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QIS Update #26 2014 - August 29th 2014



Included in this update:

  • Blackbird Energy sees spike in trading volume and share price
  • Dalmac Energy reports year-end 2014 financial results
  • Newlox Gold announces first quarter financial results
  • QUATTRO Exploration announces record second quarter financial and operating results

 


 

Hope everyone has enjoyed their summer which has come to an end way too quickly. Small-cap stocks really struggled this summer with a lack of liquidity and general selling pressure. That’s not unusual for small-cap stocks but after a great start to 2014, I guess it made the slow-down seem all that more pronounced. September-November are usually much busier and we look forward to a return to higher trading volumes and hopefully some more interest in some of the fundamental companies we currently follow.


The next dates and locations for The Small-Cap Conference are set for October 7, 2014 in Calgary and November 6, 2014 in Vancouver. We are currently booking companies for presentation times and we are always looking for new and exciting companies. If you have a company that may want to participate please contact us as soon as possible to reserve the best speaking times.


Registration is now open and investors can sign up to attend the event at www.smallcapconference.ca. Alternatively, you can email us to sign up at register@smallcapconference.ca. As always, it is free to attend for investors.


We are pleased with the performance of Tuscany Energy Ltd. (TUS:TSX-V) which we issued an independent report on last week prior to the latest financial and operating results. The full report can be found in the Research section of the website. We will be updating this report in the next week with the latest financial results.


Finally, the Trading Summary Portfolio has had a good lift recently with the rally in Blackbird Energy’s shares. The portfolio will be updated after trading hours today but it’s currently sitting at a gain of over 112% for the last 2 years. Recent trading activity and the portfolio can be viewed in the Trading Summary section of the website.


Please feel free to email us anytime at info@smallcaps.ca or call us at (250) 377-1182. We look forward to your comments, questions, and feedback.

 


 

Blackbird Energy Inc. (BBI:TSX-V)
Website: www.blackbirdenergyinc.com

Current Price: $0.32 (coverage commenced Aug 19/11 - $0.18)


Blackbird’s shares have been showing significant gains in the past week. The increase in volumes and share price followed an announcement by NuVista Energy Ltd. (TSX:NVA) that it had signed a definitive purchase and sale agreement with a third party to purchase 12.5 gross sections (12.0 net) of highly prospective Wapiti Montney contiguous undeveloped land for $35 million before closing adjustments. NuVista plans to drill up to two wells on this block in 2015.


Blackbird CEO Garth Braun noted that these new NuVista lands are directly west of Blackbird’s lands. Blackbird’s Elmworth land position is 32 net sections (20,480 net acres).




 

Dalmac Energy Inc. (DAL:TSX-V)
Website: www.dalmacenergy.com
Current Price: $0.36 (coverage commenced Nov 15/11 - $0.37)


Dalmac Energy Inc. has released fourth-quarter and annual financial results for the fiscal year ended April 30, 2014.

Fourth-quarter and annual financial highlights:


  • EBITDA (earnings before interest, taxes, depreciation and amortization) increases 83 per cent to $2.1-million for fourth-quarter 2014.
  • Non-recurring adjustments concerning equipment lease expenses decrease net income by $1.6-million.
  • Two thousand fourteen revenue was down by $4.0-million due to the cancellation of committed drilling programs by a key customer.
  • Dalmac hired a new chief financial officer.
  • Over $175,000 was spent on modern information-technology system development, designed to reduce costs.
  •  

     

    LATEST FINANCIAL RESULTS (000s)
      3 Mos. Ended Apr. 30 12 Mos. Ended Apr. 30
      2014 2013 2014 2013
    Revenues $9,923 $11,476 $37,132 $41,304
    Gross Margin 1,954 2,535 8,577 10,504
    EBITDAS 2,074 1,130 5,131 5,222
    Net Income (710) (30) (520) 1,512
    per share $(0.03) $(0.00) $(0.02) $0.07

     

     

    BALANCE SHEET
    (as at Apr. 30, 2014)
    Current Assets $ 10,394,610
    Total Assets 33,042,968
    Current Liabilities 4,322,063
    Long-Term Debt 12,633,330
    Shareholders' Equity 13,179,551

     

     

    Revenue for 2014 came in at $37-million, which represents a decrease of about 10 per cent or $4.1-million from the previous year. Fiscal 2014 was weighed down by factors such as a slower-than-expected first quarter and a lower-than-normal utilization of well servicing equipment. As stated in earlier management's discussion and analyses, this year's first-quarter operations were hampered by rainy and wet seasonal conditions, which resulted in the cancellation of many work projects. The latter issue, which concerns the lower-than-expected well service equipment utilizations, is attributed to a late cancellation of committed drilling projects by one of the company's main customers. Given that the bookings for drilling and completion work were made months in advance, this late cancellation resulted in lost opportunities for bidding on other drilling and completion projects. This decrease in service revenue also affected fourth-quarter 2014, which was down 14 per cent or $1.5-million in comparison with the same quarter last year. Responding to this development, Dalmac has redressed its handling of committed equipment contracts by making provisions for non-performance in the event a similar situation arises.


    Gross margin as a percentage for 2014 was 23 per cent compared with 25 per cent for 2013. The decline is a direct result of non-recurring lease payments expensed in the amount of $1.6-million in 2014 related to operating lease agreements entered into by the company in 2013. During fourth-quarter 2014 the company exercised the buyout clause of these lease agreements as the buyout amount was at a significant discount to fair value. Even after factoring in new finance costs, the decision to exercise the buyout resulted in a further monthly cash savings of about $100,000 by eliminating the lease payments. Other factors impacting the gross margin in 2014 were rising fuel and maintenance costs.


    Net income in 2014 was impacted by $1.6-million in non-reoccurring lease payment expenses, referenced earlier in the gross margin section of this management's discussion and analysis, which resulted in a net loss of $520,000 as compared with a net income of $1.5-million in the previous year.


    EBITDA for the fourth quarter improved by an impressive 83 per cent to $2.1-million, as compared with the same period last year. Year-end EBITDA dropped marginally by 2 per cent to $5.1-million as compared with 2013. Had it not been for the rough start to the beginning of the year and the cancellation of seasonal drilling programs by one of the company's key customers, EBITDA would have been in the proximity of record levels.


    In May of 2014, Dalmac's chief financial officer resigned for personal reasons. On Aug. 22, 2014, the company announced the hiring of Jonathan Gallo, CA, MBA, as its new chief financial officer and released a news release on the same date.


    Also as part of its continuous improvement process, Dalmac has invested over $175,000 in the development and implementation of a modern IT system, which is part and parcel of the process control system for dispatching, fleet management and tracking, invoicing, and journey management. Management feels that this system will enable the company to operate more efficiently and effectively and will enable it to reduce costs and improve profits and revenues.


    Outlook


    Dalmac remains optimistic looking forward as rig counts are projected to continue to improve over the remainder of 2014 and into 2015. Confidence in the Canadian oil and gas market is further illustrated through the approximately $15-billion worth of mergers and acquisitions in the first six months of 2014 as compared with $12.4-billion during all of 2013. The driving factor for all of this activity is mainly the increased interest in the shale oil and gas plays.

     

    Dalmac's focus for the remainder of 2014 will be on continued productivity improvements, such as the implementation of a new computerized dispatching and invoicing system. Not only will these improvements aid in streamlining labour costs, optimize equipment deployment, monitor and expedite improvements in fleet operations and maintenance, but they will also shed more light as to how to better utilize excess capacity. Management feels these processes will not only help lower operating costs but will also afford Dalmac the opportunity to better position itself for increased growth and profitability in fiscal 2015.


    QIS Capital: Dalmac has had many challenges this year and the latest one-time leasing costs came as a surprise but hopefully is the end of the disappointment and the start to what should be a pretty good year. The one-time leasing costs totaled $1.6 million which had a significant impact on fiscal 2014 earnings. This is a non-cash expense which was required by the auditors to account for the buyout of leased equipment. While it created unfavourable circumstances on the income statement, Dalmac actually acquired the equipment at well below market value and should further result in lease cost savings of $100K/mth going forward. It’s also important to point out that the leased assets acquired are also now being carried on the balance sheet at a book value which is well below market value. If this equipment is ever sold, this could result in a significant gain on disposition.


    Last year Dalmac started with a disappointing Q1 due to a very wet spring, which put the company well behind the 8-bal. On an annual earnings basis, the company was never able to overcome this slow start. We are hoping for a much stronger start this year as the weather has been more favourable. We are also watching for savings from the fleet tracker software which is being implemented at Dalmac and which previously was forecasted to save the company around $1 million per year. If everything comes together, and pending we don’t have any further major one-time events, it should finally be a pretty good year for Dalmac.




     

    Newlox Gold Ventures Corp. (LUX:CSE)
    Website: www.newloxgold.com
    Current Price: $0.04 (coverage commenced March 31/14 - $0.05)


    Newlox Gold Ventures yesterday announced first quarter financial results. On a positive note was the income from trading activity which brought the company to just shy of break-even. This should continue to improve in Q2 and going forward as trading sales have ramped up and we will begin to get financial contribution from the mill operations as well. Despite an abundance of new opportunities, expansion plans will likely be slower than anticipated due to constrained capital finances. The company is hoping to complete a private placement but there is very little if any money flowing into the junior sector at this time. In the meantime, Newlox will have to live within its cash flow as it begins to produce earnings from its operations. Any investors who are interested in the financing being offered by Newlox Gold Ventures should contact us by email or phone.




     

    QUATTRO Exploration and Production Ltd. (QXP:TSX-V)
    Website: www.qxp-petro.com
    Current Price: $0.61 (coverage commenced Mar. 24/14 - $0.32)


    Quattro Exploration and Production Ltd. has released its operating and financial results for the three and six months ending June 30, 2014, with record earnings and operating results.


    Highlights:


  • Revenues for the six months ending June 30, 2014, were $8,832,600;
  • Income from operations in the first half of 2014 was $4,588,200, a netback of $18.36 per barrel of oil equivalent;
  • Earnings from operations for the six-month period were seven cents per share;
  • Low-decline stabilized production averaging 1,525 barrels of oil equivalent per day for the three months ending June 30, 2014.
  • $50-million capital budget starting with one (net) exploration well and four (net) development wells in the second half.
  •  

    Financial update:


  • In the first half of 2014, EBITDA (earnings before interest, taxes, depreciation and amortization) of 13 cents per share or $4,636,500;
  • Six-month net and comprehensive income of 11 cents per share or $3,801,300;
  • Current assets (net of assets held for sale) of $7,806,500;
  • Working capital of $5,325,900;
  • Net debt (excluding decommissioning liabilities) of $2,554,100.
  •  

    The company's diversified production portfolio showed its strengths in the second quarter ending June 30, 2014, despite three to nine days of facilities maintenance and periodic reductions in service for pipeline inspections by TransCanada Pipelines Ltd. in Alberta. Quattro's average production, although a record for the company, was restricted to 1,525 barrels of oil equivalent per day for the three months ending June 30, 2014.


    The company's Donalda acquisition was closed on June 9, 2014, with closing including the request by the seller to have more time for the completion of the transfer and tie-in of production to Quattro's facilities. The operational logistics, upon the request being made, were rescheduled with the tie-in being rescheduled to be completed on Sept. 1. The company is now operating the properties but remediation plans and consolidation activities have been limited in this area until the tie-in process has been completed, a part of Quattro's plan to reach the next milestone of 2,000 barrels of oil equivalent per day.


    During the three months ended June 30, 2014, Quattro's cash flow from operations was $1,576,819 and the company's EBITDA was $2,671,200. Although a non-international financial reporting standards accounting term, the company believes EBITDA provides further guidance of funds flowing from operations for Quattro, and provides investors an opportunity to understand the company's growing capacity to finance its consolidation activities, operations, production growth and exploration activities. Each effort is a part of its year-end target of 2,500 barrels of oil equivalent per day.


    President and chief executive officer Leonard Van Betuw commented: "The second quarter illustrates a number of Quattro's inherent strengths, including our capacity to be operationally conservative within the context of an aggressive growth plan. As the company continues to advance its business plan, with an envious portfolio of opportunities within over 600,000 (net) acres of producing and exploratory lands, control and balance is and will remain ingrained in our corporate culture. This approach insures that we will be able to monetize our high-impact growth for many years to come, beyond what has already been a record year.


    "As of June 30 the company has grown shareholder equity by over 500 per cent in 12 months to $20.2-million or 58 cents per share and production growth in the past six months by over 400 per cent to 1,525 barrels of oil equivalent per day, all while maintaining $5.3-million in working capital and a net debt to cash flow ratio of less than 0.25:1. This positions Quattro to further enhance our growth through the commencement of our $50-million, three-year capital program through a combination of development and exploratory drilling."


    Quattro commenced operations in July for its first exploration well which will be operated by Quattro. The 100-per-cent well in Southern Saskatchewan at Wood Mountain was surveyed in July with the licence being issued in early August. Located within the company's contiguous 110,000-acre parcel, 55,000 acres (net) in the Williston basin, the well is targeted to evaluate a number of producing formations, the Shaunavon, Madison, Bakken, Birdbear and Duperow. The Birdbear and Duperow have been deemed exploratory in nature by the company, while the Shaunavon, Madison and Bakken horizons are being evaluated to further support continuing development plans that are based on logged oil shows from two wells within the company's lands drilled in the 1950s, as well as current seismic and gravity data collected by Quattro.


    The company is balancing its efforts in Saskatchewan with four initial wells that are scheduled to be drilled at McMullen, Alta., on a 100-per-cent basis, completed and on production by December of 2014. Quattro, based on these initial results, will be scheduling 10 to 12 (net) additional development wells within its core properties in the following six months, with all of them scheduled to be on production by June 30, 2015.


    The company’s complete financial statements and MD&A are available on the SEDAR website at www.sedar.com.

     


    FINANCIAL & PRODUCTION (000’s)
      3 months ended Jun. 30 6 months ended Jun. 30
      2014 2013 2014 2013
     
    FINANCIAL
    Revenues $4,447 $272 $8,599 $479
    Cash Flow 1,577 (55) 3,391 (343)
    per share $0.046 $(0.002) $0.10 $(0.01)
    Net Income 632 (100) 3,801 170
    per share $0.019 $(0.003) $0.11 $0.01
    PRODUCTION
    Nat. Gas (mcf/d) 7,062 1,016 6,387 864
    Oil & NGLs (bpd) 300 300 0 0
    Boepd (6:1) 1,525 169 1,412 144



    BALANCE SHEET
    (as at June 30, 2014)
    Current Assets $ 3,077,017
    Total Assets 53,736,493
    Current Liabilities 4,623,618
    Long-Term Debt 7,650,000
    Shareholders' Equity 20,238,952

     

     

    QIS Capital: Quattro was able to meet its production forecast of 1,500 boe/d for the second quarter and is projecting to reach 2,500 boe/d by the end of 2014. The company has maintained a strong balance sheet with debt, net of working capital, of less than one-quarter of projected annual cash flow. Cash flow now appears to be on track for $8 to $9 million in 2014 resulting in projected cash flow per share of $0.23-$0.26 ($0.18-$0.20 fully diluted). Quattro’s shares are currently trading at less than 2.5X cash flow (3.2X fully diluted).



     

    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 199,000 shares, 350,000 options, and 706,348 warrants of Blackbird Energy Corp., 89,500 shares and 100,000 options of Dalmac Energy Inc., 877,000 shares of Newlox Gold Ventures Corp., and 60,000 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.

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