Autonomous Underwater Vehicle ("AUV") underwent extensive testing and optimization with the manufacturer in Boston and Bermuda under the supervision of the Company's technical team. The system is being returned to the Company and is expected to resume operations in August.
  
  
• Tesla Offshore has secured backlog for the AUV with operations scheduled throughout the rest of the year. Tesla Offshore also completed numerous geophysical, trawling and positioning projects in the quarter.
  
  
• The Company continues to actively manage its cost structure and overheads in an attempt to remain competitive in this difficult market, while retaining key employees and providing opportunities for future operational and financial success. The Company continues to make a concerted effort to optimize field crew size and operational practices. In addition, the Company has significantly reduced planned capital spending for 2015.
  
  
• 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.

Second Quarter Financial Results

The Company's consolidated revenues including reimbursables decreased 26% to $18.2 million in the second quarter of 2015 compared to $24.6 million in the second quarter of 2014. The Company's revenue excluding reimbursables decreased 28% to $16.1 million from $22.4 million for the same periods. Tesla experienced significant declines in activity levels across Canada and the US, and a slight increase in activity in its International division, resulting in a significant drop in revenues. The Company's gross margin declined to $3.0 million in the second quarter of 2015 compared to $3.6 million in the second quarter of 2014 due to the reduction in revenues partially offset by a 1% increase in gross margin percentage including reimbursables to 16% from 15% in 2014 (2% increase excluding reimbursables to 18% from 16%). Despite lower revenues and pricing pressures for the Company's services, margins increased due to the effect of cost cutting initiatives implemented during 2015. Tesla International's margin was adversely affected by a lack of recording revenue for its UK crew which was idle for most of the quarter, a result of permitting challenges due to local government resistance to hydrocarbon energy development in many parts of the country. The crew in Ethiopia completed its mobilization and started acquisition activities during the quarter. Initially equipment and personnel challenges hampered production; however, performance improved significantly during the quarter with excellent results achieved in June. Reimbursable revenues declined due to a large decrease in front-end work undertaken by Tesla Canada, Tesla USA and Tesla International related to the overall decrease in activity. Tesla Offshore's margin improved due to a better gross margin percentage resulting from improvements in direct overheads.

The second quarter is traditionally much slower for Tesla Canada with lower levels of activity throughout the industry due to spring break up. Acquisition revenues declined from the comparative quarter with decrease in activity days to 13 from 58 in the second quarter of 2014 as clients cancelled or postponed exploration programs due to the continued low commodity price environment. The Company operated just one crew for part of June. Prices remained low as clients continue to request discounts for the limited amount of available activity in the spring and summer months and the resulting increase in 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, the increased efficiency with this system has not seen a corresponding increase in revenue and margin as jobs have shortened in length creating gaps in scheduling where the Company must maintain a crew without generating revenue. 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 as companies focus on completion and production efficiencies resulting in an even greater 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 several microseismic monitoring projects as well as advance work for a significant upcoming program scheduled to begin recording in the third quarter. In total, Tesla USA had 154 activity days compared to 52 in the comparative quarter. In the second quarter of 2014, Tesla USA operated one Hawk crew for over half of the quarter on large 3D programs which generated significantly more revenue per day than the smaller microseismic monitoring projects that make up much of the division's current activity. Tesla USA's gross margin decreased with the decline in operating revenues and lower profit margins on the smaller scale microseismic programs.

Tesla International's revenues increased slightly over the comparative quarter. During the second quarter of 2015, revenues were generated from the division's large multi-source program in Ethiopia. The Company completed mobilization activity during the quarter and the majority of marine and land acquisition activity. Acquisition activity has continued through July and is scheduled to be completed by the end of August. The Company is pursuing additional projects in the region to follow closely the completion of the ongoing work.  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 August. During the second quarter of 2014, revenues were generated mainly from two projects, a land project in Kenya as well as a marine project in the Democratic Republic of the Congo (the "DRC").

Tesla Offshore's revenue declined during the second quarter of 2015 compared to the second quarter of 2014. Geophysical revenues decreased significantly quarter-over-quarter as the Company's AUV was demobilized and unable to generate any revenue. In addition, the low commodity price environment saw reduced exploration activity during what is traditionally a very strong quarter for the division. While the AUV has been demobilized, the Company's owned vessel serviced a limited number of lump sum and day rate projects during the quarter for 40 days of activity vs 137 in the comparative quarter. The construction division continues to be hampered by a weak market for positioning and trawling services even during the usually more active summer months. In the second quarter of 2015 there were 198 activity days in the construction division compared to 290 in the second quarter of 2014.

The Company had negative Adjusted EBITDA of ($1.4) million (($0.06) per share) in the second quarter of 2015 compared to negative Adjusted EBITDA of ($2.0) million (($0.09) per share) in the second quarter of 2014. The improvement was due to a decrease in general and administrative costs excluding bad debt expense quarter-over-quarter. The decrease in general and administrative costs was a result of cost cutting initiatives across the Company. This was partially offset by a decrease in absolute gross margin for the market and operation reasons noted above.

The Company had a consolidated net loss of ($8.8) million (($0.40) per share) in the second quarter of 2015 compared with a consolidated net loss of ($7.0) million (($0.32) per share) in the second quarter of 2014. The increase in consolidated net loss was due to the above noted decline in operating results.

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 August 2015. 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 maintains a backlog that provides the Company with opportunities for success over the remainder of 2015 and the first half of 2016. Tesla continues to look for ways to improve its profitability, expand its service offerings and the geographical areas in which it operates. In an attempt to adapt to the current economic environment, Tesla has, and continues to reduce overheads across all divisions. These measures include layoffs of field and administrative personnel, salary rollbacks, suspension of the Company's RRSP/401k matching program, reduction of director fees as well as a concerted effort to optimize field crew size and operational practices. In addition, the Company has significantly reduced planned capital spending for 2015 and the first half of 2016. The Company has continued to receive support for a renegotiated credit facility agreement from its lender and believes it will have a new facility in place before the end of the third quarter of 2015.

North America Land Operations
In Canada, there is cause for optimism in the outlook for the remainder of 2015 as many of the Company's legacy clients have committed to significant projects starting late in the fourth quarter which should provide significant activity throughout the winter season. The Company has also seen an increase in activity levels in the third quarter of 2015 compared to the prior year. Overall, there is a lesser volume of work available to bid than in recent years as the continued low value of West Texas Intermediate and Western Canadian Select benchmark oil prices has seen many upstream producers reduce their exploration budgets significantly. 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 certain US competitors are focusing more of their efforts in Canada. Competitors and equipment rental companies have provided an increased capacity in Canada for both single component and three component 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 Field Station Unit Hawk system in North America. The Company continues to focus on developing efficiencies with this system and with general crew size and field operations in order to remain competitive in terms of pricing for the limited programs available and to create the most value possible from the work secured.

The US seismic market remains weak with heavy competition for available projects as oil and gas companies focus on completions and existing production over exploration and associated seismic activity. Client budgets have been reallocated to enhance drilling and production operations which detrimentally affected scheduling of certain projects. This may be driven by a need to assess current land positions with consideration given to moving into deeper resource horizons. Additionally, anti-hydraulic fracturing groups have been gaining momentum in their ability to delay passage of legislation acceptable to industry and stakeholders. Pricing of services continues to be the driving factor in this competitive market with requirements for higher channel counts, wireless recording systems and third-party multi-client programs driving the demand for services. Activity levels are being focused on low cost oil and liquids rich shale plays such as the, Marcellus (western Pennsylvania and West Virginia), and Eagleford (south Texas) basins. Tesla USA has begun mobilizing for a large project in Pennsylvania during 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. Two projects with key clients of the Company remain tentatively scheduled for the fourth quarter of 2015 and the first half of 2016.

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

International Operations
Tesla International's UK and European crew has seen indication of sustained demand for acquisition services in both the hydrocarbon and renewables sectors both in the UK and mainland Europe. However, delays due to lack of government cooperation and permit challenges persist. This crew has a backlog of 2D and 3D programs that it is beginning to execute in the third quarter of 2015 and should see the crew active for much of the balance of 2015 and the first half of 2016.

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

The African crew is currently recording on a large land, transition zone and marine program in Ethiopia. This project will continue until the end of August. Several tenders are outstanding and the Company believes it will secure an additional project beginning in the fourth 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 as well as the results of the testing and optimization completed throughout the second quarter and early part of the third quarter. The Company now expects that the AUV will return to operation in August 2015 at a more efficient rate than was experienced in 2014. A significant backlog of work has been secured in its absence and the Company is hopeful that the AUV will see consistent activity over the next 12 months. The Company's owned vessel has begun making preparations to once again support the AUV as it returns to service. Other geophysical projects have been secured and will be completed using a chartered vessel during the remainder of the summer.

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 and six months ended June 30, 2015.

The information contained in this press release should not be considered all-inclusive as it excludes changes that may occur in general economic, political and environmental conditions. The Company cautions that actual performance will be affected by a number of factors, many of which are beyond its control. Investors are cautioned against attributing undue certainty to forward-looking statements. The forward-looking information and statements contained in this press release speak only as of the date hereof and, subject to its obligations under applicable law, the Company does not intend, and does not assume any obligation, to update these forward-looking statements if conditions or opinions should change.

About Tesla

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

SOURCE Tesla Exploration Ltd.

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