QIS Update #10 2014 - March 29th 2014
Included in this update:
- Dalmac Energy reports third quarter financial results
- Manado Gold expands financing
- NTG Clarity Networks awarded $2.97 million letter of intent
- QUATTRO Exploration and Production provides update on operations
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Dalmac Energy Inc. (DAL:TSX-V)
Current Price: $0.35 (coverage commenced Nov 15/11 - $0.37)
Dalmac Energy Inc. has announced its third quarter financial results for the three and nine month periods ended January 31, 2014.
Revenue for Q3'14 was $10.3 million which was about $1.3 million less than revenue reported in Q3'13. In the current quarter Dalmac addressed the streamlining of shift schedules and other procedure standardizations which helped reduce non billable and overtime costs that had adversely affected previous profit margins. Gross margin increased 3% to 27% and EBITDA was also up about 27% to $1.8 million. Net income before taxes was similarly up about 27% to $747,000 and after tax net income came in about $7,000 short of last year to close out at $578,000. Overall, results in Q3'14 were more in line with the company's historical averages and continued the improvement in margins and profitability seen in the last few quarters.
Western Alberta's energy sector witnessed a return to robust drilling and completions in late fall and continued until mid-December when it tapered off for the Christmas holidays. The drilling and completions season did not bounce back to pre mid-December levels until the third week of January. This was an unexpected delay which would have otherwise pushed Dalmac's revenues well ahead of last year's quarter and is borne out by the early reporting for February which is looking very strong.
|LATEST FINANCIAL RESULTS (000s)|
|3 Mos. Ended Jan. 31||9 Mos. Ended Jan. 31|
(as at Jan. 31, 2014)
|Current Assets||$ 11,704,233|
Expenses for the current quarter have decreased 5.5% to $2.0 million and this trend is expected to continue in the future. In January, Dalmac began implementing an electronic dispatching and invoicing system which is expected to significantly reduce operating costs and expenses. The full benefit of this computerization initiative will be felt over the course of the calendar year but savings are expected to be significant. It is management's expectations that this will help boost gross profit margins back into the 30's and drive down both operating costs and expenses. This program is expected to be fully implemented by the fall of 2014.
Dalmac's focus for the remainder of 2014 will be on productivity improvements such as streamlined administration, equipment optimization, and the elimination of excess capacity. From an industry perspective, the current prevailing global economic conditions along with the never ending saga of the pipeline capacities have muddied the waters for Canadian oil and gas exports. However, whatever vagueness there may be about the growth of the Canadian economy in 2014 is mitigated somewhat by a weaker Canadian dollar which serves as a positive indicator for increasing energy exports. Dalmac is confident that its experienced management team will deliver on its strategic actions to attract and retain skilled professional drivers and mechanics along with optimizing on the utilization of the company’s service equipment. This combined with Dalmac's focus on productivity enhancements will help lower operating costs and position the company for profitable growth in 2014.
QIS Capital: Dalmac appeared to turn the quarter in Q3 and posted before tax net income of $747K compared to $590K during the same period last year. Dalmac delayed much of its income tax last year to Q4 so after tax, the company’s earnings were comparable to the previous year at $578K. Furthermore, Dalmac stated that February revenues were strong and that the industry is expected to stay strong throughout Q4. During the earnings conference call, management indicated that the new fleet tracking software, which is anticipated to be fully implemented by Fall 2014, is expected to save the company $1 to $2 million in costs and is expected to boost margins back above 30%. Dalmac has had a challenging year in fiscal 2014, but a focus on cost cutting and cost control has again positioned the company in a stronger financial position. Dalmac currently has 23,197,406 shares outstanding.
Manado Gold Corp. (MDO:TSX-V)
Current Price: $0.08 (coverage commenced Dec. 6/13 - $0.065)
Manado Gold Corp. has announced that it has increased its proposed private placement offering from $200,000 to $250,000. As a result, Manado now plans to offer up to 5,000,000 units at a price of $0.05 per unit for gross proceeds of $250,000. Each Unit will continue to consist of one common share of Manado and one non-transferable share purchase warrant, with each warrant entitling the holder to purchase one additional common share at a price of $0.06 per common share for a period of three years following the closing date of the Offering.
The proceeds of the offering will be used for mineral exploration on Manado’s Tackla-Rainbow Property and working capital purposes. Closing of the proposed offering is subject to a number of conditions, including receipt of all necessary corporate and regulatory approvals, including approval of the TSX Venture Exchange.
QIS Capital: This financing will be closing shortly so this is the last opportunity for our investors to contact us if they wish to participate. The three year warrant at $0.06 is a long-term potential advantage should the mining industry continue to improve. The private placement is only available to accredited investors.
NTG Clarity Networks Inc. (NCI:TSX-V)
Current Price: $0.325 (coverage commenced Feb. 4/10 - $0.045)
NTG Clarity Networks Inc. has received a Letter of Intent from a leading mobile operator in the Gulf region to provide managed services, operation and support for NTG’s NTS installed products. This is a replacement of the DOU announced in September 2013 which was subsequently delayed. NTG commenced work on a portion of this LOI in the last quarter of 2013 and expects to book approximately 25% of the total revenue in the 2013 financials. The previous DOU has been replaced to better suit the needs of the customer at this time and NTG will continue to work to expand its services with this customer.
This $2.97 million LOI will cover the operations service and support of NTS Telecom in a Box and partner management portal-managed services until January 2015.
This is the confirmation of the finalization of one of the contracts mentioned in our shareholder update release on March 12, 2014.
QIS Capital: The last two weeks have been particularly challenging for shareholders in NTG Clarity despite a couple of announced LOIs. The company has announced two new LOIs since December as well as the LOI for the DOU which was announced back in September. These three LOIs combined total $7.8 million of which about $1.5 million will be booked in 2013 revenues. The company workbook for 2014 is growing quickly and is already nearing the total for revenues booked in 2013. As always, there are several agreements still in negotiation which will hopefully continue to add to these totals.
We have also had to answer several questions and concerns expressed over the announcing of LOIs. We have been instructed that these are binding agreements and are guaranteed by Export Development Canada as the majority of NTG Clarity’s revenues are. A LOI gives the company the opportunity to start work and when the purchase orders are received this gives the company the ability to send the invoice for work completed. As has been stated in the past few press releases, work has already commenced on these LOIs and invoices will be going out shortly. Business is conducted differently in the Middle East compared to what we are accustomed to in North America.
Lastly, there has also been concern raised over the upcoming restatement of financials. While investors typically don’t like seeing restatements, this can also be viewed positively as the Ontario Securities Commission, in relation to its investigation, went through everything NTG Clarity has done over the past several years and only found a few minor changes that have been announced. If the only thing they found was a typo and a few small changes, that provides some credibility to the remainder of the company’s operations, numbers, and reporting. The restated financials will be out on April 2nd and will not result in any changes to revenues nor earnings.
NTG Clarity has reported revenues of $7.4 million and earnings of $1.8 million or $0.057 per share for the 9 months ended September 30, 2013. Q4 and year-end results are expected to be released around the middle of April. The company has already stated that 2013 revenues will be around $10 million which is a 100% improvement over the prior year. NTG Clarity’s shares are currently trading at about 5 times trailing earnings.
QUATTRO Exploration and Production Ltd. (QXP:TSX-V)
Current Price: $0.38 (coverage commenced Mar. 24/14 - $0.32)
Milo-Clarke Lake, British Columbia
On March 24, 2014, Quattro closed the acquisition of 100% of Progress Energy Canada, Japex Montney Ltd. and Petroleum Brunei Montney Holdings Ltd's interests, including all wells, facilities and lands as outlined in the agreement as the Milo-Clarke Lake Region of British Columbia.
The effective date for the acquisition is February 1, 2014, which increases Quattro's production in the region by 900 mcf/d (net) bring Quattro's production at Milo-Clarke Lake up to 1,850 mcf/d (net). On closing, Quattro will become the Operator of Record for the facilities and the associated wells while increasing its ownership in the related facilities to 52%. The facilities are well-maintained, with a designed capacity of 20,000 mcf/d of compression, dehydration and treating. Quattro now holds a 48% operating interest in the wells which in February of 2014 averaged 3,850 mcf/d. The wells are long life in nature and have produced to date a total of 59.6 BCF of gas from the Slave/Pine Point formation and are located within Quattro's current developed and undeveloped land base. The purchase price was $750,000 plus GST, and the assumption of the associated decommissioning costs estimated to be approximately $680,000 (net) less further post-closing adjustments as would be normally associated with an acquisition of this nature, for a total cost of $1,430,000 or $9,530 per flowing boe/d. The acquisition was funded through the combination of cash on hand and current cash-flow.
Noel, British Columbia
Quattro would also like to announce the sale of its 80% interest in exploration lands located at Noel, BC to Nordic Oil and Gas Ltd. (NOG:TSX-V). In connection with the sale, Quattro acquires a 2.5% GORR on the lands and retains an option to convert to a 25% net operating interest at the casing point of the first well. The sale price was $300,000 paid by way of the issuance of a securitized Promissory Note for $100,000, due on or before December 2014, yielding 8% interest per annum and 4,000,000 units of Nordic, each Unit consisting of one (1) Class A common share of Nordic and 4,000,000 purchase warrants. Each Nordic Warrant is exercisable into one Nordic Share at a purchase price of $0.05 per share prior to March 20, 2016.
Quattro has also executed a binding letter of intent for the acquisition from a private Alberta based company of a combination of 1,000 mcf/d of natural gas along with the associated gathering and compression and spare equipment. The results will be, 1,000 mcf/d being added to Quattro's Donalda facilities and a 600 mcf/day (net) increase in production. The company also acquired certain additional lands, minerals rights and suspended wells along with the associated undeveloped land. The effective date of the acquisition will be February 1, 2014.
The acquisition adds additional flexibility and capacity to further increase production through reactivations in the region with the goal of bringing Quattro's Donalda production to greater than 3,000 mcf/d (net) in the 3rd quarter of 2014. Upon closing the company's developed land base at Donalda will be 44,465 acres (net) developed and 27,810 acres (net) of undeveloped lands.
The purchase price is $350,000 plus GST, and the assumption of the associated decommissioning costs estimated to be approximately $925,000 (net) with further post-closing adjustments as would be normally associated with an acquisition of this nature, for a total cost of $1,275,000 or $12,750 per flowing boe/d, which also includes all developed and undeveloped lands. The acquisition is being funded through a combination of cash on hand and current cash-flow. The transaction is scheduled to close on or before April 30, 2014.
Leonard Van Betuw, President and CEO commented, As we announced in our February 25, 2014 news release, these transactions are evidence of the execution of Quattro's continuing business plan involving the consolidation of its producing asset base and the consolidation of non-operating interests within the company's core areas, consisting of an extensive network of processing facilities and pipeline gathering systems. We have a very dedicated team at Quattro, and both the company and staff, are pleased with its progress in achieving its ambitious goals. The company continues to advance its remediation plans and with the addition of this 1,500 mcf/d announced today we are aggressively nearing our previously announced production and asset targets as set out for the first half of 2014.
The company is now the operator of record and has a greater than 65% ownership in 8 facilities. Quattro's operated facilities have a combined capacity of 12,000 boe/d (net). In Canada it continues Quattro's plan to concentrate on being a diversified and efficient operator of these facilities. The company's efforts are increasing both volumes and netbacks as we aggressively improve equipment utilization through optimization and consolidation as shown with the announcements made today. Quattro is pleased on how our strategy of developing a diversified, low-risk material growth plan in western Canada is advancing, while we continue our broader commitment to simultaneously improving our corporate value both in western Canada and Central America., added Mr. Van Betuw.
QIS Capital: We just commenced coverage of QUATTO Exploration earlier this week and we are in the final stages of our initial profile which will be published to the website shortly. With these acquisitions, the company is moving closer to its projected Q1 exit rate of 1,400 to 1,500 boe/d. We are expecting to receive the company’s Q4 financial and operating results in the next few weeks which will include the first quarter of impact from the significant acquisition completed in Q4.
Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The company profiled assumes no liability for the information presented. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. The author(s) owns directly or indirectly 114,500 shares and 200,000 options of Dalmac Energy Inc., 46,000 shares of Manado Cold Corp., 1,327,500 shares of NTG Clarity Networks Inc., and 52,000 shares of Quattro Exploration and Production Ltd. QIS Capital may have a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2014 QIS Capital Corporation.